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)

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)

Notes

• Financial Impact (2025): Based on hypothetical scenarios for a single firm or sector, using standard rates (e.g., 18% VAT, 25% customs duty) and sector-specific estimates.
• Projected Impact (2025–2028): Assumes consistent policy application and economic trends (e.g., 5.5% GDP growth, TZS 180 trillion GDP in 2025, Bank of Tanzania).
• Currency: All figures in Tanzanian Shillings (TZS).
• Budget Context: The TZS 56 trillion budget (2025) includes TZS 44 trillion domestic revenue, TZS 10 trillion for infrastructure, and TZS 2.5 trillion for agriculture.

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:

• Total Revenue: TZS 45.07 trillion (89.6% of TZS 50.29 trillion target), with TZS 29.83 trillion from domestic sources (15.0% of GDP).
• Tax Revenue: By February 2025, TZS 22.38 trillion was collected, driven by income tax (TZS 1,573.8 billion in January 2025 alone) and import duties (TZS 962.2 billion), reflecting business growth and trade activity.
• Non-Tax Revenue: Increased by 40% to TZS 884.7 billion (July 2024–May 2025), due to dividends and digital systems.
• Achievements: January 2025 collections reached TZS 3,877.4 billion, exceeding targets by 8.6%, indicating improved compliance and economic activity.
• Challenges: TRA faced criticism for malpractices, prompting a presidential commission review. Lower taxes on local goods suggest weaker domestic demand.

Taxation on Businesses and Services:

• Income Tax: Strong collections (TZS 1,573.8 billion in January 2025) reflect business growth, particularly in ICT (13.5% growth projected by 2026) and mining (9.3%).
• VAT and Exemptions: The 2024/2025 budget introduced VAT exemptions for fertilizers and edible oils, benefiting low-income farmers, but repealed exemptions on precious metals to boost revenue.
• Import Duties: Contributed 40% of tax revenue in H1 2024/2025, supporting fiscal stability despite global challenges.
• Reforms: Digital systems and oversight have reduced leakages, but the informal sector (~30% of GDP) and agriculture remain under-taxed.

2025/2026 Revenue Projections:

• Domestic Revenue: TZS 38.9 trillion (16.7% of GDP, up from 15.0%), with TRA targeting TZS 29.17 trillion (13.3% of GDP) from taxes.
• Total Revenue: Expected to exceed TZS 50.29 trillion, financed by TZS 40.47 trillion domestic revenue and TZS 14.95 trillion loans.
• New Taxes: Mandatory travel insurance for visitors, removal of EPZ/SEZ tax holidays, and 20% gold output for local processing aim to boost revenue.
• Goal: Increase tax-to-GDP ratio to 14% by 2050, targeting TZS 350 trillion annually.

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:

• Budget Structure:
  • Recurrent Expenditure: TZS 38.6 trillion (68.3% of budget) for wages, debt servicing, and elections.
  • Development Expenditure: TZS 16.4 trillion (29.0% of budget) for SGR, JNHPP, and social projects.
  • Financing: TZS 38.9 trillion domestic revenue, TZS 16.02 trillion external sources (TZS 1.02 trillion aid, TZS 5.6 trillion concessional loans, TZS 9.4 trillion commercial loans).
• Macroeconomic Targets:
  • GDP growth: 6.0% in 2025, up from 5.5% in 2024.
  • Inflation: 3.0–5.0% to ensure affordability.
  • Domestic revenue: 16.7% of GDP to reduce borrowing reliance.
  • Reserves: ≥4 months of imports (4.4 months in 2024).
• Sectoral Drivers:
  • Agriculture (26.5% of GDP, ~65% employment).
  • Industry (construction 13.2%, mining 9.0%).
  • Services (ICT 13.5%, tourism 7.0% growth projected).

Comparison with 2024/2025:

• 2024/2025 achieved 5.5% growth with TZS 15.75 trillion development spending, despite revenue shortfalls (89.6%).
• 2025/2026’s TZS 16.4 trillion development budget and 16.7% GDP revenue target position it to exceed prior performance if execution is efficient.

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:

• Contributes 26.5% to GDP, employs ~65% of Tanzanians.
• TZS 708.6 billion in fertilizer subsidies (2021/22–2023/24) reduced costs by 50%, boosting yields.
• VAT exemptions on fertilizers and seeds supported farmers.

2025/2026 Measures:

• Continued subsidies (inferred from prior budgets).
• TADB loans via a ¥22.7 billion Japan agreement for climate-resilient farming.
• Irrigation and value addition to enhance exports (11.6% of GDP in 2024).

