Samia to overhaul tax system to restore investor confidence

Receiving the report of the Presidential Commission on Tax Reforms yesterday, President Hassan stressed that predictable and transparent tax policies are essential to support investment, stimulate business growth and strengthen domestic resource mobilisation.

“In the emerging global economic order, countries that will succeed are those with stable and predictable economic and trade policies, supported by strong institutions and good governance. Tanzania must rely more on its own resources to finance development,” she said.

The President acknowledged the efforts made by the Tanzania Revenue Authority (TRA) in enhancing revenue collection, but noted that a significant portion of economic activity remains outside the formal system.

She emphasised that the government would implement the commission’s recommendations in phases, beginning with measures that can be executed immediately, followed by medium- and long-term reforms.

“If we implement these reforms effectively, we will expand domestic revenue, formalise businesses and create a system that is predictable and fair. This is essential for achieving our Dira 2050 aspirations,” she said.

The Presidential Commission on Tax Reforms, chaired by Amb Ombeni Sefue, presented 284 recommendations aimed at addressing structural weaknesses within the current tax framework. These proposals cover legislative gaps, administrative inefficiencies, taxpayer services and the use of information and communication technology.

Amb Sefue observed that the existing tax system is characterised by frequent policy shifts, overlapping mandates among revenue-collecting authorities and a narrow tax base.

As a result, a relatively small number of formal sector taxpayers carry a disproportionate burden, while a large informal sector remains largely untaxed.

“The current framework creates uncertainty and undermines compliance. Without broadening the tax base and improving coordination among institutions, these challenges will persist,” he said.

The commission also identified weaknesses in the tax dispute resolution mechanism, noting that many taxpayers lack confidence in the independence and efficiency of institutions responsible for handling disputes.

In addition, the existence of multiple authorities collecting revenue from the same taxpayers, often without coordination, has compounded compliance challenges. The proliferation of new levies and inconsistent enforcement practices has further eroded trust among businesses.

To address these concerns, the commission has proposed the introduction of a National Tax Policy and a comprehensive Taxation Act to harmonise existing laws. It has also recommended the adoption of digital solutions, including a taxpayer-friendly mobile application and a “faceless and paperless” tax system aimed at reducing human interaction and improving efficiency.

Other proposals include targeted measures to formalise small businesses, such as a one-year tax grace period for start-ups, as well as simplified compliance procedures for micro and small enterprises.

Complaints underline urgency

The urgency of the reforms is underscored by long-standing grievances raised by traders across the country, particularly in major commercial hubs such as Kariakoo in Dar es Salaam.

Over the years, traders have repeatedly protested what they describe as arbitrary practices by TRA and the Tanzania Ports Authority (TPA), citing excessive bureaucracy, inconsistent charges and aggressive enforcement measures.

In May 2023, a delegation of traders met with then Prime Minister Kassim Majaliwa to highlight concerns over port clearance procedures, confiscation of goods and requirements to declare monthly stock movements.

Some traders alleged that enforcement officers followed them to their homes and threatened to seize goods, while others pointed to the presence of enforcement teams stationed across business areas, ready to intervene.

Structural challenges were reported across customs procedures, taxation laws and administrative practices. Traders argued that although they are occasionally consulted on new measures, their views are rarely reflected in final decisions.

Inconsistencies in port clearance fees were also cited, with some traders paying significantly higher charges than others for similar consignments. Concerns were further raised over the Value Added Tax (VAT) threshold, which requires businesses with an annual turnover of Sh100 million to register and file returns. Many traders contend that the threshold is too low and misaligned with the intended scope of VAT.

Despite the establishment of a 14-member joint committee to address these issues, tensions persisted. In June 2024, traders launched an indefinite strike, protesting what they described as harassment by enforcement teams that seized goods under the pretext of valuation verification.

The strike quickly spread to several regions, including Mbeya, Iringa, Mwanza, Arusha, Ruvuma, Kagera and Rukwa, highlighting the nationwide scale of the concerns.

Foreign investors have expressed similar frustrations. In a joint letter dated June 27, 2024, ambassadors from several countries raised concerns with the Ministry of Foreign Affairs and East African Cooperation over practices they said were disrupting business operations.

The diplomats cited repeated audits, retroactive tax assessments extending up to 15 years, sudden freezing of bank accounts and asset seizures, often without clear legal justification.

They also noted instances where previously approved tax incentives were not honoured, with authorities citing procedural irregularities.

“These practices have undermined confidence in Tanzania as an investment destination. Some companies have halted operations or face the risk of bankruptcy, with implications for employment, supply chains and overall investor sentiment,” the letter stated.

Government eyes comprehensive reform

The government’s renewed focus on tax reform comes at a time when Tanzania is experiencing steady growth in investment inflows. Business registrations rose from $3 billion in 2022 to $5 billion in 2023, reflecting growing international interest in the economy.

However, stakeholders maintain that inconsistent enforcement and administrative bottlenecks continue to constrain the full potential of this growth.

The commission’s report, coupled with President Hassan’s directives, signals a shift towards a more coherent and business-friendly tax environment. By prioritising transparency, predictability and fairness, the government aims to rebuild trust among taxpayers and attract sustained investment.

The emphasis on domestic revenue mobilisation, alongside efforts to formalise businesses and deploy ICT-driven solutions, marks a significant step in modernising Tanzania’s tax system.

If implemented effectively, the reforms are expected to ease compliance, broaden the tax base and create a more balanced system in which obligations are shared equitably.

For traders, investors and the wider business community, the proposed changes offer the prospect of a more stable and predictable operating environment—one that aligns taxation with the broader goal of economic transformation.