Tanzania is set to implement a new reduced Value Added Tax (VAT) rate of 16%, following amendments introduced by the Finance Act 2025. The move, confirmed by the Tanzania Revenue Authority (TRA) in a public notice issued on Tuesday, is expected to ease the tax burden on businesses and consumers, while also reshaping government revenue strategies.
The amended law, which came into force on 1 July 2025, alters Section 5 of the VAT Act Cap. 148, officially lowering the standard VAT rate from 18% to 16%. This marks the most significant change in Tanzania’s tax framework in over a decade and is likely to have far-reaching implications for the country’s economy.
While the VAT reduction is now law, its effective application depends on further instructions from the TRA Commissioner General. The authority stated that a separate notice will soon outline which sectors and transactions are eligible for the reduced rate and how compliance will be monitored.
“Effective application of this provision is dependent on a Public Notice to be issued by the Commissioner General specifying the persons eligible and the manner in which the arrangement shall be implemented,” the TRA announcement said.
The Commissioner General, Yusuph Juma Mwenda, confirmed that his office is finalising the technical requirements for implementing the new rate. Once the framework is complete, businesses and taxpayers will be formally informed.
The cut from 18% to 16% is part of wider government efforts to stimulate economic growth, attract investment, and provide relief to households struggling with rising living costs. Economists believe the VAT reduction could lower prices of essential goods and services, boost consumer spending, and improve the competitiveness of Tanzanian businesses in the regional market.
“This is a bold move that signals government intent to support both producers and consumers,” said Dr. Asha Mgeni, a Dar es Salaam-based tax analyst. “However, much will depend on how effectively it is implemented and whether businesses pass on the savings to consumers.”
Tanzania’s VAT system is a key contributor to government revenue. According to the Ministry of Finance, VAT accounted for more than 30% of total tax collections in 2024. Analysts warn that reducing the rate could initially lower government income unless offset by improved compliance and broader economic activity.
The Finance Act 2025 represents a balancing act between fiscal consolidation and stimulating growth. While the reduced VAT rate is expected to ease cost pressures, it also poses questions about revenue sustainability, especially as the government continues to fund large-scale infrastructure and social projects.
The TRA has assured the public that the new policy is designed to promote compliance, expand the tax base, and ensure long-term stability in collections. “Together We Build Our Nation,” the authority’s notice emphasised, underscoring the collaborative role of taxpayers in financing public services.
Tanzania’s move to reduce VAT also places it in closer alignment with its East African Community (EAC) peers, where VAT rates vary between 14% and 18%. Kenya and Uganda currently maintain 16% and 18% respectively, while Rwanda’s rate stands at 18%.
As households grapple with inflation and rising costs of living, the VAT reduction is expected to be welcomed by many. If fully passed on, consumers could see lower prices for a wide range of goods and services, from food and clothing to electronics and household items.
With Tanzania at a critical economic juncture, the success of this policy will likely be measured not only by its immediate impact on prices but also by its role in strengthening long-term economic growth and fiscal resilience.
Do you have any story or press releases you want to share? Send tips to editor@envestreetfinancial.com
Follow us on Twitter, Facebook, or LinkedIn to ensure you don’t miss out on any