Tanzania Finance Act 2025: Key Highlights and Practical Reflections on Tax Laws Updates

The Government of Tanzania has officially enacted the Finance Act 2025, bringing with it significant amendments to various tax laws. The changes are aimed at boosting revenue collection, widening the tax net, and improving taxpayer compliance. While most proposals from the earlier Finance Bill have been passed, a few were either modified or dropped in the final Act.

This article breaks down some of the updates now in force, highlights where changes occurred between the Bill and the Act, and reflects on what these developments could mean for businesses and taxpayers across the country.

1. Income Tax Measures

a) Tax on Retained Earnings

The original proposal was to treat all undistributed retained earnings as capitalised profits and apply a 10% withholding tax. This was not approved.

Instead, a new Section 33A has been introduced:

• Companies will have 12 months to distribute profits after the end of the financial year.

• If profits are not distributed, the Commissioner may deem 30% of the profits as distributed and apply withholding tax.

• Any future distribution of these same profits will be exempt from further withholding tax.

There is still uncertainty: If a company distributes less than 30%, will the Commissioner impose withholding tax on the balance to meet the threshold? If so, this would imply an expectation for all companies to distribute at least 30% of profits annually or pay the withholding tax 'in advance' regardless.

Another concern is how this will apply to companies with accumulated losses but positive earnings in a particular year. Will they still be expected to distribute 30% of current-year profits, despite having negative retained earnings?

b) Minimum Tax on Loss-Making Entities

Approved as proposed: A company that reports unrelieved losses for three consecutive years will now pay 1% of its gross turnover (increased from 0.5%).

c) DSE Listing Incentive

Approved as proposed: To qualify for the 25% corporate tax rate, newly listed companies now only need to float 25% of their shares (down from 30%).

d) Asset Transfers to Associates

Approved: The original transfer value (higher of cost or market value) must be carried forward into future transactions involving associates or recipients of gifts.

e) Loss Carryforward for Extractive Industries

Approved as proposed: The carryforward limit for prior-year losses is reduced from 70% to 60% for mining, petroleum, and gas sectors.

f) Expanded Withholding Tax

Approved as proposed: A withholding tax now applies to:

• Rental payments for hired vehicles,

• Gaming promotion and advertising commissions, and

• Purchases of industrial minerals, including salt

g) Forest Produce Tax

The Bill initially proposed a gross-revenue tax rate of 3.5%; however, Parliament approved a reduced rate of 2%, applicable to individuals only, as originally intended. The enacted law further clarified that the tax will be final and set the implementation date to begin on 1st January 2026.

h) Capital Gains by Non-Residents

The single instalment tax rate for non-resident individuals selling assets rises from 20% to 30%.

i) Thresholds for Returns to be certified

Approved with modification: Individuals earning above TZS 500 million and companies earning above TZS 100 million are required to have their tax returns prepared or certified by a CPA. However, the CPA must be in public practice (a registered auditor), as was previously the case.

The intention was to ease the burden on smaller businesses. However, questions arise about whether this contradicts Section 21 of the Income Tax Act and Section 43(2) of the Tax Administration Act, which requires proper accounting and record-keeping.

Since audited financial statements will not be required for taxpayers below the stated thresholds, would it be more appropriate to place them under the presumptive tax regime - rather than exposing them to potential errors and inaccuracies through self-reporting?

j) Interest Deduction Rules for Exempt-Controlled Entities

Approved with refinement: Unlike the earlier proposal, not all retained earnings will be added to share capital for debt-to-equity calculations — only positive retained earnings will be included.

k) EPZ/SEZ Local Sales

Approved as proposed: Income tax exemptions will no longer apply to goods/services sold locally by entities in EPZ/SEZ zones.

2. Tax Administration Reforms

a) Tax Residency Certificates

Approved as proposed: The Commissioner is now empowered to issue official tax residency certificates.

b) Formalising Small Traders

Approved as proposed: TINs will now be issued to small-scale traders registered by relevant authorities, even if below the tax threshold. If they later exceed taxable limits, they’ll be assessed.

c) Electronic Tax System

Approved as proposed: Amended the Commissioner's powers to establish an electronic tax administration system, integrate it with taxpayers' systems, set out proper usage procedures for tax administration purposes, and specify penalties for misuse of the system.

d) Subcontractor Disclosures

Approved as proposed: Entities in construction and extractive industries must submit subcontractor details (including contract value, work type, and timeline) within 30 days.

e) Objection and Appeal Process

Approved as proposed: To admit an objection, the taxpayer must file on time and pay either one-third of the tax, the undisputed amount, or an amount approved under waiver.

