Finance Act 2025: Key Tax Changes That May Affect Your Business

ByMaxmilian Malisa

Staying informed about tax and regulatory changes is essential for businesses. The Finance Act 2025 introduces significant updates affecting operations, cash flow, and compliance. Here are the key highlights:

1. Income Tax Highlights

1.1 Thin Capitalisation & Equity

  • Expanded “Equity” definition now explicitly includes positive retained earnings (Income Tax Act, Sec. 12).
    • Impact: Broader equity base for debt‑to‑equity ratio tests, potentially easing debt funding for capital‑intensive businesses.

1.2 Deemed Dividend on Undistributed Profits

  • New deemed distribution rule (Sec. 33A):
    • If after‑tax profits remain undistributed after 12 months from year‑end, 30% of those profits are treated as if distributed on the 12‑month anniversary.
    • A 10% withholding tax applies to the deemed distribution.
    • When an actual dividend is later paid, no further WHT is due on the previously deemed portion.
  • Objective: Discourage excessive retention of profit in closely held entities.

1.3 Withholding Tax Extensions

  • Hired Motor Vehicles: 10% WHT on rental payments by resident persons.
  • Technical/Management Services in Extractives: Rate increased from 5% → 10%.
  • Insurance Premiums: Rate increased from 5% → 10%.
  • Gaming Commissions & Advertisements: New 10% WHT.

Action Point: Review all intercompany and third‑party service agreements for updated WHT obligations and update your SAP/ERP system tax tables accordingly.

1.4 Alternative Minimum Tax (AMT)

  • AMT on “perpetual” unrelieved losses rose from 0.5% to 1% of turnover.
  • Applies to companies with losses carried forward beyond two consecutive years.

1.5 Financial statement & Return Preparation

  • CPA Certification:
    • Corporations with gross annual income > TZS 100 million, and
    • Individuals/sole proprietors with annual turnover > TZS 500 million
      must have their income‑tax returns prepared or certified by a practising CPA.

1.6 Sector‑Specific Notes

  • Extractive Industries: Loss carry‑forward limits for mining/petroleum operations increased from 30% → 40% of assessable profits; new 10% WHT on technical services.
  • Forest Produce: From 1 Jan 2026, a 2% single‑instalment tax on gross payments for timber, logs, mirunda and poles—payable before transportation.

2. Value Added Tax (VAT)

2.1 Rate Adjustments & Zero‑Ratings

  • VAT rate reduced on B2C online sales from 18% → 16%.
  • Zero‑rating introduced for:
    • Fabric and garments
    • Fertilisers

2.2 New Exemptions

  • Cooking gas tanks and cylinders
  • Natural gas

2.3 Withholding Agent System

  • Supplies to designated withholding agents now:
    • 3% WHT on goods
    • 6% WHT on services (supplier retains 12%)
  • Electronic payment incentive: 16% VAT (instead of 18%) for B2B supplies when paid electronically, effective 1 Sept 2026.

3. Local Government Finance Act (Cap 290)

  • Hotel Levy slashed from 10% → 2%.
  • Service Levy trimmed from 0.3% → 0.25%.

Tip: Hospitality and tourism businesses should revisit pricing and cost models to pass savings on to customers.

4. Tax Administration Enhancements (Tax Admin Act, Cap 438)

4.1 E‑Invoicing & System Integration

  • Taxpayers may be required to link their billing/E.R.P. systems directly to TRA’s e‑system.
  • Non‑compliance penalties: Up to 3 years’ imprisonment or monetary fines (individuals: 1,000 points; entities: 3,000 points).

4.2 Objection & Appeal Process

  • Automatic admission of objections if a depositor pays the lesser assessed tax.
  • Failure to file submissions within prescribed timelines can result in the Commissioner’s decision being deemed final.

4.3 Subcontractor Disclosure

  • Entities must disclose details of subcontractors (value, scope, duration) within 30 days of engagement.

Maxmilian Malisa