Tanzania Finance Act, 2025 and Implications to the Financial Institutions (Banks, Microfinance and other entities)

Tanzania Introduces 10% Withholding Tax on Undistributed Profits (Retained Earnings not distributed) after a period of 12 months of the year of Income

The Finance Act, 2025 has introduced section 33A in the Income Tax Act as an anti-avoidance provision to give discretion  the TRA Commissioner to treaty  thirty percent of the profit of the entity, as having been distributed on a date twelve months after the end of the year of income for cases where an entity has not made distribution for the year of income for a period of twelve months, after the end of the year of income.

To allow the commissioner a possibility to treat 30% profits for a year to be paid as dividend is not a normal business practice ignores the fact that some businesses retain some funds for expansion, cashflow management or to comply with regulatory requirements as it is the case for banks.

However, on a positive note, the Act, stipulates that where an entity subsequently makes distribution e.g. through dividend payout, the entity shall not be obliged to withhold income tax in respect of the amount deemed distributed.

However companies should keep appropriate accounting records to justify non-withholding during dividend distribution.

Deemed Admission of Objection

The Tax Administration has been amended to expand the conditions under which an objection is deemed to be admitted. Before this amendment an objection was deemed to be admitted when the taxpayer had met the tax payment deposit requirement. Now two other conditions have been introduced.

For cases where tax is due (there is a tax liability), an objection shall be deemed to have been admitted on the earlier of date of service of the objection to the Commissioner i.e within 30 days or on the date of payment of the lesser amount as allowed by the Commissioner. For cases where there is no tax liability the objection shall be deemed to have been admitted on the date of service of the objection to the Commissioner General.

This is a welcome clarification especially for objections where the Commissioner has permitted the payment of lesser amount or waive the requirement to pay the tax deposit.

Tanzania Introduces Withholding VAT (WVAT)

The Finance Act, 2025 has established a VAT collection agency system to be collected by withholding agents. The objective is to increase efficiency in collection of VAT. These withholding agents include (a) the Ministry responsible for finance; (b) a government entity which retains whole or part of its collected revenue; and (c) a registered person as may be appointed by the Commissioner General by notice.

The VAT withholding rates are 3% and 6% for goods and services respectively. Taxpayers cannot deduct withheld output tax unless they possess a valid VAT withholding certificate at the time of filing.

A withholding agent must issue a VAT Withholding Certificate to the supplier not later than the day on which value added tax becomes payable on the supply. The certificate shall be in a prescribed format by the Minister and should include the date of issue Withholding agent’s name, TIN, and VAT registration number, Supply details (description, quantity, etc.), total payment and VAT amount included, VAT rate and amount withheld, Supplier’s name, address, TIN, and VAT registration number.

Tanzania Introduces Assisted Government Entities Mechanism in VAT Collection

This is another type of VAT withholding. Assisted Government entity has been defined as a government entity in respect of which the Commissioner General is empowered to collect considerations for a taxable supply payable to such entity.

VAT Treatment for Assisted Government Entities (Section 27A)

When an assisted Government entity supplies goods or services, the payment is collected by the Commissioner General. Then the VAT included in that payment is treated as an advance VAT payment by the entity to the Commissioner General.

The mechanism of accounting for VAT on supplies by assisted Government entities has also been stipulated whereby VAT on the supplies will be accounted for as advanced VAT paid to the Commissioner and should be supported by a VAT withholding certificate. This certificate must meet specific criteria to be valid. Suppliers can deduct VAT withheld at the time of filing returns provided they hold valid VAT withholding certificates. The challenge will be the timing of issuing the certificates to allow VAT deduction.

Return of Income to be Certified by a Certified Public Accountant in Public Practice

The Income Tax Act has been amended to mandate the return of income to be prepared or certified by a certified public accountant in public practice for cases of an individual whose turnover in a year of income exceeds five hundred million (TZS 500m) shillings and a corporation whose gross income in a year of income exceeds one hundred million shillings (TZS 100m).

Amendment of Excise Duty Rates

Excise duty on pay per view services has been increased from 5% to 7%. The budget speech had proposed an increase to 10%, so the increase to 7% is a relief to viewers and the companies in the sector.

Tanzania Reduces VAT rate to 16% for Online Purchases

To encourage electronic transactions, effective from 1st September, 2025 purchases of goods paid via digital means will enjoy a reduced VAT rate of 16% (down from 18%) as an incentive for cashless payments. This is for B2C. The Commissioner General shall, by public notice, specify the people and the manner in which the arrangement shall be implemented.  For supplies taxed at 16%, taxpayers must submit proof of electronic or bank payment as directed by the Commissioner General to enjoy input tax deductions.

