Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

Budget, Government Burden, and PPP Potential

Tanzania’s government, under President Samia Suluhu Hassan, has implemented an ambitious array of public investment projects from 2020 to 2025, spanning agriculture, transport, energy, water, health, education, and other sectors. These projects, detailed in a comprehensive table below, aim to drive inclusive economic growth, enhance infrastructure, and improve social services, aligning with Tanzania’s Development Vision 2025 and the Third Five-Year Development Plan (FYDP III). This cases study evaluates the economic potential of these projects, calculates their total budget, assesses their fiscal burden on the government, and explores how Public-Private Partnerships (PPPs) could mitigate this burden while enhancing outcomes.

Total Budget of Public Investment Projects

Tanzania’s 2020–2025 public investment projects, spanning 25 initiatives across agriculture, transport, energy, water, health, education, social protection, mining, and ICT, have a total budget of TZS 27,737B–29,309B (USD 10.67B–11.27B). Key allocations include agriculture (TZS 900B–1,230B, e.g., TZS 600B–800B for irrigation), transport (TZS 9,730B–10,190B, e.g., TZS 7,500B for SGR), energy (TZS 8,400B–8,500B, e.g., TZS 7,600B for JNHPP), water (TZS 2,320B), health (TZS 300B–450B), education (TZS 1,107.4B–1,217.4B), social protection (TZS 3,640B), mining (TZS 50B–80B), and ICT (TZS 220B–330B). These projects drive economic growth (6% GDP in 2025), create jobs (e.g., 41,117 from new investments), and enhance exports (USD 16.7B in 2025), but strain the TZS 56.49T 2025/26 budget, consuming 9.8–10.4% annually. Public-Private Partnerships could save TZS 6,934B–7,327B, reduce the fiscal deficit from 3% to 2–2.1% of GDP, and boost growth by 0.5–1% through private sector efficiency and investment.

Economic Potential of the Projects

The economic potential of these projects is substantial, addressing critical needs across sectors and fostering inclusive growth. Below are key highlights:

Overall, these projects drive GDP growth (5.5% in 2024, projected 6% in 2025), create jobs (e.g., 41,117 from new investments in 2025), and enhance export revenues (USD 16.7B in 2025). Multiplier effects stimulate related industries, reduce poverty, and improve living standards.

Fiscal Burden on the Government

Tanzania’s 2025/26 national budget is TZS 56.49T, with domestic revenue projected at TZS 31.38T (70.7%) and a fiscal deficit of 3% of GDP (TZS 4.7T). The total project budget (TZS 27,737B–29,309B) spans five years (2020–2025), equating to an annual average of TZS 5,547B–5,862B, or 9.8–10.4% of the 2025/26 budget. This is significant, given that development expenditure in 2025/26 is TZS 757.79B for the Ministry of Finance alone, with total development spending likely around TZS 15T–20T annually.

System: government expenditures absorbed by debt servicing (TZS 8.2T annually). This places a heavy burden on the government, as development projects compete with recurrent expenditures (TZS 19.43T in 2025/26) and debt servicing.

The fiscal burden is substantial, as the government must balance these investments with recurrent costs, debt repayment, and social services, potentially straining fiscal discipline and increasing the deficit if revenues (TZS 26.73T from TRA in 2025/26) fall short.

Impact of Public-Private Partnerships (PPPs)

Implementing these projects through PPPs could significantly alleviate the fiscal burden and enhance efficiency, as outlined in the Public Private Partnership (Amendment) Act No. 4 of 2023 and its regulations. Below, we analyze the potential impacts of PPPs, supported by figures:

Benefits of PPPs

  1. Reduced Fiscal Burden:
    • PPPs shift a portion of the financial burden to private investors, reducing government expenditure. For example, the SGR (TZS 7,500B) could have private partners fund 30–50% (TZS 2,250B–3,750B), significantly lowering the government’s debt-financed share.
    • The JNHPP (TZS 7,600B) could leverage private investment for operations and maintenance, saving an estimated TZS 1,000B–2,000B in government costs over time.
    • The World Bank notes that PPPs in water supply (e.g., USD 650M SRWSSP) have improved service delivery through private management, reducing government operational costs by 20–30%.
  2. Enhanced Efficiency and Innovation:
    • Private sector expertise can accelerate project delivery and improve quality. For instance, port improvements (TZS 500B–700B) under PPPs could reduce ship waiting times further (from 7 days to 5 days), increasing revenue by 10–15% through higher container throughput.
    • ICT projects (TZS 220B–330B) could benefit from private tech firms’ innovation, potentially doubling internet penetration (from 46% to 80%) and boosting digital economy growth by 5–10%.
  3. Attracting Foreign Investment:
    • The PPP Amendment Act offers tax incentives and streamlined processes, attracting foreign direct investment (FDI). In 2025, TIC recorded USD 3.7B in project registrations, a 32% increase from 2024, partly due to PPP reforms. For example, Air Tanzania’s expansion (TZS 200B–300B) could attract private airlines or logistics firms, reducing government funding by 20–40%.
    • Mining projects (TZS 50B–80B) could see increased FDI through PPPs, boosting mineral revenue (10% of GDP in 2024) by an additional 2–3%.
  4. Improved Governance:
    • PPP regulations mandate quarterly implementation reports, enhancing transparency and reducing corruption risks, which historically inflate project costs by 10–20%.

Challenges of PPPs

  1. Regulatory and Transparency Issues:
    • Despite reforms, Tanzania scores low (1.25/5) on regulatory governance, compared to Kenya and Uganda (3.25/5). Inconsistent tax regimes and bureaucratic delays could deter private investors.
    • The Natural Resources and Wealth Act and Mining Laws pose obstacles to foreign investment, potentially limiting PPP participation in mining and energy projects.
  2. Limited Success in Past PPPs:
    • Historically, successful PPPs have been rare due to complex regulations and high financial risks for investors. For example, state-owned enterprises (SOEs) like TANESCO benefit from sovereign credit guarantees, crowding out private competition.
  3. Risk of Indirect Expropriation:
    • Confiscatory tax regimes or regulatory actions could reduce investor confidence, potentially increasing project costs by 5–10% to account for risk premiums.

Hypothetical PPP Scenario

If 50% of the total project budget (TZS 13,868B–14,654B) were financed through PPPs:

Comparison: Government-Funded vs. PPP

Government Budget Impact

The TZS 27,737B–29,309B project cost over five years represents 49–52% of the 2025/26 national budget (TZS 56.49T). This heavy reliance on government funding strains fiscal resources:

PPPs could reduce this burden by shifting 30–50% of costs to private investors, saving TZS 6,934B–7,327B and narrowing the deficit to 2–2.1% of GDP, aligning with fiscal discipline goals. However, regulatory reforms must address transparency and investor confidence to ensure PPP success.

Conclusion

Tanzania’s 2020–2025 public investment projects, with a total budget of TZS 27,737B–29,309B, have significant economic potential, driving GDP growth to 6% in 2025, creating over 41,000 jobs, and boosting exports by 16.8%. Agriculture, transport, energy, and water projects enhance productivity, connectivity, and living standards, with multiplier effects in related industries. However, the fiscal burden is substantial, consuming 9.8–10.4% of the annual budget and risking a wider deficit. PPPs could save TZS 6,934B–7,327B, accelerate growth by 0.5–1%, and create additional jobs, but require stronger regulatory frameworks to overcome historical challenges. By balancing government funding with PPPs, Tanzania can achieve sustainable growth while maintaining fiscal stability, paving the way for Vision 2025’s middle-income status.

Public Investment Projects in Tanzania (2020–2025)

Below is a table summarizing public investment projects implemented across various sectors. The table includes project descriptions, budgets, locations, economic potential, and multiplier effects for citizens.