Impact:

• Could contribute 1.0–1.5 percentage points to GDP growth (4–6% sectoral growth).
• Subsidies and loans increase incomes for low-income farmers, potentially reducing extreme poverty below 8.0%.
• Exports (6.0% growth projected in 2025) stabilize prices via reserves (USD 5.7 billion in 2024).

b. Industry

Context:

• Construction (13.2%) and mining (9.0%) grew via TZS 1.68 trillion for SGR and TZS 574.8 billion for JNHPP/rural electrification in 2024/2025.
• Mining revenue rose due to gold exports.

2025/2026 Measures:

• TZS 2.75 trillion for transport (SGR, ports) and TZS 2.2 trillion for energy (JNHPP, rural electrification).
• SIDO programs and mining reforms (20% gold for local processing).
• Completion of JNHPP (2,115 MW) to reduce energy costs.

Impact:

• Could contribute 1.5–2.0 percentage points to GDP growth (7–8% sectoral growth).
• Jobs from SGR and JNHPP benefit low-income workers.
• Cheaper energy lowers business costs, reducing prices for consumers.

c. Services

Context:

• Services (~40–50% of GDP) grew via tourism (USD 7.2 billion, 1.4 million visitors) and ICT (12.5% growth) in 2024/2025.
• Exports at 20.3% of GDP narrowed the trade deficit to USD 5,157.2 million.

2025/2026 Measures:

• TZS 359.9 billion for tourism promotion.
• ICT investments (13.5% growth by 2026) via digital infrastructure.
• SGR and Air Tanzania to reduce transport costs.

Impact:

• Could contribute 2.5–3.0 percentage points to GDP growth (6–7% sectoral growth).
• Tourism and ICT jobs are accessible to low-income workers.
• Lower transport costs reduce commodity prices.

d. Social Programs

Context:

• TZS 444.7 billion for fee-free education, TZS 636.0 billion for student loans, and TZS 414.7 billion for healthcare in 2024/2025 improved access.
• PSSN cash transfers reduced child malnutrition.

2025/2026 Measures:

• Sustained or increased education and health funding (e.g., training 28,000 health workers).
• PSSN expansion for vulnerable households.
• TZS 378.7 billion (2024/2025 level) for water projects, inferred to continue.

Impact:

• Enhances skills and health, reducing poverty cycles.
• Cash transfers improve food security for low-income households.

4. Can the Budget Achieve the Goal?

Strengths:

• Revenue Potential: TZS 38.9 trillion (16.7% of GDP) is achievable, given 8.6% surplus in January 2025 and 40% non-tax revenue growth (Web ID: 5, 6). Tax reforms (e.g., gold processing) could broaden the base.
• Economic Growth: 6.0% target aligns with IMF and AfDB projections, supported by TZS 16.4 trillion development spending.
• Low-Income Focus: Subsidies (TZS 708.6 billion historically), education (TZS 444.7 billion), health (TZS 414.7 billion), and energy (TZS 2.2 trillion) directly benefit low-income Tanzanians, potentially reducing extreme poverty below 8.0%.
• Fiscal Stability: Public debt at 46.5% of GDP and reserves at 4.4 months ensure sustainability.

Challenges:

• Revenue Risks: 2024/2025’s 89.6% shortfall (TZS 45.07 trillion vs. TZS 50.29 trillion) and TRA inefficiencies could jeopardize TZS 38.9 trillion.
• Taxation Burden: New taxes (e.g., travel insurance) and EPZ/SEZ changes may strain businesses, reducing job creation.
• External Risks: Currency depreciation (TZS 2,585/USD) and global shocks could raise import costs, affecting low-income consumers.
• Implementation: Delays in SGR or JNHPP could limit economic benefits.

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.

In March 2025, Tanzania’s central government collected a total of TZS 2,465.8 billion in revenue, which was 98.9% of the monthly target. Of this, TZS 2,387.5 billion came from the central government, including TZS 2,055.2 billion in tax revenue—driven by income taxes (TZS 676.1 billion), taxes on imports (TZS 755.3 billion), and local goods and services (TZS 490.6 billion). Non-tax revenue reached TZS 332.3 billion, meeting 99.4% of its target. On the expenditure side, the government spent TZS 3,658.3 billion, with TZS 2,372.0 billion allocated to recurrent expenses—including TZS 937.6 billion for wages and salaries—and TZS 1,286.3 billion for development projects. This spending reflects the government's commitment to public service delivery and infrastructure investment, despite operating a short-term fiscal gap of over TZS 1.19 trillion.

