Tanzania’s private sector warns that proposed fiscal measures in the upcoming budget could undermine economic growth and reinvestment. Key concerns center around a 10 percent tax on retained earnings, which could disproportionately impact businesses and the banking sector. While the government claims the tax will generate vital revenue, leaders like TPSF’s CEO, Mr. Maganga, argue it contradicts the goal of encouraging formalization and growth. Calls for clearer guidelines and thoughtful adjustments are being made to balance fiscal needs with investment encouragement.
In Tanzania, as the government gears up for the approval of a whopping Sh56.49 trillion budget for the 2025/26 fiscal year on June 24, there are rising concerns from private sector groups. They argue that several fiscal proposals, particularly regarding taxation, could undermine reinvestment and slow down economic growth. A representative from the Tanzania Bankers Association, Mr. Abdulmajid Nsekela, explicitly warned that these proposed taxes might hit the banking sector hard, which relies on retained earnings to meet the capital adequacy requirements set by the Bank of Tanzania.
During a consultative meeting with the Parliamentary Budget Committee last weekend, business leaders didn’t hold back in sharing their apprehensions. They pointed out that certain clauses in the Finance Bill may erode investor confidence and create uncertainty about the policy landscape. Mr. Raphael Maganga, CEO of the Tanzania Private Sector Foundation (TPSF), urged the government to think long-term and adopt tax measures that actually stimulate growth.
Mr. Maganga has a clear message: “The proposed 10 percent withholding tax on retained earnings will affect companies of all sizes indiscriminately and contradicts the government’s efforts to formalise businesses.” He emphasized that it is tough to persuade informal businesses to go formal if it means incurring an extra tax burden. Instead of taxing merely for revenue, he advocates for a growth-oriented approach.
He further argued that many Tanzanian companies are still small by international standards and should be allowed to reinvest earnings to develop capital. Mr. Maganga finds the six-month compliance window stipulated in the proposal to be too short, raising doubt about businesses’ ability to adjust adequately. Although the government estimates this tax could yield Sh130 billion in revenue, he believes the potential damaging effects on the broader economy could outweigh these short-term gains.
Defending the tax in his recent budget presentation, Finance Minister Dr. Mwigulu Nchemba claimed this measure targets a persistent gap that some businesses exploit. “The measure is expected to increase government revenues by Sh130.62 billion,” he said, adding that this withholding tax isn’t double taxation but rather “an anti-avoidance rule.”
While some lawmakers like Special Seats MP Neema Lugangira supported the tax principle, she criticized its implementation. She called for clearer guidelines on what constitutes legitimate reinvestment and suggested extending the compliance window from six months to one year to allow companies to adapt more conveniently.
Cautioning against the negative implications of the new tax, Mr. Nsekela from the Tanzania Bankers Association pointed out that this tax might threaten the capital strength of banks. In a sector characterized by stringent regulations, he warned how it could impact their ability to offer long-term financing.
Deloitte tax partner Mr. Samwel Ndandala proposed an alternate avenue by suggesting the focus should be on enhancing profit-reporting systems to tackle tax evasion, rather than slapping on more taxes. Also advocating for exemptions for startups, he suggested clear guidelines surrounding the effective date of the new tax would be vital.
Additional contentious proposals also surfaced, such as a three percent VAT withholding requirement, which TPSF claims could disrupt suppliers’ cash flow, delay credit issuance, and lead to more frequent audits. Mr. Maganga recommended aligning VAT deadlines with income tax schedules and exempting compliant firms to ease the burden.
On the topic of excise duties, Mr. Maganga expressed disappointment over the planned increases on alcoholic beverages, arguing it goes against the government’s 2023 commitment to hold off on excise hikes until 2026. In his view, imported products should shoulder any new excise tax burdens. Furthermore, he raised concerns over a proposed $44 mandatory travel insurance fee for tourists, fearing it would duplicate existing coverage and deter budget travelers.
Ultimately, Mr. Maganga cautioned the government about the need for sensible adjustments: “Without thoughtful modifications, these proposals risk undermining reinvestment and overburdening SMEs.” The TPSF, united with several leading industry bodies, is pushing for balanced and growth-friendly fiscal policies. With over five million enterprises represented, TPSF’s voice highlights a collective appeal for a more favorable investment environment in Tanzania.
Tanzania’s private sector has expressed significant concerns regarding proposed fiscal measures in the government’s forthcoming budget, particularly a 10 percent withholding tax on retained earnings. These measures could hinder reinvestment, dampen economic growth, and deter formalization of businesses. While the government defends the tax as a necessary measure, industry leaders warn it could adversely affect the banking sector and overall investment confidence. The TPSF and its allies advocate for a more balanced approach to fiscal policy to ensure sustainable economic development.
Original Source: www.thecitizen.co.tz
