Stakeholders back fiscal reforms to boost business growth

DAR ES SALAAM: BUSINESS leaders and tax experts have welcomed a series of proposed fiscal reforms contained in the 2026/27 national budget, describing them as positive steps toward improving the business environment, encouraging investment and supporting economic growth.

The stakeholders made their observations during EY Tanzania Annual Budget Briefing 2026/26, where they examined a range of proposed tax and policy changes announced by the government.

While welcoming the reforms, they also urged authorities to continue addressing challenges affecting businesses, including rising costs of living and doing business.

Associate Director of International Tax and Transaction Services at EY Tanzania, Ms Chialu Masonobo, said one of the most significant proposals was the extension of the tax holiday period to 12 months for newly registered businesses.

She noted that under the previous framework, some businesses were required to begin meeting tax obligations shortly after registration, even before they had fully established operations.

“Many entrepreneurs felt they were being assessed for taxes before their businesses had matured enough to generate sustainable income,” Masonobo said. “The proposed changes provide businesses with more time to stabilize and grow before facing certain tax obligations, which is a positive development.”

She said the reforms demonstrate the government’s willingness to listen to concerns raised by the private sector and respond with measures aimed at creating a more supportive business environment.

Ms Masonobo also welcomed the proposal to reduce the tax rate on retained earnings from 30 per cent to 15 per cent, saying the move would ease pressure on businesses seeking to reinvest profits into expansion.

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“Retained earnings are important for business growth. Reducing this burden encourages companies to reinvest and expand operations, ultimately creating more jobs and contributing to economic development,” she said.

Despite the positive measures, Ms Masonobo urged the government to continue reviewing tax policies and address broader economic challenges facing citizens and businesses.

She pointed to global factors such as rising food prices, fuel costs and transportation expenses, saying these continue to affect household incomes and business operations.

“While some of these factors are beyond government control, there is still room for policy interventions that can help ease the burden on citizens and businesses,” she said.

Development economist Professor Abel Kinyondo of the University of Dar es Salaam described the budget as an important instrument for promoting inclusive growth and reducing inequality in access to public services.

Prof Kinyondo noted that Tanzania’s service sector remains the largest contributor to the economy, accounting for approximately 42 per cent of Gross Domestic Product (GDP), followed by industry at around 15 per cent.

He said sustained economic growth would depend on ensuring that Tanzanians actively participate in strategic development projects.

“The only way to maximize benefits from major investments is to ensure local participation. Tanzanians must be engaged in these strategic projects so that growth translates into broader economic opportunities,” he said.

The economist also called for improved efficiency in public spending and debt management, stressing that effective utilization of public resources remains critical to achieving long-term development goals.

EY Tanzania Tax Manager Happiness Gharabaster highlighted several proposed changes under the Value Added Tax (VAT) regime, describing many of them as business-friendly measures intended to improve cash flow and support priority sectors.

She emphasized that the proposals are still undergoing legislative processes and will only become legally binding after approval and enactment.

Among the notable proposals is a requirement for VAT refund applications to be processed within 30 days. Happiness said the measure could significantly reduce longstanding refund backlogs that have affected many businesses.

“This is a positive proposal because delayed VAT refunds have been a major concern for taxpayers. However, questions remain regarding the practicality of completing audits and verification processes within the proposed timeframe,” she said.

The tax specialist also highlighted several incentives aimed at promoting clean energy and industrial transformation.

These include extensions of VAT relief for liquefied petroleum gas (LPG) distributors and exemptions on imported equipment used in electric vehicle charging infrastructure.

According to her, the measures align with Tanzania’s broader agenda of encouraging investment in sustainable energy solutions and reducing dependence on fossil fuels.

Additional proposals target strategic sectors such as manufacturing and aviation.

The government has proposed maintaining duty relief on capital goods to lower investment costs and support industrial development. Tax exemptions have also been extended to selected aviation equipment, including aircraft parts, turbojets, propellers and related components, in a move aimed at strengthening the aviation industry.

Ms Gharabaster said the budget also reflects the government’s intention to protect domestic production through continued incentives for locally manufactured goods.

Among the measures are tax incentives supporting edible oil production using locally sourced raw materials, as well as incentives for textiles and packaging materials produced from local inputs.

“These measures are intended to improve competitiveness for local manufacturers and strengthen Tanzania’s position in regional and international markets,” she said.

Meanwhile, EY Tanzania Senior Tax Manager Fredy Rugangila, said the budget demonstrates the government’s commitment to broadening the tax base while supporting inclusive economic growth.

He pointed to proposals aimed at formalizing the informal sector, including a 12-month tax holiday for qualifying taxpayers and an increase in the income tax threshold from 100m/- to 200m/-.

“These initiatives are designed to encourage compliance while easing the burden on small and growing businesses,” Mr Rugangila said.

He also welcomed the proposal to further reduce taxation on undistributed profits, noting that the earlier framework had discouraged business expansion by taxing retained earnings.

“The reduction from 30 per cent to 15 per cent is a positive move because it allows businesses to retain more capital for reinvestment and growth,” he said.

However, Mr Rugangila noted that some revenue-raising measures have also been proposed, including an increase in the digital services tax from 2 per cent to 3 per cent for non-resident providers of electronic services.