Stakeholders urge caution as budget scrutiny begins

Key on the issues that require further scrutiny is the introduction of withholding tax on agricultural products.

The budget, tabled in Parliament on June 12 by Finance Minister Khamis Mussa Omar, proposes a one percent non-final withholding tax on selected agricultural, livestock and fisheries transactions.

Under the plan, corporations purchasing food crops at the point of sale or transportation will deduct one percent from payments to sellers, who can later claim the amount as a credit against annual income tax.

A similar levy will apply to purchases of live animals, unprocessed milk, unprocessed fish and fish maws.

“The government proposes to introduce a one percent non-final withholding tax on payments made by corporations for the purchase of food crops at the point of sale or transportation and a one percent withholding tax on payments made by companies or institutions to suppliers of live animals, unprocessed milk, unprocessed fish, and fish maws,” the budget document states.

The measure is expected to take effect after approval of the Finance Bill 2026 and enactment of the Finance Act 2026.

Agriculture Council of Tanzania (ACT) chairman Jitu Soni said the proposals risk increasing pressure on small producers, arguing that traders and middlemen are likely to pass additional costs down the value chain.

“Traders and middlemen who usually take produce to market are likely to pass the additional costs to farmers, livestock keepers and fishermen, while the final consumer may not necessarily bear the burden,” he said.

Mr Soni also said the budget missed an opportunity to stimulate small-scale industrialisation by failing to exempt capital goods valued below Sh60 million from taxes.

He noted that entrepreneurs investing between Sh20 million and Sh50 million in processing industries continue to face taxes on machinery and equipment, limiting value addition.

“We had hoped these taxes would be abolished to encourage value addition and promote industrial processing,” he said, adding that a one-year tax holiday for start-ups could help businesses stabilise in their early stages.

Independent economist, Oscar Mkude, said the central challenge facing the economy remains weak household purchasing power, which continues to constrain demand and business growth.

“At the moment, the main problem is income. People may want goods like clothing, but they simply do not have the money,” he said, questioning how the budget would address employment creation and income growth.

He also raised concern over the country’s high dependency ratio, arguing that infrastructure-led growth must be complemented by policies that directly raise household incomes.

Mzumbe University economist, Dr Daudi Ndaki, urged stronger expenditure control and expanded use of digital systems to improve revenue collection, particularly at local government level.

He said councils manage a significant portion of taxpayers but continue to underperform in revenue mobilisation, despite having strong potential to support national development financing.

Dr Ndaki also defended some tax measures on imported equipment, arguing they align with Tanzania’s industrialisation agenda. “It is not possible to industrialise a country while heavily relying on imports,” he said.

Positive shift, good for businesses

University of Dar es Salaam economist, Dr Wilhelm Ngasamiaku, said the budget’s emphasis on cleaner energy and electric mobility reflects a positive shift towards an inclusive green economy.

He said reducing reliance on polluting fuels while promoting electricity and compressed natural gas (CNG) supports long-term environmental sustainability.

Tax experts speaking at the EY Tanzania Annual Budget Briefing welcomed several proposals, including tax incentives for start-ups, reduced tax on retained earnings from 30 percent to 15 percent, and faster VAT refund processing within 30 days.

EY Director for International Tax and Transaction Services, Chialu Masonobo, said the proposed one-year tax holiday for new businesses could help start-ups navigate early-stage financial constraints.

However, she cautioned that tax reforms alone may not be sufficient amid rising living costs.

University of Dar es Salaam development economist, Prof Abel Kinyondo, said the effectiveness of the budget would depend on how well economic growth translates into jobs and opportunities for ordinary citizens.

EY Tanzania Tax Manager, Happiness Gharabaster, said faster VAT refunds would improve business cash flows, while Senior Tax Manager, Fredy Rugangila, noted that raising the income tax threshold from Sh100 million to Sh200 million could encourage formalisation of businesses.

However, he pointed out that the budget also seeks to raise revenue through measures such as increasing the digital services tax on non-resident providers from two to three per cent.

The proposals now await parliamentary scrutiny as stakeholders continue to weigh their potential impact on growth, investment and household incomes.