Dec 18, 2023
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Introduction
Tanzania's current tax regime, characterized by a multitude of taxes and high rates, poses significant challenges for businesses and individual entrepreneurs. The array of taxes includes Import Duty (25%), VAT (18%), Excise Duty (10%), Rail Duty (5%), Corporate Tax (30%), Withholding Tax (10%), Property Tax, Land Rent Tax, Director’s Fees Tax, Hotel Levy (10% of the monthly turnover), Service Levy Tax (0.3%), Garbage Collection Levy, Stamp Duty Tax (1%), Excise Duty on phones, airtime, mobile money transfer, and bank transfers, Capital Gains Tax (10% on the disposal of assets where the realization value can be ascertained or 3% where it cannot), 10% NSSF contribution, PAYE (Pay As You Earn), SDL (Skill & Development Levy), WCF (Workman Compensation Fund), Business License, and various fees, fines, penalties, and interest on both principal and penalties. Furthermore, there are taxes and levies collected by numerous agencies, including OSHA, FIRE, TBS, TFDA, DAWASA, TANESCO, WMA, TMAA, NEMC, SUMATRA, as well as different tax bases collected directly and indirectly by the Tanzania Revenue Authority (TRA), local governments, ministries, and public institutions. This extensive tax burden on businesses is substantial, and when combined with high-interest rates on bank loans, it creates a challenging environment for business expansion and investment.​

Challenges in the Current Tax System
The multiplicity and high rates of taxes deter both local and international investments. Businesses, reliant on bank loans with high-interest rates, find it difficult to meet their tax obligations while servicing their loans. The resulting low disposable income or savings hampers their ability to reinvest and expand, trapping them in a cycle of continuous borrowing without significant growth.

This environment fosters, in some instances, non-compliance with tax obligations, leading to tax evasion, tax avoidance, and transfer pricing among sister companies. Additionally, it encourages compromising practices between taxpayers and tax administrators, undermining the integrity of the tax system.​

The Need for Tax System Reform
To address these issues, it is crucial to revisit and review Tanzania's tax system comprehensively. A streamlined and synchronized tax regime across the central government, local governments, ministries, and public institutions can create a more business-friendly environment. The aim should be to establish a progressive tax system that promotes easy and reliable collection of taxes, and investment; enhances compliance; and stimulates economic growth.​

Promoting Investment through Tax Reform
A reformed tax system should focus on reducing the number of taxes and lowering tax rates to attract both local and international investors. Simplified tax procedures and reduced bureaucratic hurdles will encourage compliance and reduce the administrative burden on businesses. A more predictable and transparent tax environment will build investor confidence and promote long-term investment.​

Encouraging Financial Sector Support
In tandem with tax reforms, it is imperative for the government to engage with financial institutions to address the issue of high-interest rates. Lowering these rates will make bank loans more affordable, enabling businesses to invest in expansion and innovation. This, in turn, will create a virtuous cycle of investment, job creation, and economic growth.​

Conclusion
A reformed and progressive tax system, coupled with lower interest rates on loans, will provide a robust foundation for sustainable economic development in Tanzania. By reducing the tax burden and simplifying compliance, the government can create an environment conducive to business growth and investment. This will lead to increased employment opportunities, higher tax revenues, and a more vibrant economy. It is imperative for our country to undertake these reforms to achieve its economic development goals and improve the prosperity of its citizens.​

The author (Respicius E. Mwijage)
Tax lawyer with experience in Tax Dispute Resolution
E-mail: remwijage@yahoo.com
Mob: +255 688 526 718'
 

Attachments

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