AS Tanzania embarks on a critical journey to reform its tax system, the stakes are higher than ever.
During the 15th Tanzania National Business Council (TNBC), President Dr Samia Suluhu called for comprehensive tax reforms to address the inefficiencies, inequities and complexities that have long plagued the country’s fiscal framework.
While Tanzania’s tax system has evolved significantly over the decades, its structural flaws and administrative challenges remain major barriers to achieving economic equity and fostering growth.
This article delves deep into the historical foundations and current realities of Tanzania’s tax system, highlighting the urgent need for reforms that align with the nation’s development goals.
A colonial legacy: Taxation as a tool of control Tanzania’s tax system is deeply rooted in its colonial past, where taxation served as an instrument of control rather than a mechanism for development.
During the German colonial era (1885–1919), taxes like the hut tax were imposed to force indigenous populations into the colonial cash economy.
These taxes compelled Tanzanians to either grow cash crops or sell their labour to pay levies, often at the expense of subsistence farming and traditional livelihoods.
When the British assumed control after World War I, they retained and expanded these policies, introducing taxes such as the poll tax.
This levy targeted adult males and further entrenched the economic exploitation of local communities. While these taxes raised significant revenue for the colonial administrations, they exacerbated poverty and created economic inequalities that persisted into the post-independence era.
Post-independence reforms: Centralisation and national development
After gaining independence in 1961, Tanzania sought to dismantle the exploitative colonial taxation framework and replace it with policies aimed at nation-building.
Under President Julius Nyerere’s socialist vision, taxation became central to funding education, healthcare and infrastructure.
The post independence government prioritised centralising tax administration to improve revenue collection and streamline its distribution. Agricultural taxes became a cornerstone of the new system, leveraging Tanzania’s agrarian economy to fund public services.
However, this approach placed a disproportionate burden on rural farmers, many of whom were already struggling with poverty.
Nationalisation policies introduced in the 1967 Arusha Declaration further reshaped the tax system, shifting much of the tax burden to state-owned enterprises (SOEs), while reducing reliance on private sector contributions.
Key tax types introduced during this era included progressive income taxes aimed at redistributing wealth and reducing inequality, the development levy, a flat tax designed to fund rural infrastructure projects but criticised for its regressive impact and agricultural produce taxes on cash crops like coffee, cotton, and sisal, which generated significant revenue but strained smallholder farmers.
While these reforms helped fund essential services, they also created inefficiencies as state-owned enterprises (SOEs) struggled to generate adequate revenue, and the system’s heavy reliance on agriculture left it vulnerable to external shocks like global commodity price fluctuations.
The shift to liberalisation in the 1990s
By the late 1980s, it was evident that Tanzania’s socialist tax policies were unsustainable. Economic stagnation, inefficiencies in SOEs and declining revenue forced the government to adopt market-oriented reforms.
The 1990s marked a turning point for Tanzania’s tax system as the country embraced liberalisation under structural adjustment programmes supported by the International Monetary Fund (IMF) and the World Bank.
The introduction of the Value Added Tax (VAT) in 1998 was one of the most significant reforms of this era. VAT replaced the sales tax and broadened the tax base by taxing goods and services at multiple stages of production and distribution.
Its implementation improved compliance and quickly became a major source of government revenue. Corporate income tax reforms also played a pivotal role in this transition.
The government reduced tax rates from 50 per cent to 30 per cent to attract foreign direct investments (FDIs) and stimulate private sector growth.
Tax incentives, such as exemptions and tax holidays, were introduced to encourage investment in key sectors like mining, tourism and manufacturing.
While these reforms revitalised the economy, challenges persisted. VAT compliance remained low among small businesses and enforcement mechanisms we’re insufficient to address widespread tax evasion
Additionally, reliance on tax incentives created revenue leakages without always delivering longterm economic benefit.
Modern tax administration: Progress and pitfalls
Since the early 2000s, Tanzania has made significant strides in modernizing its tax administration.
The Tanzania Revenue Authority (TRA) has been at the forefront of these efforts, introducing technologies and policies aimed at improving efficiency and transparency.
One of the key developments has been the adoption of electronic fiscal devices (EFDs) to monitor transactions in real-time, reducing opportunities for tax evasion.
Online tax filing systems have further streamlined compliance processes for businesses and individuals. Despite these advancements, adoption remains uneven, particularly in rural areas where digital infrastructure is limited.
Efforts to broaden the tax base have focused on integrating the informal sector, which accounts for a significant portion of economic activity. Simplified tax regimes, such as presumptive taxes, were introduced to encourage small businesses and informal traders to formalize their operations.
However, the lack of taxpayer education and the perceived complexity of the system continue to hinder these efforts.
Structural challenges During the officiation of the Tax Reformation Committee, President Samia highlighted the critical challenges that Tanzania’s tax system must overcome to support equitable growth and economic stability.
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She emphasized that the narrow tax base, driven by the exclusion of the informal sector, places an undue burden on formal businesses and individuals, restricting revenue generation and perpetuating inequalities.
The president pointed out that the overreliance on indirect taxes like VAT disproportionately affects low-income households, worsening economic disparities.
She also addressed the complexity of compliance processes, which burden small and mediumsized enterprises with overlapping regulations and discourage voluntary tax payment.
Dr Samia underscored the pressing need to strengthen enforcement mechanisms, noting that weak oversight enables high-income earners and corporations to evade taxes, eroding public trust and causing significant revenue losses.
Furthermore, she called attention to the unpredictability of tax policies, which undermines business confidence and deters long-term investment.
The President concluded by stressing the importance of comprehensive reforms to create a tax system that is fair, efficient and aligned with Tanzania’s vision for sustainable development.
To support this vital initiative, a miniseries of articles will be published to assess the strengths and weaknesses of Tanzania’s tax system, identify areas requiring urgent improvement, and propose actionable recommendations.
These articles will provide an in-depth analysis of the system’s historical evolution, current structure, and its impact on different sectors of the economy, serving as a platform for informed discussion and stakeholder engagement.
Through this series, the Daily News aims to contribute to the national conversation on building a robust and inclusive tax framework that drives Tanzania’s progress.
