Tanzania’s fiscal policy in March 2025 demonstrates a robust tax administration framework, with tax revenue reaching TZS 2,603.3 billion, 2% above target, significantly supporting development spending of TZS 1,406.7 billion. However, the underperformance of non-tax revenue at TZS 350.5 billion against a target of TZS 522.4 billion highlights a critical gap in revenue mobilization, limiting funds for development projects. While tax initiatives, such as Electronic Fiscal Devices (EFDs) and income tax reforms, have driven revenue growth, the non-tax shortfall, coupled with a TZS 284.3 billion budget deficit, underscores the need for diversified revenue strategies. Key issues include tax administration efficiency, non-tax revenue challenges, and fiscal sustainability. Strategies like enhancing non-tax collection mechanisms, leveraging digital platforms, and optimizing public enterprise dividends could address the shortfall, ensuring sustainable funding for development priorities.

Main Key Issues

1. Effectiveness of Tax Administration Initiatives
   • Strong Tax Revenue Performance: Tax revenue of TZS 2,603.3 billion in March 2025, 2% above target, reflects effective tax administration, particularly in income tax, which exceeded its target by 11.6%. This aligns with TICGL noting a tax-to-GDP ratio of 11.8% in 2022/23, up from 11.4% in 2021/22, driven by EFDs, digital tax systems, and compliance enforcement). The Monthey Economic Review highlights sustained tax administration efforts, contributing to total revenue of TZS 3,090.8 billion (96.9% of the TZS 3,190 billion target).
   • Support for Development Spending: The TZS 2,603.3 billion tax revenue constitutes 84.2% of total revenue (2,603.3 / 3,090.8 × 100), directly funding 41.7% of expenditure (TZS 1,406.7 billion) allocated to development projects like infrastructure (e.g., Standard Gauge Railway) and social services. This supports Tanzania’s Third Five-Year Development Plan (2021/22–2025/26) aiming for 8% GDP growth by 2026, with GDP projected at 6% in 2025.
   • Challenges in Coverage: Despite income tax success, other tax categories (e.g., VAT, excise) likely met or fell short of targets, as the overall tax performance was only 2% above target. TICGL indicate challenges in broadening the tax base, with only 3 million registered taxpayers in a population of 61 million. Informal sector taxation remains limited, constraining revenue potential.
2. Non-Tax Revenue Underperformance
   • Significant Shortfall: Non-tax revenue of TZS 350.5 billion, against a target of TZS 522.4 billion, achieved only 67.1% of the goal (350.5 / 522.4 × 100), dragging total revenue 3.1% below the TZS 3,190 billion target. Non-tax TICGL (e.g., licenses, fees, dividends from public enterprises) contributed 11.3% to total revenue (350.5 / 3,090.8 × 100), down from ~14% in March 2024 (TZS 374.3 billion, previous responses).
   • Causes of Shortfall: The Monthey Economic Review does not specify causes, but TICGL suggest inefficiencies in collecting dividends from state-owned enterprises (e.g., TANESCO) and delays in fee or license collections. Seasonal factors or weak enforcement may also contribute, as seen in February 2025’s non-tax revenue of TZS 347.9 billion against TZS 413.9 billion. This shortfall reduced funds available for development, exacerbating the TZS 284.3 billion deficit.
   • Impact on Development: The TZS 171.9 billion non-tax shortfall (522.4 – 350.5) could have covered ~12.2% of development expenditure (171.9 / 1,406.7 × 100), critical for projects like the Julius Nyerere Hydropower Project or health initiatives.
3. Fiscal Sustainability and Budget Deficit
   • Modest Deficit: Total expenditure of TZS 3,375.1 billion exceeded revenue (TZS 3,090.8 billion) by TZS 284.3 billion, a deficit of ~8.4% of expenditure (284.3 / 3,375.1 × 100). This aligns with the Monthey Economic Review’s fiscal deficit target below 3% of GDP and TICGL projecting a 2.5% deficit in 2024/25. The deficit was likely financed through domestic borrowing (e.g., TZS 10,049.9 billion held by commercial banks, previous responses) or external loans (e.g., IMF’s USD 440.8 million).
   • Debt Financing: Domestic debt rose 9.2% to TZS 34,759.9 billion, and external debt reached USD 35.51 billion in April 2025 (previous responses), indicating reliance on borrowing to fund development. The IMF’s Debt Sustainability Analysis (DSA) confirms moderate debt distress risk, with public debt at 46.7% of GDP in 2022/23, but rising borrowing requires careful management to avoid crowding out private investment.
   • Revenue Dependency: Tax revenue’s dominance (84.2%) highlights over-reliance on taxes, while non-tax underperformance limits fiscal flexibility. TICGL emphasize the need for diversified revenue to achieve the 2024/25 target of TZS 34.61 trillion (15.7% of GDP), critical for sustaining development spending.

