Tanzania Finance Act Of 2022: It Could Have Been So Much More'

• Published date: 10 February 2023
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Tax, Financial Services, Corporate and Company Law, Income Tax
• Law Firm: Shikana Group
• Author: Shikana Law Group

The Tanzania Finance Act 2022 was assented on June 30, 2022 and has been effective since July 1, 2022. The Finance Act 2022 has been received with the sentiment that more could have been done to improve the business and investment environment namely undoing the many damaging laws that exist which make doing business in Tanzania perceived as highly risky by investors.

I will focus on the six areas of the law and attempt to analyse what the law means and its impact.

1. Entrepreneurship, Start-ups and SMEs

Firstly, I am a strong believer that poverty alleviation will be accomplished not by large foreign investors and multinational companies coming to invest in Africa, but by empowering the smaller companies and entrepreneurs who exist in millions and make up the largest proportion of the private sector in Tanzania. According to the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA), 95% of the businesses in Tanzania are Small and Medium Enterprises (SMEs), and they represent about 35% of the country's GDP. Therefore, SMEs need to be given the attention and opportunity to nurture and allow them to scale.

The Finance Act amends the Income Tax Act which introduces a presumptive tax rate of 3.5% with turnover above Tshs 11 million (USD 4,716.98) but not exceeding Tshs 100,000,000 (USD 42881.65) individual traders / sole proprietors. This is proposal is a regression since previously the 3.5% was paid on a gross turnover of Tshs 14,000,000 (USD 5,970.80). Where gross turnover that is above Tshs 100,000,000, 30% tax is paid on income which is still very high for SMEs that are starting business and with ambitions of scaling up.

Interestingly, individuals conducting professional, technical, management, construction and training services do not qualify for this presumptive tax system. It is unclear why this group of entrepreneurs are excluded from the presumptive tax system, which reduces the burden of filing annual returns under self-assessment and preparation of audited financial statements. The measure is discriminatory and in violation of the right to equality in the law as provided at article 13 of the Constitution.

These changes are relevant for entrepreneurs that are trading as sole proprietors, however entrepreneurs that are organised as companies benefit from no tax reliefs hence it continues to be quite difficult for them to scale and grow given that the tax system remains to be at 30% for the year of income. Given the rhetoric of government that they would support small businesses and the trending topic of entrepreneurship in Tanzania, I think most were expecting to see more significant...