SectorProject DescriptionBudget (TZS)LocationEconomic PotentialMultiplier Effects
AgricultureIncreased availability of improved seeds by 41.9% (from 50,747 tons in 2021 to 72,031.9 tons in 2024).TZS 100B–150B (estimated, ~10–12% of TZS 1.24T agriculture budget for 2025).Nationwide (TOSCI Seed Quality Control Institute mentioned).Enhances crop yields, improves food security, and increases farmers' incomes through better-quality produce.Stimulates agro-processing industries, boosts local markets, and supports rural economies.
AgricultureIncreased fertilizer availability to boost agricultural productivity.TZS 150B–200B (estimated, ~12–15% of TZS 1.24T agriculture budget for 2025).Nationwide.Improves agricultural output, supports smallholder farmers, and enhances food self-sufficiency.Encourages growth in agribusiness, transport, and retail sectors due to increased agricultural output.
AgricultureExpansion of sugar production (Kilombero factory: +271,000 tons; Mibwaa: 4,700 ha; Kagera: 8,072 ha).TZS 50B–80B (estimated, based on similar agro-industrial projects).Kilombero, Mibwaa, Kagera.Increases domestic sugar supply (from 311,588 tons in 2020 to 392,724 tons in 2024), reducing imports.Creates jobs in sugar processing, supports local farmers, and boosts export potential.
AgricultureIrrigation projects expanded from 13 in 2020 to 780 in 2025, increasing irrigated land from 561,333 ha to 983,466.06 ha.TZS 600B–800B (estimated, ~50–60% of TZS 1.24T agriculture budget, given irrigation’s priority).Nationwide, with major projects using Lake Victoria and Tanganyika water.Enhances agricultural productivity, supports year-round farming, and improves food security.Stimulates agro-industries, creates jobs in irrigation infrastructure, and supports rural development.
CooperativesEstablishment of Cooperative Bank with initial capital of TZS 58B.TZS 58B (stated in document).Nationwide (cooperative societies).Provides affordable credit to cooperative societies, enhancing economic empowerment of members.Boosts cooperative-based businesses, supports small-scale farmers, and stimulates local economies.
FisheriesProvision of 1,636 fish cages and 280 boats, plus 160 boats worth TZS 11.51B, creating 13,180 jobs.TZS 11.51B (for boats, stated in document).Nationwide (coastal and inland fisheries).Increases fish production (from 473,188 tons in 2021 to 543,589.91 tons in 2025), supports livelihoods.Stimulates fish processing, transport, and market chains, boosting coastal and inland economies.
Transport (Roads)Bus Rapid Transit (BRT) Phase 2 (20.3 km), Phase 3 (23.3 km, 80% complete), Phase 4 (30.1 km, 22.3% complete).TZS 1.2T (estimated, based on Phase 1 costs and urban transport budgets).Dar es Salaam (Mbagala to City Center, Gongo la Mboto, Tegeta).Improves urban mobility, reduces transport costs, and enhances access to economic opportunities.Stimulates commerce, reduces congestion-related losses, and supports urban economic growth.
Transport (Roads)Dodoma Outer Ring Road (112 km, 80% complete).TZS 200B–300B (estimated, based on similar road projects in Tanzania).Dodoma.Enhances connectivity in the capital, supports urban development, and facilitates trade.Boosts local businesses, supports construction sector, and improves access to services.
Transport (Roads)TANZAM Highway expansion (Uyole to Songwe Airport, 36 km, 23.5% complete).TZS 80B–120B (estimated, based on highway construction costs).Mbeya.Improves regional connectivity, supports trade, and enhances access to Songwe Airport.Stimulates trade with neighboring countries, supports logistics, and boosts Mbeya’s economy.
Transport (Airports)Nduli Airport Phase 1 completion.TZS 50B–70B (estimated, based on regional airport development costs).Iringa.Enhances air connectivity, supports tourism, and facilitates cargo transport.Boosts tourism-related businesses, supports agricultural exports, and creates jobs in aviation.
Transport (Railways)Standard Gauge Railway (SGR): Mwanza–Isaka (341 km, 63.16% complete), Makutupora–Tabora (384 km, 14.53% complete), Tabora–Isaka (163 km, 6.65% complete), Tabora–Kipoma (500 km, 7.41% complete).TZS 7.5T (estimated, based on reported SGR costs for 2025/26).Mwanza, Isaka, Tabora, Kipoma.Reduces transport costs, enhances trade efficiency, and connects Tanzania to Burundi.Stimulates logistics, trade, and industrial growth along rail corridors; supports job creation.
Transport (Airlines)Air Tanzania (ATCL) expansion with new cargo plane routes to India, Kenya, Dubai, DRC, and planned routes to Nigeria, Mozambique, Oman, Angola.TZS 200B–300B (estimated, based on airline fleet expansion and operations).Nationwide (international routes).Reduces losses for producers, enhances export capacity, and promotes Tanzania globally.Boosts tourism, agriculture exports, and aviation-related industries; creates jobs.
Transport (Ports)Port improvements reducing ship waiting time from 46 days to 7 days, container handling up 35% (from 159,807 to 215,286 containers).TZS 500B–700B (estimated, based on port modernization budgets).Dar es Salaam.Increases port efficiency, reduces trade costs, and boosts revenue collection.Stimulates trade, logistics, and port-related services; supports economic growth in Dar es Salaam.
EnergyJulius Nyerere Hydropower Project (JNHPP, 2,115 MW).TZS 7.6T (reported cost for JNHPP).Nationwide (Coast Region).Increases electricity supply (from 1,601.84 MW in 2020 to 4,031.71 MW in 2025), supports industrial growth.Stimulates manufacturing, reduces energy costs for businesses, and supports rural electrification.
EnergyKinyerezi I Extension (185 MW, natural gas) and Rusumo Project (26.67 MW, shared with Burundi and Rwanda).TZS 500B (Kinyerezi I: ~TZS 400B; Rusumo: ~TZS 100B, estimated based on regional energy projects).Kinyerezi, Rusumo (Kagera River).Enhances energy reliability, supports industrial and household needs.Boosts industrial productivity, supports small businesses, and improves quality of life.
EnergyElectricity transmission lines (e.g., Singida–Arusha–Namanga: 414 km, Geita–Nyakanazi: 144 km).TZS 300B–400B (estimated, based on transmission infrastructure costs).Singida, Arusha, Namanga, Geita, Nyakanazi, Tabora, Urambo.Improves electricity access, connects Kigoma and Katavi to the national grid.Supports industrial growth, reduces energy poverty, and stimulates local economies.
Water2,331 urban and rural water supply projects benefiting 5,985,500 people.TZS 1.3T (stated for 28 urban projects; total estimated at TZS 1.8T including rural).28 urban areas, rural regions (e.g., Arusha, Coast, Dar es Salaam).Improves access to clean water (urban: 84% to 91.6%; rural: 70.1% to 85%), enhances health outcomes.Reduces healthcare costs, boosts productivity, and supports water-related businesses.
WaterArusha water supply project increasing water production from 40M liters to 200M liters daily.TZS 520B (stated in document).Arusha.Enhances water availability, supports urban growth, and improves public health.Stimulates local businesses, supports construction, and improves quality of life.
HealthProcurement of advanced diagnostic equipment (MRI: 7 to 13, CT scans: 13 to 45, Digital X-Ray: 147 to 491, Ultrasound: 476 to 970).TZS 100B–150B (estimated, based on health sector budgets for 2025/26).Nationwide (national and referral hospitals).Improves diagnostic capacity, reduces mortality, and enhances healthcare quality.Supports medical tourism, creates jobs in healthcare, and stimulates medical supply industries.
HealthIncreased availability of medicines and medical supplies from 73% in 2020 to 86.2% in April 2025.TZS 200B–300B (estimated, based on health sector allocations).Nationwide (public health facilities).Enhances healthcare access, reduces treatment costs, and improves patient outcomes.Boosts pharmaceutical supply chains, supports local suppliers, and improves public health.
EducationConstruction of 1,992 teachers’ houses, 638 laboratories, 1,284 latrines, and 1,008 dormitories.TZS 300B–400B (estimated, based on education infrastructure budgets).Nationwide.Improves educational infrastructure, enhances learning environments, and attracts qualified teachers.Stimulates construction sector, supports local economies, and improves educational outcomes.
EducationFree education program expansion (primary to secondary), budget increased from TZS 304B to TZS 787.4B.TZS 787.4B (stated in document).Nationwide.Increases school enrollment (students with loans: 142,170 in 2020 to 436,332 in 2025), enhances literacy.Boosts human capital, supports long-term economic growth, and stimulates education-related industries.
EducationSAMIA Scholarship for 1,343 students in STEM and health fields.TZS 20B–30B (estimated, based on scholarship program costs).Nationwide.Builds skilled workforce in critical sectors, supports innovation and healthcare.Enhances industrial and health sectors, creates high-skill jobs, and supports technological advancement.
Social ProtectionTASAF and other programs (e.g., 10% Halmashauri revenue loans for women, youth, and disabled).TZS 3.64T (stated in document).Nationwide.Empowers vulnerable groups, supports small businesses, and reduces poverty.Stimulates local economies, supports entrepreneurship, and enhances social inclusion.
MiningIncreased mineral trading centers (61 to 109) and markets (41 to 43).TZS 50B–80B (estimated, based on mining sector investments).Dodoma, Dar es Salaam, Geita, Chunya.Increases mineral revenue contribution (6.8% to 10% of GDP), supports small-scale miners.Stimulates mining-related industries, supports local economies, and boosts export revenues.
ICTNational Fiber Optic Network expansion (8,319 km to 13,820 km), communication towers (754 to 9,278).TZS 200B–300B (estimated, based on ICT budget allocations for 2025/26).Nationwide (109 LGAs connected).Enhances connectivity, reduces communication costs, and supports digital economy.Stimulates tech startups, supports e-commerce, and improves access to information and services.
ICTSAMIA Innovation Fund for startups and 464 innovation projects from MAKISATU.TZS 20B–30B (estimated, based on innovation fund allocations).Nationwide.Fosters innovation, supports tech startups, and creates jobs in the digital economy.Stimulates tech industry growth, enhances competitiveness, and attracts investment.

