Record-Breaking Performance

The Tanzania Revenue Authority (TRA) has delivered one of its strongest revenue performances in recent history, consistently surpassing collection targets and recording solid year-on-year growth. In the first half of the 2025/26 fiscal year (July to December 2025), TRA collected TSh 18.77 trillion, exceeding its target of TSh 18.10 trillion and achieving an overall efficiency of 103.7%. This performance represents a 13.6% increase compared to the same period in 2024/25, when collections stood at TSh 16.52 trillion.

Monthly Revenue Performance

What's Driving the Success

This strong performance is not accidental. It reflects improved tax administration, aggressive debt recovery, and enhanced compliance measures. Key achievements include:

• TSh 483 billion collected from tax arrears through enhanced debt recovery
• 42 out-of-court settlements worth TSh 9.04 billion
• Excise duties on domestic goods grew by 19.0%
• Import duties increased by 12.9%
• Revenue collection productivity improved by 14.1%
• Registered taxpayers increased by 7.3% to 7.68 million
• 2,094 new staff trained to strengthen institutional capacity

Over the medium term, the results are even more striking. Revenue collected in the first half of the fiscal year has more than doubled since 2020/21, rising from TSh 9.24 trillion to TSh 18.77 trillion, while TRA's operational efficiency improved from 77.48% to 85.71%.

The Fundamental Problem: Revenue vs. Expenditure Mismatch

Yet, despite these undeniable achievements, TRA's strong performance is still not enough to meet Tanzania's broader economic and development needs. The core challenge lies not in revenue administration, but in the mismatch between revenue growth and the scale of government expenditure requirements.

Persistent Budget Deficits

This structural gap has resulted in persistent budget deficits averaging 3 to 4% of GDP over the past decade, even in years of strong revenue performance. The consequences are significant:

The Debt Burden

To bridge this gap, the Government continues to rely on domestic and external borrowing, pushing public debt to about 42% of GDP by 2025. The implications are severe:

• Debt servicing alone now absorbs 20 to 25% of the national budget
• Interest payments in 2024/25 estimated at TSh 4.2 trillion, comparable to an entire month of peak TRA collections
• This growing debt burden directly reduces the fiscal space available for new development projects

Structural Economic Constraints

Tanzania's challenges extend beyond the immediate revenue-expenditure gap. Several structural factors limit the impact of even strong tax collection outcomes:

Low Revenue-to-GDP Ratio

At 14.1% of GDP, Tanzania's revenue ratio lags behind regional peers such as Kenya (16 to 18%) and Rwanda (15 to 17%). This limits the Government's ability to finance large-scale infrastructure and social investments without borrowing. Flagship projects under FYDP III and the national development agenda require over TSh 10 trillion annually in capital spending alone. Even with strong TRA performance, domestic revenues currently cover only 60 to 70% of total budgetary needs.

The Informal Economy Challenge

More than 50% of economic activity remains informal, constraining tax potential despite the growing number of registered taxpayers. This vast shadow economy represents billions in uncollected revenue, limiting the government's fiscal capacity.

Weak Production Base

Domestic production growth remains modest at 2.4%, signaling a narrow industrial base. Revenue growth is still highly exposed to external shocks such as inflation, global commodity prices, and import fluctuations. Without a stronger manufacturing and production sector, revenue sustainability remains vulnerable.

Demographic and Climate Pressures

Population growth now exceeds 69 million people, while climate-related pressures on agriculture (which contributes about 25% of GDP) continue to push public spending upward faster than revenues can sustainably grow. These pressures create an ever-expanding need for public services, infrastructure, and social protection.

Conclusion: Necessary But Not Sufficient

However, the evidence also makes it clear that strong revenue performance alone cannot resolve Tanzania's fiscal and development challenges. Despite collecting TSh 18.77 trillion in just six months and targeting TSh 36.06 trillion for the full year, the Government continues to face annual budget deficits of around 3 to 4% of GDP, driven by expenditure needs that significantly exceed domestic revenue capacity.

The central issue, therefore, is not whether TRA is performing well. It clearly is. The question is whether the structure of the economy and the fiscal framework allow revenue gains to translate into sustainable development financing. A low revenue-to-GDP ratio (14.1%), a large informal sector, modest growth in domestic production, and rising demographic and climate-related pressures all limit the impact of even strong tax collection outcomes.

The Path Forward

TRA's performance should be viewed as a foundation rather than a solution. To move from short-term fiscal resilience to long-term sustainability, Tanzania must complement strong revenue administration with broader economic and fiscal reforms:

• Expanding the tax base beyond the current 7.68 million registered taxpayers
• Accelerating formalization of the 50% informal economy
• Strengthening productive sectors to move beyond 2.4% domestic production growth
• Improving expenditure efficiency and prioritization of public spending
• Reducing dependence on external borrowing to create sustainable fiscal space

Only through this integrated approach can Tanzania ensure that rising revenues not only meet targets, but also meaningfully support economic growth, reduce borrowing, and deliver lasting development outcomes. The challenge is not administrative; it is structural. And addressing it will require reforms that go far beyond what any revenue authority, no matter how efficient, can achieve alone.