Tanzania’s Private Sector Raises Concerns Over 2025/26 Budget Proposals

Tanzania's private sector concerned over fiscal proposals impacting investment and economic growth.

Concerns arise from Tanzania’s private sector regarding fiscal proposals in the 2025/26 budget, especially a proposed 10% withholding tax on retained earnings. Business leaders fear this will hamper reinvestment and economic growth. The Finance Minister defends the tax as a necessary measure, while industry representatives urge for adjustments to promote a more favorable business environment.

Tanzania’s private sector voices concern over fiscal proposals in the upcoming budget for the 2025/26 financial year, specifically citing potential adverse impacts on reinvestment. With parliament preparing to approve a Sh56.49 trillion budget, business leaders fear that certain measures might stifle investment and economic growth. Mr. Abdulmajid Nsekela of the Tanzania Bankers Association emphasized that the proposed taxation could affect the banking sector, which depends on retained earnings to meet mandates set by the Bank of Tanzania.

During a consultation held by the Parliamentary Budget Committee, executives from various industries expressed their worries. Mr. Raphael Maganga, CEO of the Tanzania Private Sector Foundation (TPSF), pleaded for tax strategies that boost economic expansion rather than hinder it. He pointed out that a proposed 10% withholding tax on retained earnings will negatively impact businesses of all sizes, contradicting efforts to formalize sectors. “Let us tax for growth, not just for revenue,” Mr. Maganga stated.

In addition, Mr. Maganga raised issues concerning the timing for the reinvestment of retained earnings, arguing that six months is too short. The economic fallout, he cautioned, may far exceed the projected Sh130 billion revenue gain from this taxation initiative. He noted that retained earnings have already been taxed as corporate income, thus labeling the measure a form of double taxation.

On the other hand, Finance Minister Dr. Mwigulu Nchemba defended the withholding tax, claiming it addresses loopholes exploited by certain firms claiming reinvestment. He forecasted the tax could boost government revenues by Sh130.62 billion. On social media, he asserted, “Withholding tax on retained earnings is not double taxation. It is an anti-avoidance rule designed to uphold the equity principle of taxation.”

Special Seats MP Neema Lugangira showed her support for the principle behind the tax but sought enhancements in its implementation. She suggested that the Tanzania Revenue Authority (TRA) offer clearer guidelines for legitimate reinvestment and extend the compliance window to one year—for businesses to adjust more effectively.

Mr. Nsekela expressed that the tax could hinder the banking sector as it operates under stringent regulations regarding retained earnings. He warned it risks affecting core capital levels and ultimately financing capacity within the industry. Mr. Samwel Ndandala, a tax partner at Deloitte, advocated against imposing new taxes and instead urged a focus on improving profit-reporting systems to counter tax evasion.

The Finance Bill also features a contentious proposal for a three percent VAT withholding requirement, which TPSF claims may constrain supplier cash flows and complicate credit issuance. Mr. Maganga suggested aligning VAT deadlines with income tax schedules and utilizing e-filing systems.

Criticism extended to proposed increases in excise duties on alcoholic beverages, with Mr. Maganga noting that this violates the government’s 2023 commitment to postpone excise raises until 2026. He recommended that any additional excise duties be applied to imports instead.

Moreover, the proposed $44 mandatory travel insurance for tourists sparked additional debate. Mr. Maganga argued it could duplicate coverage already in place and discourage budget travelers and multi-destination trips in Tanzania.

While acknowledging the government needs to broaden its revenue sources, Mr. Maganga warned of the dangers of these proposals: “Without thoughtful adjustments, these proposals risk undermining reinvestment…,” he cautioned. The TPSF’s position, supported by major industry groups, represents a coalition of diverse voices advocating for a balanced, growth-oriented approach in fiscal policymaking, representing more than five million enterprises nationwide.

In summary, the Tanzanian private sector is raising alarms over the proposed fiscal measures in the 2025/26 budget, stating that they could hinder economic growth and discourage reinvestment. Key figures like Mr. Maganga and Mr. Nsekela voice the need for tax strategies that not only generate revenue but also help foster a sustainable investment climate. As discussions continue, the government faces mounting pressure to refine its proposals and ensure they align with broader economic objectives.

Original Source: www.thecitizen.co.tz

About Carmen Mendez

Carmen Mendez is an engaging editor and political journalist with extensive experience. After completing her degree in journalism at Yale University, she worked her way up through the ranks at various major news organizations, holding positions from staff writer to editor. Carmen is skilled at uncovering the nuances of complex political scenarios and is an advocate for transparent journalism.

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