The Minister for Finance Hon. Ambassador Khamis Mussa Omar delivered the National Budget Speech on 11 June 2026 with the theme ‘Building Economic Resilience through Digital Transformation, Strategic Investment and Fiscal Sustainability for Inclusive Growth’.
This update has been prepared by Charles Mmasi, James Pius, Edwin Prosper, Jacqueline Tarimo, Kelvin Mosha, Catherine Mokiri, Fredrickson Maboko, Melinda Emmanuel, Flora Mukasa, Allen Lema, Aida Jamal, and Hadija Juma from our Dar es Salaam office.
Tax Measures
Income Tax
The Minister has proposed to amend the Income Tax Act, CAP 332 (ITA) as follows:
- Recognition of tax exemptions granted under Government-approved mining framework agreements – The Minister has proposed amending the Income Tax Act to recognise tax exemptions granted under Framework Agreements entered into between the Government and mining investors and approved by the Cabinet. The amendment may enhance investor confidence by reinforcing the Government's commitment to honouring fiscal commitments made under approved investment agreements and eliminate the existing delays in enjoying the exemption on the basis that a Government Notice (GN) has not been issued. The announcement further indicates that standard operating procedures will be developed to govern the granting of such exemptions, potentially improving consistency and transparency in their administration.
- Digital service providers to pay more tax – The Minister has proposed increasing the income tax rate applicable to payments made to foreign digital service providers (digital service tax) from 2% to 3% of the gross payment. While the increase is relatively modest in percentage terms, affected businesses may review their pricing models to determine whether the additional tax cost can be absorbed or passed on to customers. The proposal continues the Government's efforts to strengthen revenue mobilisation from the digital economy and may increase the cost of supplying digital services to Tanzanian consumers. Businesses operating digital platforms, subscription-based services, online advertising services and other electronic service offerings should therefore assess the potential commercial impact of the proposed rate increase.
- Relief from income tax for newly registered taxpayers under the presumptive tax regime – The Minister has proposed the introduction of a twelve-month income tax holiday for newly registered taxpayers operating exclusively under the presumptive tax regime. The exemption period would commence from the date of issuance of a Taxpayer Identification Number (TIN), after which the taxpayer would become subject to the ordinary presumptive tax rules. This proposal represents a notable shift from the current framework, under which newly registered taxpayers are generally required to comply with the instalment tax regime, though with a six-month deferral of payment obligations. If enacted, the measure would effectively replace the existing tax deferral mechanism with a temporary exemption from income tax for qualifying taxpayers during their first year of operation.
The proposed reform appears to be intended to encourage business formalisation by reducing the immediate tax and compliance costs associated with registration.
- Expansion of eligibility for individual under the presumptive tax regime – The Minister has proposed increasing the turnover threshold for eligibility under the presumptive tax regime from TZS 100 million to TZS 200 million. The proposed increase represents an expansion of the presumptive tax regime and is intended to align the income tax threshold with the current VAT registration threshold. This harmonisation will simplify tax administration and reduce compliance complexities for small and medium-sized businesses operating near the limits. This proposal would also reduce compliance costs associated and ease tax administration burdens. The measure may be particularly beneficial for growing businesses whose turnover exceeds the current TZS 100 million threshold but remains relatively modest from a commercial perspective.
- Increase in the presumptive tax rate for higher-turnover taxpayers – The Minister has proposed increasing the presumptive tax rate applicable to taxpayers with annual turnover between TZS 11 million and TZS 200 million from 3.5% to 4.5%. From a policy perspective, the proposal reflects an attempt to balance the increased administrative simplicity with revenue collection and tax equity considerations. However, the increase may reduce some of the benefits associated with the expanded eligibility threshold, particularly for businesses operating close to the upper turnover limits of the regime. Taxpayers whose profitability is relatively low compared to turnover may wish to assess whether the proposed elective self-assessment framework would provide a more favourable outcome than remaining within the presumptive tax regime.
