5

Tanzania
John Peter Njau

I. Introduction
Tanzania, officially the United Republic of Tanzania is a country in East Africa. Before and after
independence there were two separate countries; Tanganyika and Zanzibar. After independence andafter Zanzibar Revolution 1 , Zanzibar merged with mainland Tanganyika on 26 April 1964. On 29
October of the same year, the country was renamed the United Republic of Tanzania ("Tan" comesfrom Tanganyika and "Zan" from Zanzibar). Tanzania is bordered by Kenya and Uganda to thenorth; Rwanda, Burundi, and the Democratic Republic of Congo to the west; Zambia, Malawi, andMozambique to the south; and the Indian Ocean to the east. Kilimanjaro, Africa's highest mountain, isin northeastern Tanzania.
The population of Tanzania is estimated to be 47.4 million (2014) and it is highly diverse,
composed of numerous ethnic, linguistic, and religious groups. Tanzania is a presidential
constitutional republic, and since 1996, its official capital has been Dodoma, where the President's
Office, the national Assembly and some government ministries are located. Dar es Salaam, 2 theformer capital, retains most government offices. Before independence Tanzania was colonized byGermany and British until when it got its independence in 1961. The history of Tanzania can betraced back before coI.1 History
I.1.1 Colonial Period
The colonial period in Tanzania has dates back from 15th century when Vasco da Gama, thePortuguese explorer visited the Tanzanian coast (island of Zanzibar) and later in the 16th century, thePortuguese occupied Zanzibar. Their occupation did not last for long as in 1699 the Portuguese were
ousted from Zanzibar by Arabs of Oman who had returned to make it their own. So in the 18th
century the Sultan of Oman reasserted Arab overlord ship of the East African coast, which became
subordinate to Zanzibar.
By 1840 when Sultan Seyyid bin Sultan moved his capital from Oman to Zanzibar, trade in slaves
and ivory flourished. In 1861, the Sultanates of Zanzibar and Oman separated on the death of Seyyid.
During the 19th century, Europeans started to explore inland, closely followed by Christian
missionaries. In 1884 the German Colonization Society began to acquire territory on the mainland in
defiance of Zanzibar and 1890 Britain obtained protectorate status over Zanzibar, abolished the slave
trade, and recognised German claims to the Mainland. German East Africa was formally established
as a colony in 1897.
In the late 19th century, Imperial Germany conquered the regions that are now Tanzania (minus
Zanzibar) and incorporated them into German East Africa. The post–World War I accords andthe League of Nations charter designated the area a British Mandate. In 1954, Julius Kambarage
Nyerere (The first president of Tanzania) transformed an organization into the politicallyoriented Tanganyika African National Union (TANU). TANU's main objective was to achieve
national sovereignty for Tanganyika. A campaign to register new members was launched, and within
a year TANU had become the leading political organization in the country. Nyerere became Ministerof British-administered Tanganyika in 1960 and continued as prime minister when Tanganyika
became independent in 1961.
1

The Zanzibar Revolution occurred in 1964 and led to the overthrow of the Sultan of Zanzibar and his mainly Arabgovernment by local African revolutionaries
2
Tanzania’s largest and richest city, the largest city in eastern Africa by population, principal port and is a regionally
important economic centre. It is Tanzania's leading financial centre with the Dar es Salaam Stock Exchange (DSE) being
the country's first and most important stock exchange market