1. Central Government Revenue (March 2025)

• Total revenue collected: TZS 2,465.8 billion, which was just 1.1% below the target.
• Central government share: TZS 2,387.5 billion, which is 96.8% of total revenue.
• Target: TZS 2,390.1 billion, indicating near-target performance.
• Breakdown:
  • Tax revenue: TZS 2,055.2 billion (met the monthly target)
    • Income tax: TZS 676.1 billion
    • Taxes on local goods and services: TZS 490.6 billion
    • Taxes on imports: TZS 755.3 billion
    • Other taxes: TZS 133.2 billion
  • Non-tax revenue: TZS 332.3 billion vs. target of TZS 334.4 billion (99.4%)

Revenue performance remains strong, supported by tax administration improvements and steady economic activity.

2. Central Government Expenditure (March 2025)

• Total spending: TZS 3,658.3 billion
  • Recurrent expenditure: TZS 2,372.0 billion
    • Wages and salaries: TZS 937.6 billion
    • Interest payments: TZS 366.4 billion (Domestic: TZS 240.2 billion, Foreign: TZS 126.2 billion)
    • Other recurrent expenses: TZS 1,068.0 billion
  • Development expenditure: TZS 1,286.3 billion (Target exceeded slightly)

The government maintained a fiscal discipline approach, focusing on key social services and infrastructure despite a slight revenue shortfall.

Summary Table: Government Budget Operations (March 2025)

In March 2025, Tanzania’s central government demonstrated strong revenue performance, collecting over TZS 2.4 trillion, primarily through taxes. Despite revenue being slightly below target, government expenditure reached TZS 3.7 trillion, focusing on development and essential services, supported by prudent fiscal management.

Key Takeaways

1. trong Revenue Performance

• The government collected TZS 2,465.8 billion, just 1.1% below target, showing strong tax collection efficiency.
• Tax revenue (TZS 2,055.2 billion) hit its target, indicating:
  • Good tax administration,
  • Broadening tax base,
  • Resilient economic activity.
• Non-tax revenue (TZS 332.3 billion) also performed well at 99.4% of target, reflecting enhanced collection from fees, licenses, and dividends.

What it tells: The revenue system is functioning effectively, even under economic pressure.

2. High Government Spending

• Total expenditure reached TZS 3,658.3 billion, led by:
  • Recurrent spending: TZS 2,372.0 billion (65%) — covering wages and essential services.
  • Development spending: TZS 1,286.3 billion (35%) — invested in infrastructure, education, and health.

What it tells: The government is committed to balancing service delivery and long-term development, even if it means running a short-term fiscal deficit.

3. Fiscal Gap Suggests Borrowing

• With revenue at TZS 2.5 trillion and spending at TZS 3.7 trillion, there's a fiscal gap of about TZS 1.2 trillion.
• This likely requires borrowing (domestic and/or external) to bridge the deficit.

What it tells: The fiscal policy is slightly expansionary, prioritizing development, but managed under a disciplined framework.

Conclusion

The March 2025 budget performance shows a resilient fiscal system, with strong revenue collection and strategic spending priorities. Although the government is spending more than it earns in the short term, this is controlled and focused on growth-oriented sectors, supported by good tax performance and financial management.

Empowering Tanzania’s Growth Through Research, Collaboration, and Innovation"

Subject: Invitation to Join the Tanzania Economic Summit Group (TESG) Event

Dear participant's,

I hope this email finds you well.

We are delighted to invite you to join the Tanzania Economic Summit Group (TESG), a platform dedicated to advancing Tanzania’s economic transformation through research, partnerships, and actionable insights. TESG is an initiative of TICGL, committed to fostering collaboration and dialogue among stakeholders to drive sustainable development.

Event Details

Date: 20th December 2024
Time: 14:00 (EAT)
Format: Online

We are offering various opportunities to attend, speak, collaborate, partner, sponsor, engage, network, and meet with key stakeholders and experts shaping Tanzania’s economic future.

Research Findings to Be Presented

This session will highlight pivotal research findings:

1. Empowering Tanzania’s Growth through Public-Private Partnerships for Sustainable Development.
2. Empowering Tanzania’s SMEs for Economic Growth.
3. Growth, Inclusion, and Innovation in Banking.
4. Pathways to Formal and Informal Employment in Tanzania: Current Insights (2024).
5. The Role of Tax Reforms and Policy Planning.

These findings aim to provide actionable insights and foster meaningful discussions on Tanzania’s growth trajectory.

How to Join

Click the bottom below to register and confirm your participation:

Your involvement would greatly enrich the discussion, and we look forward to welcoming you as a valued contributor to this important event.

For any inquiries, please feel free to reach out to us at contact email: amran@ticgl.com or phone number: +255 768 699 002.