- A welcome reduction in the deemed distribution percentage – The Minister has proposed reducing the proportion of undistributed profits that may be treated as a deemed distribution under section 33A of the Income Tax Act from 30% to 15%. Although no specific policy rationale has been provided, the proposal appears to respond, at least in part, to concerns raised by taxpayers following the introduction of the deemed dividend provisions. If enacted, the amendment would provide additional flexibility for businesses seeking to reinvest profits into their operations rather than distribute them to shareholders, albeit without fundamentally altering the operation of the deemed dividend regime. A key question remains unanswered as to whether this provision also applies to local entities with foreign shareholding or it only applies to local entities with local shareholding.
- Exclusion of certain entities from the deemed dividend distribution provisions – The Minister has also proposed excluding financial institutions, insurance companies, companies listed on the Dar es Salaam Stock Exchange and entities operating under Framework Agreements with the Government from the deemed dividend provisions under section 33A of the Income Tax Act. Although the rationale for the exclusion has not been expressly stated, the proposal appears intended to address concerns arising from the application of the deemed dividend regime to sectors that are subject to unique regulatory, capital adequacy, investment or contractual considerations. If enacted, the proposal would provide greater certainty for affected taxpayers by reducing the risk of a deemed distribution arising solely as a consequence of earnings being retained for regulatory or long-term investment purposes.
- Expansion of the definition of forest produce for purposes of the single instalment tax regime – The Minister has proposed expanding the definition of "forest produce" to include natural varnish, latex, resin, sap and gum. The proposal appears intended to broaden the tax base by extending the current taxation framework beyond traditional timber products to encompass a wider range of commercially valuable forest-derived products.
- Increase in withholding tax on royalties paid to sports institutions and the Tanzania Football Federation – The Minister has proposed increasing the withholding tax rate applicable to royalties paid to sports institutions and the Tanzania Football Federation from 5% to 10%. The proposal is intended to align the tax treatment of sports-related royalties with that applicable to royalties derived within the film industry. The measure reflects the growing commercial significance of sports broadcasting and media rights as revenue-generating assets. The change appears to be seeking a more consistent approach to the taxation of royalty income across the sports and entertainment sectors.
- Expansion of withholding tax obligations on Government for goods procured – The Minister has proposed expanding the scope of withholding tax on payments for goods supplied to Government entities. Under the proposal, Ministries, Independent Departments, Institutions, Government Agencies, Regional Secretariats and Local Government Authorities would be required to withhold income tax on payments made for the purchase of goods, replacing the current framework which principally applies to resident corporations whose budgets are wholly or substantially financed through Government subventions. While the tax generally constitutes a credit against the recipient's final income tax liability, affected businesses may experience cash flow implications arising from the earlier collection of tax. The proposal also reflects the Government's continued reliance on withholding tax mechanisms as a tool for improving compliance and securing tax revenue at the point of payment.
- Introduction of a 1% advance income tax on purchases of food crops – The Minister has proposed introducing a 1% non-final withholding tax on purchases of food crops. The tax would be payable at the point of purchase, prior to transportation of the produce or upon transfer of ownership and would be calculated based on the prevailing market value of the produce within the relevant local government authority. The proposal appears to be aimed at strengthening tax collection within agricultural supply chains by collecting tax at an early stage of the transaction cycle. A key practical consideration will be how the prevailing market value of the produce is determined for tax purposes.
- Introduction of a 1% withholding tax on purchases of livestock and selected agricultural products – The Minister has proposed introducing a 1% withholding tax on payments made by companies and institutions to sellers of live animals, unprocessed milk, unprocessed fish and fish maws. The purchasing company or institution would be responsible for collecting and remitting the tax to the revenue authority. The proposal appears intended to broaden the tax base and improve compliance within sectors that have historically been characterised by a high degree of informality.
--
Read the full publication at Bowmans
