City service levy standardised at 0.25pc

A NEW fixed service levy of 0.25 per cent on business turnover has replaced the variable framework that allowed rates of up to 0.3 per cent, aims to simplify compliance while eliminating sector-specific arrangements.

The change, according to the Finance Act, 2025, effective from 1 July, standardises the levy across all sectors and eliminates previous discretionary arrangements while requiring companies to align their financial planning and reporting with a uniform rate.

“The new fixed rate of 0.25 per cent replaces the earlier framework that allowed local authorities to set rates up to 0.3 per cent,” PwC Tanzania’s Service Levy Alert said.

“This means sector-specific arrangements, such as the banking industry’s 0.2 per cent rate, are no longer supported by law.” The service levy, popularly referred to as the city service levy, is imposed by local government authorities (LGA) on businesses operating within their jurisdictions. It is payable quarterly and is intended to fund local services and infrastructure projects.

“Businesses should ensure that quarterly service levy payments are made to the LGA by the end of each quarter using the new rate,” said PwC.

The firm added that businesses should calculate the levy for the first two months of the quarter based on actual turnover, while the last month should use estimated turnover.

PwC further highlighted that net turnover should exclude excise duty and Value Added Tax (VAT).

ALSO READ: Plastic waste seen as economic goldmine in TZ’s recycling push

“It is important to reconcile revenue reported in financial statements with revenue declared in service levy returns and document any variances for audit purposes,” said the advisory firm. To avoid penalties, businesses are also advised to maintain complete records of calculations, returns and proof of payments and to closely monitor payment timelines. “Late payment can attract fines and interest charges,” said PwC.

The reduction could ease the cost burden for businesses while streamlining compliance. By establishing a uniform rate, local authorities aim to simplify administration and reduce disputes over sector-specific rates.

“The move towards a fixed service levy rate is intended to create predictability for businesses and ensure uniformity across industries,” said PwC.

With the country’s business landscape becoming increasingly formalised, compliance with the new service levy framework is likely to become a key consideration for companies seeking to avoid unnecessary penalties.