Notes

Tanzania is experiencing an unprecedented surge in Foreign Direct Investment (FDI), positioning itself as East Africa’s premier investment hub. With a strong policy and infrastructure reform agenda, Tanzania is not only attracting capital but also creating jobs, transferring technology, and reducing poverty in line with its Vision 2050 of achieving a USD 1 trillion economy.

Key Trends and Performance (2023–Q3 2024/25)

Main FDI Sectors

  1. Manufacturing – Led all sectors with 377 projects valued at USD 3.1 billion in 2023 alone.
  2. Transport & Infrastructure – Contributed over USD 1.2 billion.
  3. Agriculture – Projected to attract USD 2 billion in agro-processing FDI by 2030.
  4. Renewable Energy – With USD 3 billion projected by 2030, including strategic projects like the Julius Nyerere Hydropower Plant.
  5. Real Estate – Driven by policy changes allowing 99-year leases, it attracted USD 185.54 million in Q3 2024/25 from UAE investors.

Policy and Institutional Reforms

Challenges Still to Address

2025–2030 Strategic Goals

Inclusive and Sustainable Growth

Programs like Vikapu Bomba (training 5,000 women in 2024 and targeting 50,000 by 2030) and SEZs like Kibaha Textile Park (projected 38,400 jobs) emphasize inclusive development. FDI also aligns with SDG 8 (Decent Work) and SDG 13 (Climate Action) by promoting green energy and equitable employment.

Conclusion

Tanzania’s FDI trajectory showcases how robust policy, sectoral strategy, and institutional reform can unlock transformative economic growth. By addressing remaining gaps and promoting equity, Tanzania is on course to become a regional economic powerhouse by 2030.

Read Full Publication

The Tanzania Revenue Authority (TRA) achieved significant milestones in tax collection during the 2024/25 fiscal year (July 2024 – June 2025), reflecting enhanced administrative efficiency, taxpayer compliance, and technological advancements.

Key Highlights

Monthly Collection Breakdown (FY 2024/25)

Month2023/24 Collection (TZS Trillion)2024/25 Target (TZS Trillion)2024/25 Actual (TZS Trillion)Performance (%)Growth (%)
July1.942.252.35104.5%21.1%
August2.012.302.42105.5%20.4%
September2.622.883.02104.7%15.0%
October2.152.472.65107.4%23.6%
November2.142.422.50103.4%16.6%
December3.053.463.58103.3%17.3%
January2.122.382.42101.7%13.8%
February2.022.262.27100.2%12.2%
March2.492.792.84101.9%14.2%
April1.972.222.27102.1%15.3%
May2.222.442.53103.8%14.1%
June2.913.193.42107.4%17.5%
TOTAL27.6431.0532.26103.9%16.7%

Revenue Forecast for FY 2025/26

The TRA has set a target of TZS 36.066 trillion for the 2025/26 fiscal year, reflecting an anticipated growth of 11.8% from 2024/25. This ambitious target is supported by:

Projected Monthly Targets for 2025/26

MonthProjected Target (TZS Trillion)Projected Growth Rate (%)
July2.558.5%
August2.659.5%
September3.309.3%
October2.909.4%
November2.7510.0%
December4.0011.7%
January2.7011.6%
February2.5010.1%
March3.109.2%
April2.5010.1%
May2.8512.7%
June3.9014.0%
TOTAL36.0711.8%

Implications for Tanzania’s Economic Development (2025/26 Budget)

The TRA’s strong revenue performance in 2024/25 and the optimistic forecast for 2025/26 are critical for funding Tanzania’s TZS 56.49 trillion budget for 2025/26, which aims to achieve 6% GDP growth and aligns with the Third Five-Year National Development Plan (2021/22–2025/26) and Vision 2025. Below are the key implications for economic development:

1. Strengthened Fiscal Capacity

2. Support for Flagship Infrastructure Projects

The TRA’s revenue surplus supports the completion of strategic projects outlined in the 2025/26 budget, including:

These projects drive industrial capacity, competitiveness, and job creation, aligning with the budget’s theme of “Inclusive Economic Transformation through Strengthening Domestic Revenue Mobilization.”

3. Economic Growth and Job Creation

4. Social and Human Capital Development

5. Digital and Technological Advancements

6. Challenges and Risks

Conclusion

The TRA’s exceptional performance in 2024/25, with a record-breaking TZS 32.26 trillion collected, underscores Tanzania’s progress in domestic revenue mobilization. The forecasted TZS 36.066 trillion for 2025/26 will play a pivotal role in funding the TZS 56.49 trillion budget, supporting infrastructure, industrialization, and social development. By reducing reliance on external financing and fostering inclusive growth, Tanzania is poised to achieve its 6% GDP growth target and advance toward Vision 2050. However, addressing challenges like the narrow tax base and global economic uncertainties will be critical to sustaining this trajectory.

As Tanzania advances toward its Vision 2050 goals, a robust and inclusive tax system is becoming increasingly central to the country’s development strategy. The Tanzania Investment and Consultant Group Ltd. (TICGL), through its recent report “Tanzania’s Tax System and Economic Development (2025–2030)”, sheds light on how the government’s tax reforms are driving economic growth, while also revealing critical systemic challenges that must be addressed.

Economic Progress Anchored in Tax Reform

Tanzania’s economy has shown resilience and promise, with GDP growth projected at 6.0% in 2025 and 7.0% by 2028. Key growth sectors include:

Much of this development has been supported by rising tax revenues. In 2024/25, the Tanzania Revenue Authority (TRA) collected TZS 29.41 trillion, including a record TZS 3.587 trillion in December 2024 alone. This revenue funded critical initiatives such as:

Key Issues Hindering Fiscal and Inclusive Growth

Despite these gains, the study outlines ten pressing issues that must be tackled to ensure sustainable development:

1. Narrow Tax Base

Only 7% of Tanzania’s population is registered as taxpayers. With the informal sector employing 72% of the workforce, vast economic activity remains untaxed. This limited base restricts the country’s fiscal space and puts pressure on the formal sector.

2. High VAT Refund Arrears

Businesses faced TZS 1.2 trillion in unpaid VAT refunds in 2024. These delays affect cash flows, particularly for exporters and SMEs, and hinder business expansion.

3. Excessive Compliance Costs

Complex procedures and audit burdens increase operating costs by 10–20% for private enterprises. This discourages SMEs from entering or staying in the formal economy.

4. Business-Discouraging Tax Rates

The 30% corporate income tax and 10% withholding tax on retained earnings introduced in 2025 significantly burden SMEs. For example, SMEs (95% of all businesses) reported a 15% drop in reinvestment capacity due to this withholding tax.

5. Rural-Urban Disparities

Access to financial services is 85% in urban areas but just 55% in rural regions. This gap affects tax registration, compliance, and equitable access to public services.

6. Public Debt Pressure

Public debt stood at 45.5% of GDP in 2022/23. The fiscal deficit reached 2.5% of GDP in 2024/25, with borrowing of TZS 6.62 trillion domestically and TZS 2.99 trillion externally, highlighting the need for increased domestic revenue.

7. Inequitable Tax Benefit Distribution

Only 30% of eligible smallholder farmers accessed the tax exemptions meant for agricultural productivity. This shows a gap between policy design and grassroots impact.

8. Digital Divide

Although digital tax platforms improved compliance by 12% (2023–2024), poor digital literacy and infrastructure outside urban areas limit effectiveness.

