Workers at a factory in one of the Export Processing Zones (EPZ)
Dar es Salaam. The government expects to boost its revenue by more than Sh75.94 billion in the 2025/26 fiscal year by scrapping the 10-year income tax holiday currently granted to investors operating in Export Processing Zones (EPZs) and Special Economic Zones (SEZs).
Investors in these zones are granted income tax holidays when goods or services produced are sold on the domestic market.
The move is part of broader proposed reforms to the tax system, fees, levies, and other revenue measures presented in Parliament on Wednesday, June 12, by Finance Minister Dr Mwigulu Nchemba when tabling the Sh56.49 trillion government’s budget estimates for the 2025/26 season.
Dr Nchemba said the government plans to amend the Income Tax Act, CAP 332, by repealing provisions that grant tax exemptions under the laws governing EPZ and SEZ investors.
“The objective is to align with the government’s agenda of reducing tax exemptions, safeguarding domestic revenue, and minimising tax expenditures,” he said.
The decision follows growing criticism over the effectiveness of incentives granted to EPZ and SEZ investors, which were initially introduced to attract foreign investment, promote industrialisation, and boost exports.
Commenting on the matter, the University of Dar es Salaam (UDSM) economics professor Abel Kinyondo welcomed the move, saying it was a sound step towards stemming revenue losses.
“This is a positive step. Evidence indicates that tax exemptions have not yielded the promised development outcomes,” he said.
“In the case of EPZs and SEZs, there is no clear indication that they have meaningfully increased employment, facilitated technology transfer, or significantly boosted export earnings — which were the initial justifications for creating them. This move will help correct that,” added Prof Kinyondo.
A policy analyst and researcher, Mr Moses Kulaba, who has previously examined the impact of EPZs, said the government appears to have reassessed the net benefits of the existing incentive framework.
“It seems the government has concluded that the cost of the incentives equals, or perhaps even outweighs, the benefits. Removing this exemption will plug revenue leakages,” he said.
On May 23, The Citizen published an investigative report on tax incentives offered to investors in EPZs and SEZs, highlighting concerns over their contribution to capital flight.
However, the Export Processing Zones Authority (EPZA) defended the incentives, saying they are necessary for Tanzania to remain competitive in attracting global investment.
EPZA Public Relations Manager Panduka Yonazi said the 10-year tax holiday is crucial for long-term investment planning.
“It allows investors time to build factories, import machinery, train workers, and begin production,” he said.
“One factory may employ up to 6,000 people. Reaching the required output of $500,000 (Sh1.4 billion) in annual production is unlikely in the first year,” added Mr Tonazi.
Under Section 15(1) of the EPZ Act, investors benefit from a suite of incentives beyond the tax holiday.
These include operating under a single business licence issued by EPZA, simplified visa procedures for technical staff upon arrival, and unrestricted repatriation of profits, dividends, and royalties.
Other incentives include access to one-stop service centres for registration and permits, streamlined customs clearance and inspections within the EPZ area, reduced costs for legal documents such as visas and work permits, and simplified procedures for operational licences and labour compliance.
While these provisions were designed to ease the regulatory burden and attract investors, critics argue that they have created opportunities for abuse and contributed to the erosion of the tax base.
Dr Nchemba said the government remains committed to promoting investment, but within a more balanced framework that safeguards public revenues.
The proposed changes will be included in the Finance Bill, which is expected to be debated and passed before the start of the 2025/26 financial year on July 1, 2025.
