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.

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.