If:

• A taxpayer fails to respond to the Commissioner’s notice within 30 days = the notice stands.

• The Commissioner fails to issue a decision within 6 months = the notice also stands.

f) Limits on Enforcement

Approved as proposed: The Commissioner General’s powers to issue jeopardy assessments, restrain assets, or collect from third parties are now capped at 3 months.

g) New Penalty for Transfer Pricing Non-Compliance

Approved as proposed: The Finance Act 2025 introduces a new penalty targeting taxpayers who engage in controlled transactions but fail to apply the arm’s length principle, especially where this results in overstated tax losses. While the law already imposed a penalty of 100% on any tax shortfall, the new amendment introduces a 30% penalty on the amount of adjusted (overstated) loss. This provision is particularly relevant for entities that use related-party transactions to inflate losses and reduce their taxable income, marking a stricter stance against such practices.

3. VAT Reforms

a) VAT Withholding Practice introduced in the Finance Act 2025

Approved with changes:

For goods, 3% of VAT is withheld; 15% goes to the supplier.

For services, 6% is withheld; 12% goes to the service provider.

b) Reduced VAT for Digital Payments

Approved as proposed: If an unregistered buyer pays electronically, VAT is reduced to 16%. The practice is effective from 1st September 2025, subject to further guidelines.

c) VAT Deferment Sunset Clause

The Bill proposed removing the expiry date for VAT deferment on capital goods, but this was not approved. It remains in place until 30 June 2026.

d) Online Intermediation Expanded

Approved as proposed: The definition now includes marketplace platforms and network marketing platforms.

4. Action Points for Taxpayers:

   • Prepare for a 1% Turnover Tax if Reporting Recurring Losses

Businesses that declare tax losses for three consecutive years should prepare for the newly introduced 1% minimum tax on gross turnover, up from the previous 0.5%.

• Review Dividend Policies in Light of Deemed Distribution Rule

Companies should re-evaluate their dividend strategies and align them with the new 12-month distribution window to avoid deemed distribution consequences and associated withholding tax.

• Understand CPA Certification Thresholds

Taxpayers earning above TZS 100 million (companies) and TZS 500 million (individuals) must ensure their tax returns are prepared or certified by a Certified Public Accountant in public practice (auditor), as previously required.

• Taxpayers Below the Threshold Should Learn the Basics of Tax Return Filing

Even though certification by a CPA is not mandatory, small taxpayers should still maintain proper records and understand basic return filing to avoid compliance risks.

• Comply Early with New Reporting and Disclosure Obligations

Stay ahead of expanded requirements—including subcontractor disclosures, electronic record-keeping, and tighter objection timelines—to avoid penalties or missed deadlines.

• Monitor Key Effective Dates and Plan Accordingly

Take note of changes taking effect later, such as the 2% tax on forest produce (effective 1st January 2026) and the 16% VAT incentive for digital payments (effective 1st September 2025).

• Understand and Implement VAT Withholding Rules

For taxable supplies made to designated withholding agents (including government institutions), understand the updated VAT split:

• Goods: 3% VAT withheld by the agent, 15% paid to the supplier,

• Services: 6% VAT withheld by the agent, 12% paid to the service provider.

Suppliers, service providers, and agents must both align their systems to ensure proper invoicing and remittance.

Final Reflection

The Finance Act 2025 brings a mix of continuity and change, retaining key policy directions while introducing new compliance expectations for businesses and individuals alike. While some measures aim to broaden the tax base and increase efficiency, others raise practical and interpretive questions that will unfold during implementation. It is now more important than ever for taxpayers to stay informed, seek professional guidance where needed, and adapt early to avoid surprises. As the tax landscape continues to evolve, proactive engagement will be key to staying compliant and competitive.

DISCLAIMER:

This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. While reasonable efforts have been made to ensure the accuracy of the information as of the date of publication, readers are encouraged to consult the official Finance Act 2025, applicable tax laws, and relevant regulations for specific guidance. The author and publisher accept no responsibility for any actions taken based on the content herein.