9. Climate Vulnerability

Tanzania risks losing up to 0.5% of GDP by 2050 due to climate-related disruptions. While green taxes were proposed (e.g., TZS 500 billion carbon tax), implementation is still nascent.

10. Tensions with Private Sector

The private sector perceives some reforms—such as the 10% withholding tax—as hostile to reinvestment. This could dampen momentum in sectors like manufacturing, where private investment is essential.

The Way Forward

The report outlines several reforms to address these issues:

Conclusion

Tanzania’s tax system is a cornerstone of its economic transformation agenda. While the country has made impressive strides in revenue mobilization and sectoral development, major structural and operational issues remain. Addressing these through inclusive, technology-driven, and equity-focused reforms is not only vital for achieving Vision 2050 but also for securing a prosperous and resilient future for all Tanzanians.

Read Full Publication

Microfinance Institutions (MFIs) are pivotal in driving financial inclusion and economic growth in Tanzania, particularly for Micro and Small Enterprises (MSEs). A recent study by the Tanzania Investment and Consultant Group Ltd. (TICGL) titled "The Contribution of Microfinance Services to the Development of Small and Medium Enterprises in Tanzania" provides comprehensive insights into how MFIs support SMEs, the challenges they face, and opportunities for growth. This article explores key findings from the 2025 TICGL report, highlighting the transformative role of microfinance in Tanzania’s SME ecosystem.

The Importance of MFIs for Tanzanian SMEs

MFIs bridge a critical gap in Tanzania’s financial landscape, offering accessible credit, savings products, and financial literacy training to MSEs that traditional banks often overlook due to perceived risks. According to the Tanzania National Bureau of Statistics (NBS, 2022), MSEs contribute over 35% to Tanzania’s GDP and employ more than 5 million people. By providing tailored financial services, MFIs empower these enterprises to expand, create jobs, and reduce poverty.

Key Services Provided by MFIs

Key Findings from the TICGL Study

The TICGL study, conducted between November 2024 and January 2025, surveyed 420 MFIs across Tanzania, providing a detailed analysis of their operations, challenges, and opportunities. Below are some key insights:

Loan Portfolio Allocation

MFIs allocate their loans strategically to support various sectors critical to Tanzania’s economy. Figure 1 illustrates the distribution of MFI loan portfolios:

Figure 1: Loan Portfolio Allocation by Business Sector (2025)

Business SectorPercentage (%)Loan Allocation (TZS Billion)
Trade & Retail30%250
Agriculture & Agribusiness22%180
Manufacturing & Processing18%150
Services (Transport, ICT)14%120
Construction & Real Estate12%100

Source: TICGL, 2025

Trade and retail dominate with 30% of loan allocations, reflecting the prevalence of small trading businesses. Agriculture (22%) and manufacturing (18%) also receive significant funding, aligning with national priorities for food security and industrialization.

Loan Size Trends

The study found that 62% of MFI loans are below TZS 5 million, catering primarily to micro-enterprises with quick-turnaround needs. Figure 2 shows the distribution of loan sizes:

Figure 2: Loan Size Distribution Among MSEs (2025)

Loan Size (TZS)Percentage (%)Number of Loans
< 2 Million32%5,000
2–5 Million30%4,500
5–10 Million20%3,000
10–20 Million10%1,500
> 20 Million8%1,000

Source: TICGL, 2025

This trend highlights MFIs’ focus on small, low-risk loans, which are easier to approve and manage.

Default Rates and Risk Management

Loan default rates remain a significant concern for MFIs. The study found that 49% of MFIs report default rates between 5–10%, while 27% face higher risks with rates exceeding 10%. Figure 3 outlines the default rate distribution:

Figure 3: Default Rates for MSE Loans (2025)

Default Rate (%)Percentage of MFIs (%)Frequency
< 5%24%100
5–10%49%200
11–20%12%50
> 20%15%60

Source: TICGL, 2025

To mitigate risks, MFIs employ strategies such as:

Challenges Facing MFIs

MFIs face several barriers that limit their ability to serve MSEs effectively. Figure 4 summarizes the key challenges:

Figure 4: Main Challenges in Providing Loans to MSEs (2025)

ChallengePercentage (%)Frequency
Insufficient Funds for Lending25%300
Lack of Collateral from Clients24%290
Limited Client Financial Literacy22%270
High Operational Costs17%210
High Default Rates12%150

Source: TICGL, 2025

High borrowing costs (44%) and stringent collateral requirements (29%) further complicate MFIs’ ability to secure capital, while regulatory constraints, such as interest rate caps, limit operational flexibility.

Opportunities for Growth

Despite these challenges, the TICGL report identifies significant opportunities to enhance MFI support for MSEs:

Recommendations for a Stronger Microfinance Ecosystem

To maximize the impact of MFIs on SME development, the TICGL study proposes several actionable recommendations:

For MFIs

  1. Adopt Digital Lending Platforms: Invest in mobile-based loan systems to streamline operations and reach underserved areas.
  2. Enhance Financial Literacy Programs: Offer structured training on budgeting, loan management, and digital tools to reduce default rates.
  3. Diversify Funding Sources: Engage with impact investors and development finance institutions to secure sustainable capital.

For Regulators

  1. Introduce Tiered Compliance: Reduce compliance costs for smaller MFIs to encourage growth.
  2. Flexible Lending Guidelines: Allow alternative credit assessments to include informal businesses.
  3. Streamline Reporting: Implement digital reporting systems to reduce administrative burdens.

For Stakeholders

  1. Strengthen Public-Private Partnerships: Facilitate collaboration between MFIs, banks, and government agencies.
  2. Promote Fintech Innovation: Support regulatory sandboxes to test new financial products.
  3. Focus on Gender Inclusion: Develop targeted financial products for women-led enterprises.

Conclusion

Microfinance Institutions are indispensable to Tanzania’s economic growth, empowering MSEs through accessible credit and capacity-building programs. The TICGL 2025 study underscores the need for innovative lending models, digital transformation, and regulatory reforms to overcome challenges like high default rates and limited capital access. By leveraging government support, fintech partnerships, and financial literacy initiatives, MFIs can strengthen their role in fostering sustainable SME growth and driving financial inclusion across Tanzania.

GET IN TOUCH

Read Full Publication

Tanzania stands at a crossroads, poised to become East Africa’s trade powerhouse but held back by systemic barriers that stifle small and medium enterprises (SMEs), which drive 35% of GDP and employ 60% of the workforce (ILO, 2020). High taxes, fragile startup ecosystems, and outdated infrastructure limit Tanzania’s competitiveness within the East African Community (EAC) and African Continental Free Trade Area (AfCFTA). A new study by the Tanzania Investment and Consultant Group Ltd. (TICGL) offers a bold vision to transform this landscape through targeted reforms, drawing on regional models like Rwanda and Nigeria.

The Challenges: Taxation, Startups, and Infrastructure

SMEs, comprising over 90% of Tanzania’s businesses, face a 30% corporate tax and 25% import duties, far above Rwanda’s 15% SME tax rate, draining profits and curbing growth (World Bank, 2020). Registering a business takes 26 days—six times longer than Rwanda’s 4 days—while tax compliance consumes 195 hours annually. These burdens contribute to Tanzania’s 141st global Ease of Doing Business ranking, lagging behind Kenya (56th) and Rwanda (38th).

Startups fare worse, with 60-70% failing within three years due to limited credit access (only 15% of SMEs secure formal loans) and weak support systems (Tanzania National Bureau of Statistics, 2020). Historical policies like Ujamaa (1967-1980s) stifled private enterprise, leaving a legacy of unclear partnership roles and low entrepreneurial skills.

Infrastructure gaps further erode competitiveness. Dar es Salaam port, handling 95% of Tanzania’s trade, suffers 10–14-day dwell times, compared to Mombasa’s 7-10 days, inflating logistics costs to 16-20% of export value. The Tazara Railway operates at 20% capacity (0.5 million tons annually vs. 2 million tons potential), hampering trade with landlocked EAC countries (EAC, 2023).

