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:

• Opportunities: Tax exemptions, customs duty relief, and support for local industries (e.g., textiles, agriculture, and cashew) create a favorable environment for domestic businesses and strategic investors. These measures could increase investment by reducing costs and protecting local markets, potentially boosting GDP growth (projected at 5.5% for 2025 by the Bank of Tanzania).
• Challenges: Increased taxes and levies (e.g., excise duties, carbon tax, AIDS levy) raise operational costs, particularly for energy, telecom, and transport sectors. Compliance burdens and restrictions on non-citizens may deter foreign investment and strain small businesses.

Key Figures from the Finance Act, 2025 (Tanzania)

Notes

• Financial Impact: Calculated based on hypothetical scenarios to illustrate potential savings or costs. Actual impacts depend on business size and operations.
• Currency: All figures are in Tanzanian Shillings (TZS).
• Assumptions: VAT rate assumed at 18% (standard rate), customs duty at 25% (typical rate), and sector-specific revenue/volume estimates based on typical Tanzanian business scales.