Despite Tanzania's immense potential as an investment hub in East Africa, with its strategic location, abundant natural resources, and membership in major regional economic blocs (EAC and SADC), the country's tax policies constitute a major barrier to both local and foreign investors. This barrier persists even with recent positive developments in FDI inflows and government efforts to improve the business climate.
⚠️ Critical Investment Challenges
Survey data from 2023-2025 consistently shows that 67% of investors identify policy instability as a key barrier to investment decisions. The Finance Act 2025, while introducing some positive reforms, has also created new concerns particularly around the 10% withholding tax on undistributed profits and increased compliance requirements.
Major Tax-Related Barriers to Investment
30%
Corporate Tax Rate (Highest in Region)
248 hrs
Annual Tax Compliance Hours
15+
Tax Policy Changes (2018-2023)
TSh 1.5T
Pending VAT Refunds (~$650M)
1. High Corporate Tax Rates Reducing Investor Profits
Tanzania's corporate income tax rate stands at 30% for both resident companies and non-resident companies with a permanent establishment (PE). This is significantly higher than regional competitors, making Tanzania one of the least competitive tax environments in East Africa.
⚖️Regional Disadvantage
Kenya: 25%, Rwanda: 28% (20% priority sectors), Ethiopia: 25%, Ghana: 25%. Tanzania's 30% rate makes it 5-6% more expensive.
📉Investor Impact
65% of surveyed investors (2025) said Tanzania's 30% rate is a major barrier to reinvestment and expansion decisions.
💼Competitiveness Loss
Companies relocate to Kenya and Ethiopia for lower tax burden. A 30% rate reduces profit margins significantly in manufacturing.
📊 Real Impact Example
In 2022, a multinational manufacturing firm withdrew a planned $100 million investment in Tanzania due to concerns over high taxation and instead relocated to Ethiopia, where corporate taxes were more favorable at 25%. This single decision cost Tanzania 1,200+ potential jobs and significant technology transfer opportunities.
2. Frequent and Unpredictable Tax Policy Changes
From 2018 to 2023, Tanzania amended its tax regulations more than 15 times, creating instability in business operations and making long-term investment planning extremely difficult. The Finance Act 2025 continues this pattern with significant new measures.
| Year | Major Tax Changes | Investor Impact |
|---|
| 2018 | New withholding tax rates, VAT adjustments | Companies had to revise budgets mid-year |
| 2019 | Mining sector tax overhaul, royalty increases | Mining FDI dropped 30% from 2016 levels |
| 2020 | Service payment WHT increased 5% to 10% | Telecoms and financial sectors halted expansion |
| 2021 | COVID-19 relief measures, some exemptions | Temporary improvement in sentiment |
| 2022 | Digital services tax introduced | Tech companies delayed market entry |
| 2023 | Multiple amendments to VAT, excise duties | 72% investors cite complexity as barrier |
| 2025 | Finance Act: 10% WHT on undistributed profits, AMT increase to 1%, electronic payment VAT 16% | Mixed reception; concerns about reinvestment disincentive |
Source: TRA Annual Reports, Finance Acts 2018-2025, TICGL Analysis
📋 Survey Finding
A 2023 Tanzania Investment Centre (TIC) survey of 100 foreign investors found that 58% viewed Tanzania's tax system as unpredictable, directly affecting long-term planning. The 2025 TICGL survey showed 55% of investors stated that frequent tax policy changes discourage long-term investment planning.
3. Complex and Burdensome Tax Compliance Procedures
Tanzania's tax compliance system is characterized by bureaucratic delays, extensive documentation requirements, and lengthy processing times that significantly increase the cost of doing business.
Annual Tax Compliance Hours: Regional Comparison
Compliance Burden Statistics
- 248 hours per year: Average time Tanzanian businesses spend on tax compliance (World Bank Doing Business Report 2022)
- 163rd out of 190: Tanzania's ranking in Ease of Paying Taxes (World Bank 2022), indicating extremely high compliance costs
- 73% of investors: Face delays of 3-6 months when obtaining tax clearance certificates from TRA (TIC Survey 2023)
- 68% of businesses: Struggle with complex tax filing requirements (PwC Tanzania Investor Report 2023)
- Finance Act 2025: Introduces mandatory CPA certification for large taxpayers and electronic system integration, potentially increasing costs
4. Multiple Taxation at National and Local Levels
One of the most cited complaints from investors is the burden of multiple taxes and levies imposed at different levels of government. A typical business in Tanzania faces over 10 different taxes and levies, significantly increasing operational costs.
| Tax/Levy | Rate | Impact on Investors |
|---|
| Corporate Income Tax | 30% | Primary profit reduction |
| Value-Added Tax (VAT) | 18% (16% electronic payments) | Increases product prices, cash flow issues |
| Withholding Tax | 5-15% | Affects payments and profit repatriation |
| Skills & Development Levy (SDL) | 4% | Additional labor cost burden |
| Pay As You Earn (PAYE) | Up to 30% | Increases total employment costs |
| Local Government Service Levy | Varies by location | Unpredictable additional costs |
| Business License Fees | Annual, varies | Administrative burden |
| Land Rent | Based on location/size | Significant for large operations |
| Stamp Duty | Various rates | Transaction cost increase |
| Excise Duties | Sector-specific | Varies by industry |
💰 Multiple Taxation Impact
A 2025 TICGL survey found that 85% of large investors consider multiple taxation a major cost burden affecting competitiveness. A foreign manufacturing company in Dar es Salaam reported facing over 10 different taxes and levies, increasing operational costs by 18% annually and discouraging further investment in Tanzania.
5. VAT Burden and Persistent Refund Delays
Tanzania's 18% VAT rate (16% for electronic payments from September 2025) is among the highest in East Africa. More critically, systematic delays in VAT refunds create severe cash flow problems for businesses, particularly exporters and capital-intensive industries.
⏱️Refund Processing Time
12-24 months70% of businesses wait 12-24 months for VAT refunds, far exceeding the statutory 30-90 day period.
💸Pending Refunds 2025
TSh 1.4-1.5TApproximately $650 million in VAT refunds pending as of 2025 (TICGL Report, TPSF data).
📉Cash Flow Impact
SevereBusinesses forced to delay expansion, unable to free up working capital tied in pending refunds.
6. Ineffective Tax Incentives
Despite various tax incentives offered through Export Processing Zones (EPZ), Special Economic Zones (SEZ), and sector-specific exemptions, Tanzania still struggles to attract FDI compared to Kenya and Ethiopia. The Finance Act 2025's removal of tax exemptions for EPZ/SEZ domestic sales has further reduced their attractiveness.
| Country | FDI 2022 ($B) | FDI 2024 ($B) | Key Incentives |
|---|
| Tanzania | $1.1 | $1.7 | EPZ/SEZ, sector incentives (reduced attractiveness 2025) |
| Kenya | $2.0 | $2.3 (est.) | Lower CIT (25%), streamlined incentives |
| Ethiopia | $3.1 | $3.5 (est.) | Industrial parks, 25% CIT, export incentives |
Sources: UNCTAD, Bank of Tanzania, National Statistics
7. Aggressive Tax Enforcement by TRA
While tax enforcement is necessary, the Tanzania Revenue Authority's (TRA) approach is often perceived as overly aggressive, leading to disputes, legal battles, and damaged investor relations.
📊 Investor Perception
80% of surveyed investors in 2023 stated that TRA's enforcement methods were aggressive, often leading to disputes that could have been avoided through better communication and clearer guidelines. This perception persists despite recent government efforts to improve the business environment.