A Blueprint for Transformation

TICGL proposes three actionable strategies to unlock Tanzania’s potential:

  1. Tax and Regulatory Reforms: Reducing corporate tax to 20% and import duties to 15% could boost SME profits by 5-7%, saving $2,000-5,000 annually per business and creating 20,000-30,000 jobs across 10,000 SMEs. Streamlining registration to 7 days, inspired by Rwanda’s one-stop shops, could improve Tanzania’s Ease of Doing Business rank by 10-20 positions.
  2. Entrepreneurship Hubs: Investing $8 million to establish incubators in Dar es Salaam ($5M) and Arusha ($3M), plus $20 million in seed funding, would support 400 startups annually with $20,000-$50,000 grants. Modeled on Nigeria’s $2 billion Lagos tech hub, these hubs could cut failure rates to 40-50%, create 14,000 jobs, and add $2 billion to GDP by 2030.
  3. Infrastructure Upgrades: A $1.05 billion investment—$500M for Dar es Salaam port, $300M for Tazara Railway, $200M for roads, and $50M for digital logistics—would reduce port dwell times to 5-7 days and logistics costs to 10-12%. This could boost EAC trade by $1-1.5 billion, create 35,000 jobs, and add $0.5-1 billion to GDP annually, mirroring Kenya’s Standard Gauge Railway success.

The Path Forward

TICGL’s roadmap, informed by Rwanda’s tax reforms, Nigeria’s tech ecosystem, and Kenya’s infrastructure gains, calls for partnerships with the Tanzania Revenue Authority, private banks like CRDB, and EAC bodies. By 2026, tax reforms and hub pilots should launch, with infrastructure upgrades phased through 2030. These efforts could add $2.5-4 billion to GDP annually, cementing Tanzania’s role as an EAC trade leader.

Tanzania’s strategic location, with Dar es Salaam as a gateway for landlocked neighbors, offers immense potential. By addressing these challenges, Tanzania can transform its business landscape, empower SMEs, and build a resilient economy for the future.

Read full publication

The Finance Act, 2025, underpins Tanzania’s ambitious TZS 56 trillion budget, aiming to drive economic development through enhanced revenue collection, investment incentives, and sectoral support. With GDP growth projected at 5.5% for 2025 (Bank of Tanzania estimate), the Act introduces measures like a three-year VAT exemption on fertilizers, saving TZS 1.8 billion annually for a TZS 10 billion firm, and a 75% customs duty relief on capital goods, reducing costs by TZS 187.5 million per TZS 1 billion import. However, challenges arise from increased costs, such as a TZS 22,000 per tonne carbon emission tax adding TZS 2.2 billion yearly for a 100,000-tonne emitter, and a 0.5% excise duty hike on telecom services costing TZS 500 million for a TZS 100 billion operator. This analysis evaluates how these provisions shape Tanzania’s economic trajectory, leveraging the TZS 56 trillion budget to foster growth while addressing potential hurdles.

Opportunities for Economic Development

  1. Boosting Agricultural Productivity and Exports
    • VAT Exemptions for Agricultural Inputs: The Act exempts locally produced fertilizers from VAT for three years (2025–2027) and refined edible oils from local seeds (Page 105, Section 56). With agriculture contributing 26% to GDP (TZS 47 trillion in 2024, World Bank), these exemptions lower input costs, enhancing productivity.
      • Figure: A fertilizer producer with TZS 10 billion revenue saves TZS 1.8 billion annually (18% VAT), potentially increasing output by 10–15%, boosting agricultural GDP by TZS 4.7–7 trillion over three years.
    • Cashew Export Levy Allocation: All raw cashew export levies fund the Cashewnut Board for four years (Section 25). Cashew exports, valued at TZS 570 billion in 2023/24, could rise by 20% with improved processing, adding TZS 114 billion annually to export revenues.
    • Budget Alignment: The TZS 56 trillion budget allocates TZS 2.5 trillion to agriculture (4.5%, typical share). These incentives amplify budget impacts, supporting food security and export-led growth.
  2. Stimulating Industrial Growth
    • VAT and Customs Duty Relief: VAT exemptions for textiles from local cotton (2025) and a 75% customs duty exemption on capital goods (Section 57; Section 19) reduce costs for manufacturers.
      • Figure: A textile firm with TZS 10 billion revenue saves TZS 1.8 billion in VAT, while an investor importing TZS 1 billion in machinery saves TZS 187.5 million. This could increase manufacturing GDP (8% of GDP, TZS 14.5 trillion) by 5%, or TZS 725 billion, in 2025.
    • Excise Duty Protection: Higher duties on imported goods (e.g., TZS 100/kg vs. TZS 50/kg for preserved vegetables) protect local producers.
      • Figure: A local processor producing 1 million kg saves TZS 50 million annually, enhancing competitiveness.
    • Budget Alignment: Industrial development receives TZS 3 trillion (5.4% of budget). Tax relief aligns with this, attracting foreign direct investment (FDI), which was USD 1.34 billion (TZS 3.4 trillion) in 2023.
  3. Enhancing Revenue Mobilization
    • Electronic Tax Systems and Compliance: Mandatory electronic tax systems and simplified presumptive taxes for small businesses (Sections 23, 42) formalize the informal sector, which accounts for 30% of GDP (TZS 54 trillion).
      • Figure: Formalizing 10% of informal businesses (TZS 5.4 trillion) at a 3% tax rate could generate TZS 162 billion annually, supporting the TZS 56 trillion budget’s revenue target (TZS 44 trillion domestic revenue, 78%).
    • AIDS and Fuel Levies: New levies, like 0.1% on mineral value (TZS 50 million for TZS 50 billion sales, Section 113A) and TZS 10/liter on fuel (TZS 1 million/month for 100,000 liters, Section 4), bolster public finances.
      • Figure: With 10 billion liters of fuel consumed annually, the fuel levy could raise TZS 100 billion yearly.
    • Budget Alignment: Increased revenues fund infrastructure (TZS 10 trillion, 18% of budget), improving connectivity and economic efficiency.
  4. Financial Sector Stability
    • Banking Amendments: The Deposit Insurance Board’s liquidity support (Section 39A) and Bank of Tanzania’s enhanced independence (Sections 5, 9, 12) stabilize the financial sector.
      • Figure: A stable banking sector could boost FDI by 10%, adding TZS 340 billion annually, supporting private sector credit growth (TZS 38 trillion in 2024, 20% increase).
    • Budget Alignment: Financial sector reforms complement TZS 1 trillion allocated to economic services, fostering investor confidence.

Challenges for Economic Development

  1. Increased Operational Costs
    • Carbon Emission Tax: A TZS 22,000 per tonne tax on coal/natural gas emissions (Section 126) raises costs for energy-intensive industries like cement.
      • Figure: A factory emitting 100,000 tonnes pays TZS 2.2 billion annually, potentially increasing cement prices by 5–10%, reducing construction sector growth (10% of GDP, TZS 18 trillion) by TZS 900 billion.
    • Excise Duty Hikes: Telecom services (17% to 17.5%) and pay TV (5% to 10%) duties (Section 126) increase costs.
      • Figure: A telecom operator with TZS 100 billion revenue faces TZS 500 million extra, potentially raising consumer prices and slowing ICT growth (5% of GDP, TZS 9 trillion) by TZS 450 billion.
    • Budget Impact: Higher costs strain private sector contributions to the TZS 56 trillion budget, potentially reducing domestic investment.
  2. Compliance Burdens
    • Electronic Tax Systems: Mandatory systems (Page 103, Section 42) challenge small businesses with limited technological capacity.
      • Figure: A small retailer with TZS 50 million revenue may spend TZS 1–2 million on systems, reducing profits by 2–4%, impacting 1 million SMEs (30% of GDP).
    • Mandatory Approvals: Fees require ministerial approval (Section 60A), delaying operations.
      • Figure: A logistics firm facing a one-month delay could lose TZS 100 million in revenue, slowing trade (15% of GDP, TZS 27 trillion).
    • Budget Impact: Compliance costs may divert funds from productive investments, challenging the budget’s TZS 14 trillion development expenditure goal.
  3. Reduced Consumer Demand
    • Higher Taxes and Levies: Increased excise duties (e.g., alcohol, telecom) and levies (e.g., TZS 500/railway ticket, Section 73A) raise consumer prices.
      • Figure: A 10% price hike on telecom services could reduce subscriptions by 5%, costing TZS 500 billion in sector revenue, lowering consumption (60% of GDP, TZS 108 trillion).
    • Budget Impact: Lower demand could reduce VAT collections (TZS 10 trillion, 18% of budget), straining fiscal targets.
  4. Foreign Investment Constraints
    • Non-Citizen Restrictions: The Business Licensing Act limits non-citizens in certain activities (Page 14, Section 14A), potentially deterring FDI.
      • Figure: A 10% FDI drop (TZS 340 billion) could reduce capital inflows, impacting manufacturing and mining (20% of GDP, TZS 36 trillion).
    • Budget Impact: Lower FDI may limit private sector financing for the TZS 56 trillion budget’s infrastructure projects.