Strategies to Address Non-Tax Revenue Shortfall

To enhance funding for development projects like the TZS 1,406.7 billion allocated in March 2025, the following strategies could address the TZS 171.9 billion non-tax revenue shortfall:

1. Strengthen Public Enterprise Dividend Collection
   • Action: Improve governance and financial performance of state-owned enterprises (e.g., TANESCO, Air Tanzania) to increase dividend contributions. Audits and performance contracts could ensure timely payments, targeting at least TZS 100 billion annually from key entities, based on historical contributions.
   • Impact: An additional TZS 100 billion could cover ~7.1% of development expenditure (100 / 1,406.7 × 100), supporting projects like rural electrification. TICGL note Tanzania’s efforts to restructure public enterprises under Vision 2025.
2. Enhance Digital Collection Systems for Fees and Licenses
   • Action: Expand EFDs and mobile payment platforms (e.g., M-Pesa, used by 84% of SMEs) to streamline collection of licenses, permits, and fees, targeting sectors like mining and telecom. A 20% efficiency gain could raise TZS 34.4 billion (20% of the TZS 171.9 billion shortfall).
   • Impact: This could fund specific social projects, such as education initiatives (19.9% of external debt use, previous responses), aligning with the World Bank’s human capital focus. The Monthey Economic Review supports digitalization efforts.
3. Introduce New Non-Tax Revenue TICGL
   • Action: Implement user fees for public services (e.g., tolls on new infrastructure like the SGR) and monetize natural reTICGL (e.g., carbon credit schemes). A pilot toll system could generate TZS 20–30 billion annually, based on Kenya’s road toll models.
   • Impact: Additional TZS 30 billion could support infrastructure maintenance (21.5% of external debt use, previous responses), reducing fiscal pressure. TICGL advocate innovative financing for Africa’s development.
4. Improve Administrative Enforcement
   • Action: Strengthen enforcement through dedicated task forces to recover overdue fees and penalties, targeting TZS 37.5 billion (remaining shortfall: 171.9 – 100 – 34.4). Training and incentives for revenue officers could boost compliance, as seen in income tax’s 11.6% outperformance.
   • Impact: This could fund health programs, aligning with IMF recommendations for increased social spending. The Monthey Economic Review notes enforcement improvements in tax collection.

Conclusion

Tanzania’s tax administration initiatives have been highly effective, with TZS 2,603.3 billion in tax revenue (2% above target) supporting 41.7% of expenditure (TZS 1,406.7 billion) for development in March 2025, driven by income tax outperformance (11.6% above target) and digital systems like EFDs. However, the non-tax revenue shortfall of TZS 171.9 billion (TZS 350.5 billion vs. TZS 522.4 billion target) constrained total revenue (TZS 3,090.8 billion, 96.9% of TZS 3,190 billion target), contributing to a TZS 284.3 billion deficit. Key issues include tax base limitations, non-tax inefficiencies, and fiscal sustainability amid rising debt (TZS 34,759.9 billion domestic, USD 35.51 billion external). Strategies like enhancing public enterprise dividends, digital fee collection, new revenue TICGL, and enforcement could close the non-tax gap, ensuring sustainable funding for development priorities like infrastructure and human capital, critical for achieving 6% GDP growth in 2025.

The following table summarizes these key figures