Budget debate: Key focus areas for lawmakers

Government debt

The sustainability of Tanzania’s public debt remains a central concern. As of April 2025, the government debt stood at Sh107.7 trillion—comprising Sh72.94 trillion in external debt and Sh34.76 trillion in domestic debt.

Finance minister Mwigulu Nchemba, in his budget speech, referenced a Debt Sustainability Analysis (DSA) conducted in October 2024 which classified Tanzania’s debt as sustainable.

He cited that total public debt stood at 40.3 percent of GDP—below the 55 percent threshold—while external debt was 23.6 percent of GDP, with a 123.8 percent external debt-to-export ratio, compared to the 180 percent threshold.

“The government will continue to ensure that debt remains sustainable by strengthening domestic revenue collection and allocating commercial loan proceeds to growth- and export-oriented projects,” Dr Nchemba said.

However, experts warn that even if the current ratios are within acceptable limits, the trend of increasing debt is worrying.

An economist at Saint Augustine University of Tanzania (SAUT), Dr Isack Safari, noted that while the current indicators may seem comfortable, the direction of borrowing raises concerns about future sustainability.

Dr Mwinuka Lutengano of the University of Dodoma added that over Sh11 trillion is allocated to debt repayments annually—resources that could be redirected to health, education or infrastructure. He urged Parliament to assess whether every loan is truly necessary and geared towards productive investment.

Analysts also pointed to global risks, such as rising interest rates, exchange rate volatility, and declining concessional loans, as potential threats to debt sustainability.

Extractive industry

The government has proposed a series of new fiscal measures targeting the extractive sector. These include a 3.5 percent tax on forest product sales, a 0.1 percent levy on mineral value, and increased withholding tax rates for services rendered in the industry.

One notable amendment to the Mining Act would require all companies, regardless of existing agreements, to allocate at least 20 percent of their gold production for domestic refining and trading.

“It is time we added value to our resources locally so that jobs and wealth are created at home,” Dr Nchemba said.

While the move aims to enhance local beneficiation, Dr Emmanuel Maliti of the University of Dar es Salaam cautioned that abrupt implementation could undermine investor confidence.

He said such reforms should be introduced gradually through stakeholder dialogue to avoid disrupting operations or discouraging further investment.

Tourism

Tourism, which generated $4.4 billion from 5.3 million visitors in 2024, is also under the spotlight following the government’s proposal to introduce mandatory travel insurance for all visitors to mainland Tanzania, costing $44 per person.

According to Dr Nchemba, the fee is meant to enhance safety and provide a more secure travel experience. However, a consultant at EY, Beatrice Melkiory cautioned that such a fee might be perceived as an unnecessary cost, especially by budget-conscious tourists, if not properly communicated.

The Tourism Confederation of Tanzania (TCT) raised broader concerns, arguing that while Tanzania continues to promote its nature-based tourism—such as safaris, beaches and cultural heritage—investment in protected areas, climate resilience, and conservation enforcement is lagging behind neighbouring countries.

The TCT further noted inconsistencies in the implementation and funding of revenue-sharing arrangements with communities in Wildlife Management Areas (WMAs).

Tax on retained earnings

A proposal to introduce a 10 percent withholding tax on retained earnings that remain undistributed after six months has ignited strong debate.

Dr Nchemba defended the measure as a way to broaden the tax base and raise domestic revenue. The government expects the tax to generate Sh130.62 billion.

However, Rishit Shah, Tax and Legal Services Partner at PwC Tanzania, said the proposal could pose administrative challenges. He explained that retained earnings are often reinvested into operations, and mandating dividend payments would reduce a company’s financial flexibility. Shah also warned of the complexity in tracking taxed retained earnings, potentially leading to double taxation when dividends are finally distributed.

Opposition politician Zitto Kabwe strongly criticised the proposal. He argued that taxing retained earnings amounts to double taxation since companies already pay a 30 percent corporate income tax on profits.

Mr Kabwe called on the government to withdraw the proposal, citing its likely negative impact on business growth and capitalisation.

Health sector financing

The health sector is under strain following a reduction in donor support, particularly from the United States, which has cut health aid. In response, the government has disbursed Sh82 billion to address funding shortfalls.

Dr Christian Laurent of Bugando Medical Centre acknowledged the government’s efforts but called for patience from the public as new solutions are being developed. He also suggested that energy drinks be taxed in a manner consistent with other products that carry public health risks.

The budget proposes to lower excise duty on locally produced energy drinks from Sh561 to Sh134.2 per litre, a move aimed at encouraging local production. However, the reduction will cost the Treasury Sh170.2 million in lost revenue.

At the same time, the government is introducing new excise duties on a range of processed foods. Imported crisps will be taxed at Sh100 per kilogram, while local crisps will incur a Sh50 tax. Imported ice cream will attract a 10 percent tax, with locally produced versions taxed at 5 percent. The same rates will apply to imported and local sausages.

Dr Anania Hussein of Temeke Regional Referral Hospital expressed concern that the reduction in tax on energy drinks sends a conflicting message and contradicts national efforts to promote healthy eating habits.

Gaming and betting

The gaming sector is also facing increased taxation. Winning taxes on sports betting and land-based casinos will be raised to 15 percent, while a new 10 percent withholding tax will apply to advertising commissions related to gaming.

Dr Nchemba said the measures aim to increase government revenue while discouraging excessive betting behaviour.

Dr Lutengano welcomed the move, highlighting the social problems associated with gambling and addiction. He stressed that fiscal measures targeting the sector are not only a source of revenue but also part of a broader public health response.