Quantitative Impact Summary (2025)

SectorOpportunity (TZS)Challenge (TZS)Net Impact (TZS)
Agriculture+7 trillion (3 years)-900 billion (costs)+6.1 trillion
Manufacturing+725 billion-450 billion (taxes)+275 billion
ICT+162 billion (revenue)-500 billion (demand)-338 billion
Mining+340 billion (FDI)-340 billion (FDI drop)0

Conclusion

The Finance Act, 2025, aligns with the TZS 56 trillion budget to drive Tanzania’s economic development by incentivizing agriculture (TZS 7 trillion GDP boost over three years), industry (TZS 725 billion in 2025), and revenue collection (TZS 162 billion from informal sector). However, challenges like increased costs (TZS 2.2 billion for cement firms), compliance burdens (TZS 1–2 million per SME), and potential FDI declines (TZS 340 billion) could hinder growth, particularly in ICT and construction. To maximize economic benefits, policymakers should streamline compliance, subsidize SMEs for digital adoption, and balance tax hikes with consumer relief. With strategic implementation, the Act can propel Tanzania toward its 5.5% GDP growth target, leveraging the TZS 56 trillion budget for sustainable development through 2028.

Key Figures: Finance Act, 2025, and Tanzania’s TZS 56 Trillion Budget (2025–2028)

ProvisionDetailsFinancial Impact (2025, Hypothetical Example)Projected Impact (2025–2028)
VAT ExemptionFertilizers exempt for 3 years (2025–2027)Saves TZS 1.8 billion/year for TZS 10 billion revenue firm+TZS 7 trillion to agricultural GDP (26% of TZS 180 trillion GDP)
VAT ExemptionTextiles from local cotton exempt for 1 year (2025)Saves TZS 1.8 billion for TZS 10 billion revenue firm+TZS 725 billion to manufacturing GDP (8% of TZS 180 trillion GDP)
Customs Duty Exemption75% relief on capital goods (2025–2028)Saves TZS 187.5 million on TZS 1 billion import+TZS 340 billion FDI annually (10% increase)
Cashew Export LevyAll levies to Cashewnut Board (2025–2028)Adds TZS 114 billion/year to cashew exports (TZS 570 billion base)+TZS 456 billion to export revenues
Electronic Tax SystemsMandatory for small businesses (2025–2028)Generates TZS 162 billion/year from 10% of informal sector (TZS 5.4 trillion)+TZS 648 billion to tax revenue
Carbon Emission TaxTZS 22,000/tonne on coal/natural gas (2025–2028)Adds TZS 2.2 billion/year for 100,000 tonnes emitted-TZS 900 billion to construction GDP (10% of TZS 180 trillion GDP)
Excise Duty IncreaseTelecom services: 17% to 17.5% (2025–2028)Adds TZS 500 million/year for TZS 100 billion revenue firm-TZS 450 billion to ICT GDP (5% of TZS 180 trillion GDP)
AIDS Levy0.1% on mineral value (2025–2028)Adds TZS 50 million/year for TZS 50 billion sales-TZS 200 million/year for mining sector costs
Fuel LevyTZS 10/liter on petrol, diesel, kerosene (2025–2028)Adds TZS 1 million/month for 100,000 liters used-TZS 100 billion/year to transport costs
Non-Citizen RestrictionsLimits on certain business activities (2025–2028)Potential TZS 340 billion FDI loss (10% drop)-TZS 1.36 trillion FDI over 4 years

Notes

The Finance Act, 2025, of Tanzania introduces significant amendments to tax, duty, and levy structures, shaping the business and investment landscape through 2028. With measures like a three-year VAT exemption on locally produced fertilizers saving up to TZS 1.8 billion annually for a TZS 10 billion revenue company, and a 75% customs duty relief on capital goods reducing costs by TZS 187.5 million per TZS 1 billion import, the Act fosters growth in agriculture and manufacturing. However, challenges arise from increased costs, such as a TZS 22,000 per tonne carbon emission tax adding TZS 2.2 billion yearly for a 100,000-tonne emitter, and a 0.5% excise duty hike on telecom services imposing TZS 500 million extra for a TZS 100 billion operator. This analysis quantifies these impacts, projecting opportunities and hurdles for businesses navigating Tanzania’s economic environment from 2025 onward.

Opportunities for Business and Investment Growth

  1. Tax Relief and Incentives to Stimulate Investment
    • Value Added Tax (VAT) Exemptions:
      • The Act introduces VAT exemptions for locally produced fertilizers for three years and textiles made from locally grown cotton for one year (Section 56 and 57). This reduces production costs, making these sectors more competitive and attractive for investment.
      • VAT exemptions are also proposed for refined edible oils using locally produced seeds, reinsurance, natural gas, and equipment for alternative charcoal production. These exemptions lower input costs, encouraging investment in agriculture, energy, and manufacturing.
      • Example: A textile manufacturer using local cotton could save 18% (standard VAT rate) on production costs, potentially increasing profit margins or allowing price reductions to capture market share.
    • Customs Duty Relief:
      • A 75% customs duty exemption is provided for non-originating capital goods imported by registered investors under the Investment and Special Economic Zones Act (Section 19). This reduces the cost of capital equipment, incentivizing large-scale investments.
      • Example: An investor importing machinery worth TZS 1 billion could save TZS 187.5 million (assuming a 25% customs duty rate), improving project viability.
    • Simplified Tax Compliance for Small Businesses:
      • The Act simplifies tax collection for small traders in the informal sector by requiring registration with relevant authorities and integrating Taxpayer Identification Numbers (TIN) for those below the income tax threshold (Section 23). This formalizes the sector, potentially improving access to credit and markets.
      • The Income Tax Act amendments exempt certain small-scale transport businesses (e.g., two-wheeled motorcycles, tricycles, and light cargo vehicles up to 500 kg) from complex tax calculations, replacing them with presumptive tax rates. This reduces compliance costs, encouraging small business growth.
      • Example: A motorcycle taxi operator with annual revenue of TZS 20 million could pay a flat presumptive tax (e.g., TZS 100,000 annually), avoiding the burden of detailed tax filings.
  2. Support for Local Industries
    • Excise Duty Adjustments to Protect Local Production:
      • The Act imposes higher excise duties on imported goods compared to locally produced ones, such as TZS 100/kg vs. TZS 50/kg for preserved vegetables and fruits. This protects local producers from cheaper imports, fostering domestic manufacturing.
      • Example: A local potato chip producer faces an excise duty of TZS 50/kg, while imported chips are taxed at TZS 100/kg, giving the local producer a cost advantage.
    • Export Levy Allocation for Cashew Industry:
      • All export levies on raw cashews are directed to the Cashewnut Board’s account for four years starting July 1, 2025 (Section 25). This provides funding for subsidies and research, enhancing the competitiveness of the cashew sector.
      • Example: Increased funding could improve cashew processing facilities, potentially increasing export revenues, which were TZS 570 billion in 2023/24 (based on historical data).
  3. Encouraging Strategic Investments
    • Mining Sector Incentives:
      • Amendments to the Investment and Special Economic Zones Act recognize investors with government agreements as strategic investors (Sections 2 and 21). This could attract large-scale mining investments by offering tailored incentives.
      • Example: A mining company investing TZS 10 billion could benefit from tax holidays or reduced royalties, improving return on investment.
    • Business Licensing Restrictions:
      • The Act restricts non-citizens from certain business activities (Section 14A), reserving opportunities for Tanzanian entrepreneurs and encouraging local business growth.
      • Example: Local traders in retail sectors protected from foreign competition could see increased market share.
  4. Improved Financial Sector Stability:
    • Amendments to the Banking and Financial Institutions Act allow the Deposit Insurance Board (DIB) to provide liquidity support to struggling banks (Section 39A). This enhances financial stability, encouraging investor confidence in the banking sector.
    • The Bank of Tanzania Act amendments strengthen the central bank’s independence and oversight (Sections 5, 9, 12), potentially stabilizing monetary policy and attracting foreign investment.
    • Example: A stable banking sector could increase foreign direct investment (FDI), which was USD 1.34 billion in 2023 (Bank of Tanzania data), by reducing perceived financial risks.

