SIGNIFICANT concerns are being raised over specific proposals in the Finance Bill for fiscal 2025/2026, particularly the 10 percent withholding tax on retained earnings.

Raphael Maganga, the Tanzania Private Sector Foundation (TPSF) CEO, told the Budget Committee of the National Assembly at the weekend that this proposal could stifle investment, impede growth and undermine economic predictability.

He urged the government to replace punitive tax measures with strategies that actively encourage business expansion, underlining that the 10 percent withholding tax on retained earnings will hit firms of all sizes and deter informal businesses from formalizing.

“We must tax to promote growth—not just revenue,” he observed, affirming that while the provision might generate up to 130bn/- in tax revenue, it risks inflicting deeper economic harm by severely stifling reinvestment. 

The measure is disguised double taxation as retained earnings have already been subjected to corporate income tax, he explained, while Abdulmajid Nsekela, the CRDB Bank CEO and chairman of the Tanzania Bankers Association, cautioned on the impact of the provision on the financial sector. 

He said that banks are governed by regulations set by the Bank of Tanzania which require strong core capital, and the banks rely heavily on retained profits. The proposed tax will erode financial sector stability, he pointed out.

Samwel Ndandala, a tax partner at Deloitte, said that instead of imposing new taxes, authorities should focus on enhancing profit-reporting systems to combat evasion. 

Globally, retained earnings are typically tax-neutral, where start-ups and banks need to receive exemptions from the new tax. He also emphasized the critical importance of clearly specifying when the withholding tax would take effect.

TPSF also voiced strong objections to a proposed three percent VAT withholding, as it could severely disrupt supplier cash flow, delay credit and lead to an increase in tax audit queries. 

The provision needs to be aligned with income tax deadlines, leveraging existing e-filing platforms and providing exemptions for compliant firms, the CEO argued.

A proposed excise tax hike on beer and alcohol is likely to breach an existing 2023–2026 moratorium, he stated, appealing to the government to maintain the pledge, underlining that if any excise tax increase is necessary, it should focus primarily on imports.

He similarly objected to the proposed $44 mandatory travel insurance fee, modeled on the Zanzibar provision, contending that it would duplicate existing coverage, unduly burden budget travelers and discourage visits to multiple destinations.

Even with the government’s legitimate need to broaden the revenue base, without significant adjustments, the Finance Bill could severely hamper reinvestment, overburden small and medium-sized enterprises (SMEs) and erode trust in fiscal policy, he emphasized.

“With refined tax proposals, the government can grow its fiscal base in an investor-friendly way—boosting local investment, preserving fairness and strengthening transparency,” he further noted.

The private sector’s intervention has garnered broad support from prominent organizations, including the Tanzania Bankers Association, the Confederation of Tanzanian Industries, the Tanzania Business Community, the CEO Roundtable Tanzania, the Agricultural Council of Tanzania, and the Agricultural Non-State Actors Forum. 

Collectively representing over 250 associations and more than five million enterprises, the TPSF stance reflects a unified call for balanced, growth-oriented fiscal reform, analysts noted.

Ultimately, TPSF is urging the government to reconsider the Finance Bill’s most controversial components—especially those targeting retained earnings, VAT, excise taxes and travel insurance—arguing that investor-friendly adjustments will be more effective in strengthening Tanzania’s economy in the long run, participants noted.