The objective is to encourage the use of online payment systems, reduce the use of hard cash and simplify tax administration by facilitating the availability of information on purchase transactions.

The digital payment VAT discount could encourage businesses and consumers to adopt electronic payments to save 2% VAT on big-ticket goods – beneficial for those with access to banking/mobile money, but not usable by cash-only customers. The lower VAT on digital payments could improve tax collection efficiency (less cash economy) but might disproportionately reward urban taxpayers. Businesses should make changes to their systems to accommodate the two VAT rates based on the model of payment and keep adequate information to justify the use of lower rates.

Other VAT changes in the Finance Act, 2025

• Amendment of Electronic services

To expand the scope of taxation and increase the tax base, the Finance Act has included online marketplace platforms and network marketing platforms in the scope of the definition of online intermediation services e.g. booking stays. This implies inclusion of non-resident online payment services platforms using infrastructure of other service providers in the scope of financial intermediaries (online intermediation payment platforms) that provide services in the country from abroad.

• VAT on reinsurance services is also exempted, removing VAT on premiums between local insurers and reinsurer This is to increase the competitiveness of local companies and promote the growth of the insurance sector. Insurers will have lower costs on reinsurance, potentially stabilizing premiums.
• Zero rate VAT on textiles made with locally grown cotton for one year (continuing through June 2026). This is aimed at supporting cotton farmers and local garment industries.
• Zero rate VAT on locally produced fertilizers for a period of three years. The aim is to provide cost relief to farmers and consumers
• Exempt VAT on edible cooking oil produced domestically from local oilseeds is introduced for one year to boost local edible oil production and lower consumer prices.
• To broaden the base, the VAT exemption on bitumen (tar) is removed (HS 2713.20.00, 2715.00.00) so that road construction materials are now standard-rate
• VAT exemption on tractor tires under HS Code 4011.70.00; dam liners with heading 39.20; forks HS Code 8201.90.00 and axes HS Code 8201.40.00 to be granted after the approval of the Minister for agriculture.
• VAT exemption on newspapers published locally to make news more accessible.
• VAT exemption on natural gas sold to Compressed Natural Gas Stations for motor vehicles use only. The aim is to provide relief to investors, attract investment in Compressed Natural Gas stations for vehicles, reduce carbon emissions and dependence on oil.
• Exempt VAT on cooking gas tanks and cylinders under HS Code 7311.00.10 and carbonization furnace with HS Code 8417.80.00 for production of briquettes. To reduce cost so as to encourage the use of clean cooking energy.
• Value Added Tax Deletions and Amendments
• Amend item 15(8) of part one of VAT Exemptions Schedule by deleting “Liquified Petroleum and Natural gases and Inserting “Liquified Petroleum Gas”
• Amend item 15(9) of part one of VAT Exemptions Schedule by deleting the word Compressed Natural Gases.
• Amend item 15 (10) of Part One of VAT exemptions schedule-deleting the word Compressed or Liquefied gas cylinders (CNG) for petroleum and natural gases for cooking and insert the word Liquified Petroleum Gas (LPG) for cylinders
• Amend item 15 of Part Two of the VAT Act by deleting the exemption of non-CNG equipment such as natural gas pipes, transportation and distribution pipes, natural gas metering equipment, gas receiving units, flare gas system, condensate tanks and leading facility, system piping and pipe rack and condensate stabilizer. These have been replaced by CNG Compressor and CNG metering equipment as essential in equipment in CNG filling and metering stations. The objective is for the exemptions to benefit CNG station investors and align with the international agenda on the use of clean energy.

Other income tax and tax administration changes

For income tax, there is Introduction of 10% withholding tax on hired motor vehicles. Further, the 10 years tax exemptions related to local sales for special economic zones (SEZ) and export processing zones (EPZ) have been abolished. Also, he definition of equity for thin capitalisation has been expanded to cover positive retained earnings.

Also, for newly listed company at the Dar es Salaam Stock Exchange (DSE) to enjoy the reduced corporate tax rate of 25% only 25% of ownership stake should be traded in the public instead of 30%.

For tax administration, there is an establishment of an electronic tax administration system. The taxpayer’s system for EFD issuance must now be interfaced/linked with the TRA system.

For more inquires and information on the Tanzania Finance Act, 2025 and Implications to the Financial Institutions, reach us out through info@auditaxinternational.co.tz