Challenges for Business and Investment Growth

  1. Increased Tax and Levy Burdens:
    • Higher Excise Duties:
      • The Act increases excise duties on various goods, such as electronic communication services (from 17% to 17.5%), pay TV services (from 5% to 10%), and imported used tableware (20% duty) (Section 126). These increases raise operational costs for businesses in these sectors.
      • Example: A telecom company with TZS 100 billion in revenue faces an additional TZS 500 million in excise duty (0.5% increase), potentially reducing profitability or increasing consumer prices.
    • Carbon Emission Tax:
      • A new excise duty of TZS 22,000 per tonne of carbon emitted from coal or natural gas (Section 126) increases costs for energy-intensive industries like cement or power generation.
      • Example: A cement factory emitting 100,000 tonnes of carbon annually incurs an additional TZS 2.2 billion in costs, potentially reducing competitiveness.
    • AIDS Levy on Multiple Sectors:
      • A 0.1% levy on mineral value (Section 113A), TZS 500 per railway ticket (Section 73A), and levies on motor vehicle registration (Section 5A) increase costs for mining, transport, and automotive sectors.
      • Example: A mining company with TZS 50 billion in mineral sales pays an additional TZS 50 million in AIDS levy, impacting profit margins.
  2. Increased Compliance and Administrative Burdens:
    • Mandatory Approvals for Fees and Charges:
      • Government institutions must seek prior approval from the Minister of Finance before imposing or revising fees, levies, or charges (Section 60A; Section 5). This could delay business operations reliant on government services.
      • Example: A logistics company awaiting approval for port service charges may face delays in operations, increasing costs.
    • Electronic Tax Systems:
      • The Tax Administration Act mandates electronic tax systems and penalties for non-compliance (Section 42). Small businesses with limited technological capacity may struggle to comply, facing fines or operational disruptions.
      • Example: A small retailer with TZS 50 million in annual revenue may need to invest TZS 1-2 million in electronic systems, straining finances.
  3. Restrictions on Non-Citizens:
    • The Business Licensing Act restricts non-citizens from certain business activities (Section 14A). While this protects local businesses, it may deter foreign investors, reducing FDI in restricted sectors.
    • Example: A foreign retailer planning a TZS 5 billion investment may reconsider due to licensing restrictions, limiting sector growth.
  4. Increased Costs for Specific Sectors:
    • Gaming Industry:
      • The tax on gambling winnings increases from 10% to 15% for sports betting and from 12% to 15% for land-based casinos (Section 34). This could reduce consumer participation or profitability for operators.
      • Example: A casino with TZS 1 billion in winnings faces an additional TZS 30 million in tax (3% increase), potentially passing costs to customers.
    • Fuel and Road Tolls:
      • An additional TZS 10 per liter levy on petrol, diesel, and kerosene (Section 4 and 5) increases transport and logistics costs, affecting businesses reliant on fuel.
      • Example: A transport company consuming 100,000 liters of diesel monthly incurs an additional TZS 1 million in costs, reducing margins.
  5. Potential Reduction in Consumer Demand:
    • Higher taxes and levies (e.g., excise duties on alcohol, telecom services, and pay TV) may increase consumer prices, reducing disposable income and demand for goods and services.
    • Example: A 10% excise duty on pay TV services could lead to subscription cancellations, impacting media companies’ revenues.

Quantitative Impact Analysis

To illustrate the impact, let’s consider two hypothetical businesses:

  1. Local Textile Manufacturer:
    • Opportunity: Benefits from a one-year VAT exemption on textiles using local cotton (Section 56). If annual revenue is TZS 10 billion, the company saves TZS 1.8 billion (18% VAT). This could fund expansion or price reductions to compete with imports.
    • Challenge: Faces increased electricity costs due to the carbon emission tax (TZS 22,000/tonne). If the factory emits 10,000 tonnes annually, it incurs TZS 220 million in additional costs, partially offsetting tax savings.
  2. Telecom Operator:
    • Opportunity: The Act’s focus on electronic payment systems (Section 38) could streamline transactions, reducing operational costs by 1-2% (e.g., TZS 1-2 billion for a company with TZS 100 billion revenue).
    • Challenge: The excise duty increase from 17% to 17.5% (Section 126) adds TZS 500 million to costs for a TZS 100 billion revenue company. This may force price hikes, risking customer loss.

Conclusion

The Finance Act, 2025, presents a mixed impact on business and investment growth in Tanzania:

Key Figures from the Finance Act, 2025 (Tanzania)

ProvisionDetailsFinancial Impact (Hypothetical Example)
VAT ExemptionLocally produced fertilizers exempt for 3 yearsSaves TZS 1.8 billion for a fertilizer company with TZS 10 billion revenue (18% VAT)
VAT ExemptionTextiles from local cotton exempt for 1 yearSaves TZS 1.8 billion for a textile manufacturer with TZS 10 billion revenue (18% VAT)
VAT ExemptionRefined edible oils from local seedsReduces input costs by 18% for a TZS 5 billion edible oil producer (TZS 900 million savings)
Customs Duty Exemption75% exemption on non-originating capital goods for registered investorsSaves TZS 187.5 million on TZS 1 billion machinery import (25% duty)
Excise Duty IncreaseElectronic communication services: 17% to 17.5%Adds TZS 500 million for a telecom with TZS 100 billion revenue
Excise Duty IncreasePay TV services: 5% to 10%Adds TZS 500 million for a media company with TZS 10 billion revenue
Excise Duty DifferentialImported vegetables/fruits: TZS 100/kg; Local: TZS 50/kgLocal producer saves TZS 50 million on 1 million kg vs. imports
Carbon Emission TaxTZS 22,000 per tonne of carbon from coal/natural gasAdds TZS 2.2 billion for a cement factory emitting 100,000 tonnes
AIDS Levy0.1% on mineral valueAdds TZS 50 million for a mining company with TZS 50 billion sales
AIDS LevyTZS 500 per railway ticketAdds TZS 50 million for 100,000 tickets annually
Fuel LevyTZS 10 per liter on petrol, diesel, keroseneAdds TZS 1 million for a transport company using 100,000 liters monthly
Gambling Tax IncreaseSports betting winnings: 10% to 15%Adds TZS 50 million for a betting company with TZS 1 billion winnings
Gambling Tax IncreaseLand-based casino winnings: 12% to 15%Adds TZS 30 million for a casino with TZS 1 billion winnings
Presumptive TaxSmall-scale transport (e.g., motorcycles)Flat tax of TZS 100,000 for a motorcycle taxi with TZS 20 million revenue

Notes

Tanzania’s revenue collection, particularly through taxes on businesses and services, has seen steady improvement, yet challenges like tax evasion and administrative inefficiencies persist. The 2024/2025 budget of TZS 49.35 trillion (USD 18.85 billion) delivered 5.5% real GDP growth, collecting TZS 45.07 trillion (89.6% of TZS 50.29 trillion target), with domestic revenue at TZS 29.83 trillion (15.0% of GDP). This supported low-income Tanzanians through TZS 708.6 billion in fertilizer subsidies, TZS 444.7 billion for fee-free education, and infrastructure projects creating jobs. The 2025/2026 budget, projected at TZS 56.49 trillion (USD 22.07 billion), an 11.6% increase, targets 6.0% GDP growth with TZS 38.9 trillion in domestic revenue (16.7% of GDP) and introduces tax reforms to boost compliance. This case study evaluates whether these projections, given the state of revenue and taxation, can achieve the goal of promoting economic growth for low-income Tanzanians, using key figures and sectoral analysis.

1. State of Revenue Collection and Taxation in Tanzania

Tanzania’s revenue mobilization relies heavily on taxes from businesses and services, including income tax, VAT, and import duties. The current tax-to-GDP ratio of 14.9% is below the Sub-Saharan Africa average of 18.6%, indicating room for improvement. Recent performance and challenges provide context for the 2025/2026 projections.

2024/2025 Revenue Performance:

Taxation on Businesses and Services:

2025/2026 Revenue Projections:

Assessment: The 8.6% revenue surplus in January 2025 and 40% non-tax revenue growth suggest Tanzania can achieve TZS 38.9 trillion if TRA reforms address inefficiencies and broaden the tax base (e.g., informal sector). However, global economic risks and domestic demand weaknesses could hinder collections.

2. 2025/2026 Budget Framework and Economic Growth Target

The TZS 56.49 trillion budget, an 11.6% increase from TZS 49.35 trillion in 2024/2025, aims for 6.0% real GDP growth. Key financial and economic strategies include:

Comparison with 2024/2025:

Assessment: The budget’s 6.0% growth target is feasible, supported by projections from the IMF (6.0% in 2025), AfDB (6.0%), and local estimates (6.1–6.4% by 2026) (Web ID: 7, 8, 12). Increased domestic revenue (TZS 38.9 trillion) and strategic investments could drive growth, but success depends on revenue collection and global stability.

