Tanzania loses more than Sh4.79 trillion annually due to illegal transfer of money abroad

Despite this modest tax base, Tanzania continues to offer both local and foreign investors a variety of incentives in an effort to stimulate economic growth and attract capital. 

However, analysts say this approach may be contributing to illicit financial flows (IFFs) from the country.

According to Global Financial Integrity, Tanzania loses more than Sh4.79 trillion annually due to the illegal transfer of money abroad. 

This, experts argue, undermines development and deepens poverty, denying citizens access to quality healthcare, education, clean water, sanitation, reliable infrastructure, and electricity.

Incentives under EPZs and SEZs

Among the most scrutinised incentives are those offered under the Export Processing Zones Authority (EPZA). 

Investors under this scheme benefit from a range of tax breaks, including tax holidays, exemptions on customs duties and port charges, and VAT waivers on raw materials and essential services.

Section 15(1) of the EPZ Act allows investors to operate under a single licence issued by EPZA, obtain entry visas for technical staff upon arrival, and freely repatriate profits.

Economist Moses Kulaba, who conducted a study on EPZA operations in 2015, expressed concerns about the risk of capital flight via profit repatriation.

“Many companies are headquartered in tax havens like Mauritius, where corporate tax rates are very low or even zero. As a result, profits transferred out of Tanzania are not taxed here, nor are they taxed upon arrival in Mauritius,” he said.

“In some cases, these same profits are returned to Tanzania as fresh capital—again untaxed—and when production resumes, the cycle continues with another round of tax-free repatriation.”

However, EPZA Public Relations manager Panduka Yonazi defended the incentive framework, stating that such measures are essential in the competitive global investment environment.

“Countries such as Dubai, China, and even Kenya offer incentives. If we don’t, investors will simply go elsewhere,” he said.

On the issue of profit repatriation, Mr Yonazi said it was a global norm.

“Profit repatriation is a standard practice. It’s akin to someone telling you how to spend your salary. This is not unique to Tanzania—it’s permitted in Rwanda, Dubai, and many other countries.”

Regarding the 10-year tax holiday offered under the scheme, Mr Yonazi argued that it allows investors time to set up operations, including building factories and training workers.

“For instance, one of the requirements is to build a factory capable of producing goods worth $500,000 (about Sh1.4 billion) annually. That’s not achievable within a year,” he said.

But Mr Kulaba questioned the long-term value of such incentives, noting that his research had uncovered cases where companies failed to build permanent structures.

“Some firms operate for a decade and then leave with their profits. If we’re serious about industrialising Tanzania, we must ensure long-term investments. Since the introduction of EPZs during President Benjamin Mkapa’s administration, we expected to see large, stable factories—not temporary setups.”

Mr Yonazi, however, pointed out that over 250 investors have now built factories across Tanzania, employing more than 70,000 people.

“These jobs range from low-skilled to professional and administrative roles,” he said.

Still, Mr Kulaba observed that the majority of workers are engaged in low-skilled tasks.

“Most jobs involve basic tasks like sewing, which do not encourage meaningful technology transfer. Locals rarely engage in advanced technical work such as machinery operations,” he noted.

He added that such roles often come with low wages, limiting the government's ability to collect sufficient Pay As You Earn (PAYE) tax.

A worker at the Tooku garment factory, who spoke on condition of anonymity, said: “I earn Sh150,000 a month. After deductions, I take home Sh130,000—before tax and other expenses.”

Raw material loopholes

Mr Kulaba also raised concerns about the importation of semi-processed raw materials by some investors.

“I found that some textile factories were importing pre-processed fabric merely to conduct sewing operations locally. Why not use Tanzanian-grown cotton? Most jobs are created in countries where the raw materials are processed,” he said.

He argued that such practices allow products to be labelled 'Made in Tanzania' and qualify for tax exemptions—despite minimal local value addition.

In response, Mr Yonazi stated that investors must follow clear guidelines on sourcing materials and identifying target markets.

“Textile producers often work with international brands that require specific fabrics and accessories. These are imported, but the full garment is sewn in Tanzania,” he said.

Scrutinising the impact

Professor Abel Kinyondo, an economist at the University of Dar es Salaam, said the original vision for EPZs and Special Economic Zones (SEZs) was commendable, but their implementation has fallen short.

“These zones were intended to foster industrialisation, but instead they have become avenues for tax evasion,” he said.

Prof Kinyondo argued that unless the zones create quality jobs, enhance local technological capacity, and contribute to tax revenues, the incentive framework must be revisited.

According to its website, EPZA commenced operations in 2007 with a handful of small-scale factories. 

The government developed the first industrial zone in Mabibo-External, Dar es Salaam, which attracted investment worth $88 million (about Sh236.7 billion).

Speaking during a visit by a delegation from the Angolan Embassy on 18 February 2025, EPZA Director Charles Itembe said the agency had registered industrial projects worth over Sh8.07 trillion in various stages of development.

In addition to EPZ and SEZ incentives, the government also offers benefits to major investors under the Investment Act, which was revised in June 2023.

Section 19(1) of the Act requires investors to apply for incentives through the Tanzania Investment Centre (TIC).

Further incentives are available under the TRA Act (2019), the Tax Administration Act (2022), the VAT Act (2014), the Income Tax Act (2019), and the East African Community Customs Management Act (2019).

The 2023 Finance Act also granted the Ministry of Finance power to exempt VAT and other taxes on gas storage, export, and distribution equipment.

The cost of illicit financial flows

At a recent stakeholders’ forum on IFFs held in Dodoma, Saint Augustine University lecturer Norah Kawiche warned that the issue continues to undermine national development.

“Illicit financial flows lead to budget shortfalls, rising debt, and underfunded social services. As of 30 June 2024, the national debt had reached over Sh97.35 trillion—up from Sh82.25 trillion in 2022/23, an increase of 18.36 percent,” she said.

Ms Kawiche recommended reforms to the Anti-Money Laundering Act (2022), the Companies Act (2022), tax laws, and the 2018 transfer pricing regulations.

Responding at the forum, TIC legal officer Charles Mpaka said the government has put in place effective controls, which has led to a rise in investment projects.

“From 2020 to 2024, TIC registered a significant increase in projects: 207 in 2020, 236 in 2021, 293 in 2022, 526 in 2023, and 901 in 2024, worth $7.75 billion (over Sh2 trillion). This reflects growing investor confidence,” he said.

However, he acknowledged that loopholes remain.

“Tanzania has both strengths and weaknesses. While laws exist, methods of money laundering evolve constantly. By the time we update legislation, perpetrators have already moved ahead.”

This project received support from the Thomson Reuters Foundation through the Media Foundation for West Africa, as part of its global work to strengthen free, just, and informed societies. The support did not influence the editorial content. The views in this article are solely those of the writer and are not endorsed by the Thomson Reuters Foundation, Thomson Reuters, Reuters, or any related organizations.