Experts: Heavy reliance on Dar es Salaam threatens Tanzania's sustainable tax growth

The findings were presented on Friday, February 13, at a forum on contemporary tax research in Tanzania. The event brought together policymakers, academics, and development stakeholders to discuss domestic revenue mobilisation and reform priorities.

Conducted by Tanzania Investment and Consultant Group Limited (TICGL) and jointly disseminated with research organisation Repoa, the study revealed that more than Sh20 trillion in potential taxes may go uncollected in other regions each year. Researchers said the findings raise questions about whether the current tax system reflects where economic activity actually occurs.

Presenting the report, TICGL researcher Amran Bhuzohera said Tanzania’s tax system remains heavily centralised because many companies register and file returns through head offices in Dar es Salaam. The research assessed patterns of money circulation, regional production dynamics, and tax collection trends to determine how closely tax performance aligns with economic realities across the country.

"The report shows that other regions can generate substantial tax revenues if private sector activities are formalised. Many businesses currently operate informally, meaning much of the potential revenue is lost. Relying on one region is not sustainable, especially as the country moves towards a $1 trillion economy. Reforms are urgently needed,” he said.

Although the study points to regional disparities, it notes that Tanzania’s overall macroeconomic performance remains strong. Nominal GDP expanded from Sh189 trillion to Sh235 trillion in 2025, while real growth reached 6.0 per cent. Over the same period, the tax-to-GDP ratio improved from 11.5 per cent to 13.3 per cent.

However, researchers caution that headline figures mask structural challenges within tax administration. Revenues from mining in Mwanza and Shinyanga, agriculture in Mbeya, tourism in Arusha, and trade in secondary cities are often reported and taxed in Dares Salaam rather than in the regions where the activity occurs.

The study also highlighted the scale of Tanzania’s informal economy. In 2025, about 45 per cent of GDP—equivalent to Sh105.7 trillion—was generated outside formal structures. This informality results in an estimated annual tax shortfall of Sh14.1 trillion, nearly 45 per cent of total tax revenue. Despite digital reforms aimed at expanding compliance, only 5 to 7 per cent of informal sector transactions are currently captured in the tax system.

Mobile money transactions reached Sh223.4 trillion in 2025—almost 95 per cent of annual GDP—demonstrating rapid growth in digital financial activity. Yet only a small portion of these flows is effectively integrated into tax administration frameworks.

Speaking at the forum, Repoa Principal Researcher Dr Jamal Msami stressed the need for continued reforms to strengthen tax administration, improve fairness, and enhance compliance.

Participants agreed that aligning tax collection more closely with actual economic activity—both geographically and within the expanding digital economy—will be critical to broadening the tax base, reducing regional imbalances, and ensuring sustainable financing for Tanzania’s long-term development goals.

Ahmed Amani, also a Repoa researcher, urged the country to push its tax-to-GDP ratio beyond the current 13 per cent, citing Namibia and Mozambique as examples of African economies that have achieved stronger revenue performance through sustained reforms.