3. Promoting Economic Growth for Low-Income Tanzanians

The budget aims to uplift low-income Tanzanians (26.4% abject poverty, 8.0% extreme poverty in 2018) through sectoral investments and social programs. Below is an analysis of key measures and their potential impact.

a. Agriculture

Context:

2025/2026 Measures:

Impact:

b. Industry

Context:

2025/2026 Measures:

Impact:

c. Services

Context:

2025/2026 Measures:

Impact:

d. Social Programs

Context:

2025/2026 Measures:

Impact:

4. Can the Budget Achieve the Goal?

Strengths:

Challenges:

Conclusion

The TZS 56.49 trillion 2025/2026 budget has strong potential to promote economic growth for low-income Tanzanians by achieving 6.0% GDP growth and reducing poverty through targeted investments. However, success hinges on improving revenue collection (TZS 38.9 trillion), addressing TRA inefficiencies, and mitigating external risks. If executed effectively, the budget could surpass the 2024/2025 impact, uplifting low-income Tanzanians through jobs, affordability, and social services.

Indicator2024/2025 Performance2025/2026 ProjectionImpact on Low-Income Citizens
Total BudgetTZS 49.35 trillion (USD 18.85 billion)TZS 56.49 trillion (USD 22.07 billion)More funds for jobs, services.
Real GDP Growth5.5% (target: 5.4%)6.0% (targeted)Creates employment opportunities.
Domestic RevenueTZS 29.83 trillion (15.0% of GDP)TZS 38.9 trillion (16.7% of GDP)Funds subsidies, education, health.
Tax RevenueTZS 22.38 trillion (by Feb 2025)TZS 29.17 trillion (targeted)Supports infrastructure, affordability.
Development ExpenditureTZS 15.75 trillion (95.1% of TZS 16.54 trillion)TZS 16.4 trillion (29.0% of budget)SGR, JNHPP create jobs.
Inflation3.1% (target: 3.0–5.0%)3.0–5.0% (targeted)Protects purchasing power.
Exports (% of GDP)20.3%>20.3% (6.0% growth)Stabilizes commodity prices.
Trade DeficitUSD 5,157.2 million<USD 5,157.2 million (projected)Reduces import costs.
Public Debt (% of GDP)40.3% (TZS 107.70 trillion)~46.5% (sustainable)Ensures fiscal stability.
Fertilizer SubsidiesTZS 708.6 billion (2021/22–2023/24)Continued (inferred)Lowers farming costs.
Education SpendingTZS 444.7 billion (fee-free), TZS 636.0 billion (loans)Sustained or increasedEnhances access, reduces poverty.
Healthcare SpendingTZS 414.7 billion (medicines), TZS 47.2 billion (hospitals)Sustained or increasedImproves health affordability.
Energy AllocationTZS 574.8 billion (rural electrification, JNHPP)TZS 2.2 trillion (energy projects)Cheaper energy for businesses.

Tanzania’s 2024/2025 budget of TZS 49.35 trillion (USD 18.85 billion) achieved a commendable 5.5% real GDP growth, surpassing the 5.4% target, by collecting TZS 45.07 trillion (89.6% of TZS 50.29 trillion target) and investing TZS 15.75 trillion in development projects, including TZS 1.68 trillion for the Standard Gauge Railway (SGR) and TZS 574.8 billion for rural electrification. Social programs, such as TZS 444.7 billion for fee-free education, TZS 636.0 billion for student loans, and TZS 708.6 billion in fertilizer subsidies (2021/22–2023/24), supported low-income Tanzanians, enhancing affordability and livelihoods while reducing extreme poverty (8.0% in 2018).

The 2025/2026 budget, increased by 11.6% to TZS 56.49 trillion (USD 22.07 billion), targets 6.0% GDP growth with TZS 38.9 trillion in domestic revenue (16.7% of GDP) and TZS 16.4 trillion for development, prioritizing agriculture, industry, and services. By sustaining social spending and allocating TZS 2.2 trillion for energy and TZS 359.9 billion for tourism, this budget aims to further uplift low-income citizens through job creation and poverty reduction, building on the 2024/2025 foundation.

1. Context: 2024/2025 Budget Performance (TZS 49.35 trillion, USD 18.85 billion)

The 2024/2025 budget provides a benchmark for evaluating the 2025/2026 budget’s potential. Key achievements by May 2025:

Impact on Low-Income Citizens:

Challenges:

2. 2025/2026 Budget Overview (TZS 56.49 trillion, USD 22.07 billion)

The 2025/2026 budget, themed “Inclusive Economic Transformation through Domestic Resource Mobilization and Resilient Strategic Investment for Job Creation and Improved Livelihoods,” is 11.6% larger than the 2024/2025 budget (TZS 49.35 trillion) and targets 6.0% real GDP growth with a 3.0% GDP deficit. It prioritizes agriculture, industry, services, and social inclusion to uplift low-income Tanzanians.

Financial Structure:

Macroeconomic Targets:

3. Can the Budget Promote Economic Growth?

The 2025/2026 budget’s potential to achieve 6.0% GDP growth hinges on sectoral investments and fiscal stability, building on the 2024/2025 success (5.5% growth).

a. Agriculture

2024/2025 Contribution:

2025/2026 Strategy:

Potential Impact:

b. Industry (Manufacturing, Mining, Construction)

2024/2025 Contribution:

2025/2026 Strategy:

Potential Impact:

c. Services (Tourism, Transport, ICT)

2024/2025 Contribution:

2025/2026 Strategy:

Potential Impact:

Overall Growth Potential:

4. Can the Budget Uplift Low-Income Tanzanians?

The budget prioritizes inclusive growth to reduce poverty (26.4% abject, 8.0% extreme in 2018) through targeted measures:

Comparative Impact:

5. Fiscal and Macroeconomic Stability

6. Is the Budget a Solution for Economic Growth and Low-Income Tanzanians?

Strengths:

Challenges:

Conclusion: The 2025/2026 budget has strong potential to be a solution for Tanzania’s economic growth and uplifting low-income citizens if it overcomes revenue and implementation challenges. Its increased size (TZS 56.49 trillion), focus on inclusive sectors, and social programs position it to surpass the 2024/2025 budget’s impact, fostering 6.0% growth and reducing poverty through jobs and affordability.

Tanzania’s Budget and Economic Performance: Key Figures (2024–2026)

Indicator2024/2025 Performance2025/2026 ProjectionImpact on Low-Income Citizens
Total BudgetTZS 49.35 trillion (USD 18.85 billion)TZS 56.49 trillion (USD 22.07 billion)More funds for jobs, social services.
Real GDP Growth5.5% (target: 5.4%)6.0% (targeted)Creates employment opportunities.
Domestic RevenueTZS 29.83 trillion (15.0% of GDP)TZS 38.9 trillion (16.7% of GDP)Funds subsidies, education, health.
Revenue CollectionTZS 45.07 trillion (89.6% of TZS 50.29 trillion)>TZS 50.29 trillion (targeted)Supports infrastructure, affordability.
Development ExpenditureTZS 15.75 trillion (95.1% of TZS 16.54 trillion)TZS 16.4 trillion (29.0% of budget)SGR, JNHPP create jobs.
Inflation3.1% (target: 3.0–5.0%)3.0–5.0% (targeted)Protects purchasing power.
Exports (% of GDP)20.3%>20.3% (6.0% growth)Stabilizes commodity prices.
Trade DeficitUSD 5,157.2 million<USD 5,157.2 million (projected)Reduces import costs.
Public Debt (% of GDP)40.3% (TZS 107.70 trillion)~46.5% (sustainable)Ensures fiscal stability.
Fertilizer SubsidiesTZS 708.6 billion (2021/22–2023/24)Continued (inferred)Lowers farming costs.
Education SpendingTZS 444.7 billion (fee-free), TZS 636.0 billion (loans)Sustained or increasedEnhances access, reduces poverty.
Healthcare SpendingTZS 414.7 billion (medicines), TZS 47.2 billion (hospitals)Sustained or increasedImproves health affordability.
Energy AllocationTZS 574.8 billion (rural electrification, JNHPP)TZS 2.2 trillion (energy projects)Cheaper energy for small businesses.
crossmenu linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram