Tanzania’s Private Sector Voices Concerns Over Proposed Fiscal Measures in 2025/26 Budget
Tanzania’s private sector expresses alarm over proposed fiscal measures in the 2025/26 budget, particularly a 10% withholding tax on retained earnings, which they argue could hinder investment and economic growth. Despite government reassurances, business leaders advocate for tax policies that stimulate growth and request clearer guidelines on compliance. The outcome of these discussions may have far-reaching implications for the business environment in Tanzania.
As Tanzania’s Parliament gears up to approve a substantial budget of Sh56.49 trillion for the upcoming 2025/26 fiscal year, private sector leaders are raising red flags over proposed fiscal measures. They argue that these measures could jeopardize investment, hamper economic growth, and weaken social safety nets. During a recent session with the Parliamentary Budget Committee, business representatives expressed their concerns about various clauses in the Finance Bill, warning that such provisions might undermine investor confidence and disrupt the predictability of government policy.
Mr. Raphael Maganga, the chief executive officer of the Tanzania Private Sector Foundation (TPSF), stressed the need for tax measures that promote business growth rather than hinder it. He specifically pointed to the proposed 10 percent withholding tax on retained earnings, claiming it would impose a financial strain on companies of all sizes and contradict the government’s goal of formalizing businesses. “It is difficult to see how informally operating businesses will be encouraged to formalise if doing so results in an additional tax burden,” Maganga remarked, calling for taxation that incentivizes growth instead of merely collecting revenue.
Maganga further contended that Tanzanian companies are still relatively small compared to their regional and global counterparts and need support to accumulate capital through reinvestment. He suggested that expecting businesses to reinvest retained earnings within a mere six months is unrealistic. While acknowledging that the withholding tax could generate about Sh130 billion in revenue, he warned that the potential negative economic impacts could overshadow these benefits, branding the tax a form of double taxation since retained earnings are already taxed as corporate income.
In response, Finance Minister Dr. Mwigulu Nchemba defended the measure during his budget presentation, stating that it is intended to address a gap that some companies have exploited under the pretext of reinvestment. He claimed that the measure would increase government revenues by Sh130.62 billion. In a social media clarification, Nchemba asserted, “Withholding tax on retained earnings is not double taxation. It is an anti-avoidance rule designed to uphold the equity principle of taxation, where dividends are taxed but retained earnings are not.”
Special Seats MP Neema Lugangira showed support for the withholding tax but called for enhancements in its implementation. She suggested that the Tanzania Revenue Authority (TRA) should provide clearer reinvestment guidelines and proposed extending the compliance timeframe from six months to one year to allow businesses adequate adjustment time.
Representing the Tanzania Bankers Association, Mr. Abdulmajid Nsekela highlighted that the proposed tax could have a particularly detrimental impact on the banking sector, which relies on retained earnings for capital adequacy. “The proposed tax contradicts existing regulations that limit the distribution of retained earnings as dividends,” Nsekela said. He expressed concern that the tax could harm core capital levels and the capacity for long-term financing in banks.
Deloitte tax partner Mr. Samwel Ndandala suggested that instead of imposing new taxes, the government should strengthen profit-reporting systems to curb tax evasion. He also urged for exemptions for start-ups and banks and clearer guidelines on the tax’s effective start date.
Other contentious elements of the Finance Bill include a mandatory three percent VAT withholding requirement, which TPSF warns could hurt suppliers’ cash flow and increase audit frequencies. Maganga proposed that VAT withholding deadlines align with income tax schedules to improve efficiency.
On the topic of excise duties, Maganga criticized proposed increases on beer and alcoholic beverages, citing a government pledge to maintain a moratorium on excise hikes until 2026. He argued that any new excise burdens should be placed on imported products instead.
Additionally, Maganga raised concerns about a $44 mandatory travel insurance charge for tourists, which was inspired by a scheme in Zanzibar. He argued that such fees risk duplicating existing coverage, increasing costs for budget travelers, and potentially discouraging tourists from exploring multiple destinations within Tanzania.
While the TPSF acknowledges the government’s need to enhance its revenue base, Maganga urged careful consideration of these proposals: “Without thoughtful adjustments, these proposals risk undermining reinvestment…” He believes that by refining these fiscal measures, the government can still broaden the tax base while fostering local investment and ensuring a fair and transparent economic environment. Support for this position comes from several industry bodies, illustrating a widespread call for balanced and progressive fiscal policymaking across Tanzania’s vast business landscape.
In conclusion, the proposed fiscal measures in Tanzania’s upcoming budget have sparked significant concern among private sector leaders, who argue they could negatively impact investment and economic growth. Withholding taxes on retained earnings, among other proposals, is seen as potentially harmful to businesses. Advocates within the private sector call for a more growth-oriented approach to tax policy. The upcoming budget discussions will be crucial in determining the fiscal landscape and its implications for investors and local businesses alike.
Original Source: www.thecitizen.co.tz