129I.1.2 Post Colonial Period
British rule came to an end on 9 December 1961. On 9 December 1962, Tanganyika became ademocratic republic under an executive president. After the Zanzibar Revolution , the archipelagomerged with mainland Tanganyika on 26 April 1964. On 29 October of the same year, the country
was renamed the United Republic of Tanzania ("Tan" comes from Tanganyika and "Zan" from
Zanzibar). In 1967, Nyerere's first presidency took a turn to the left after the Arusha Declaration 3,
which codified a commitment to socialism as well-as Pan-Africanism 4. After the declaration, banks
and many large industries were nationalized.
Tanzania was also aligned with China, which from 1970 to 1975 financed and helped build the
1,860-kilometre-long TAZARA 5 Railway from Dar es Salaam to Zambia. Nonetheless, from the late1970s, Tanzania's economy took a turn for the worse, in the context of an international economiccrisis affecting both developed and developing economies.
From the mid-1980s, the regime financed itself by borrowing from the International Monetary
Fund (IMF) and underwent some reforms. Since then, Tanzania's gross domestic product per capita
has grown and poverty has been reduced.
In 1992, the Constitution of Tanzania was amended to allow multiple political parties. In
Tanzania's first multi-party elections, held in 1995, the ruling Chama Cha Mapinduzi (CCM) won 186of the 232 elected seats in the National Assembly, and Benjamin Mkapa (The third president of
Tanzania) was elected as president. The fifth General election after multiple political system was heldon 25 October 2015 and the ruling part CCM worn by more than 58% of all votes. Thus currently the
new president of Tanzania is Dr. John Pombe Magufuli.
I.2 Geography
Tanzania has 947,303 square kilometres (365,756 sq mi) and is the 13th largest country in Africa
and the 31st largest in the world, ranked between the larger Egypt and smaller Nigeria. It
borders Kenya and Uganda to the north; Rwanda, Burundi, and the Democratic Republic of the Congoto the west; and Zambia, Malawi, and Mozambique to the south. Tanzania is located on the eastern
coast of Africa and has an Indian Ocean coastline approximately 800 kilometers (500 mi) long. It also
incorporates several offshore islands, including Unguja (Zanzibar), Pemba, and Mafia. The country is
the site of Africa's highest and lowest points: Mount Kilimanjaro, at 5,895 metres (19,341 ft) above
sea level, and the floor of Lake Tanganyika, at 352 metres (1,155 ft) below sea level, respectively.
Tanzania is mountainous and densely forested in the northeast, where Mount Kilimanjaro is
located. Three of Africa's Great Lakes are partly within Tanzania. To the north and west lie Lake
Victoria, Africa's largest lake, and Lake Tanganyika, the continent's deepest lake, known for its
unique species of fish. To the southwest lies Lake Nyasa. Central Tanzania is a large plateau, withplains and arable land. The eastern shore is hot and humid, with the Zanzibar Archipelago justoffshore.
The Kalambo water falls in the southwestern region of Rukwa are the second highest uninterrupted
fall in Africa and are located near the southeastern shore of Lake Tanganyika on the border with
Zambia.
I.3 Climate
Climate varies greatly within Tanzania. In the highlands, temperatures range between 10 and 20 °C(50 and 68 °F) during cold and hot seasons respectively. The rest of the country has temperatures
rarely falling lower than 20 °C (68 °F). The hottest period extends between November and February(25–31 °C or 77.0–87.8 °F) while the coldest period occurs between May and August (15–20 °C or
59–68 °F). Annual temperature is 20 °C (68.0 °F). The climate is cool in high mountainous regions.
3

The Arusha Declaration and TANU’s Policy on Socialism and Self Reliance (1967), referred to as the Arusha Declaration,is known as Tanzania’s most prominent political statement of African Socialism, ‘Ujamaa’, or brotherhood
4
Pan-Africanism is an ideology and movement that encourages the solidarity of Africans worldwide. It is based on the belief
that unity is vital to economic, social, and political progress and aims to "unify and uplift" people of African descent
5
Tanzania-Zambia Railway Authority

130

Tanzania has two major rainfall regimes: one is uni-modal (October–April) and the other is bimodal (October–December and March–May). The former is experienced in southern, central, andwestern parts of the country, and the latter is found in the north from Lake Victoria extending east to
the coast. The bi-modal regime is caused by the seasonal migration of the Intertropical Convergence
Zone.
I.4 Wildlife and Conservation
Approximately 38% of Tanzania's land area is set aside in protected areas for conservation.
Tanzania has 16 national parks plus a variety of game and forest reserves, including the Ngorongoro
Conservation Area. In western Tanzania, Gombe Stream National Park is the site of Jane Goodall's
ongoing study of chimpanzee behavior, which started in 1960.
Tanzania is highly biodiversity and contains a wide variety of animal habitats. On
Tanzania's Serengeti Plain, white-bearded wildebeest (Connochaetes taurinus mearnsi) andothers participate in a large-scale annual migration. Tanzania is also home to about 130 amphibianand over 275 reptile species, many of them strictly endemic and included in the International Union
for Conservation of Nature's Red Lists of different countries. Tanzania has developed a Biodiversity
Action Plan to address species conservation.
I.5 Political structure
I.5.1 Government
Tanzania is a one party dominant state with the Chama Cha Mapinduzi (CCM) party in power.
From its formation until 1992, it was the only legally permitted party in the country. This changed on
1 July 1992, when amendments to the Constitution and a number of laws permitting and regulating
the formation and operations of more than one political party were enacted by the National
Assembly. Elections for president and all National Assembly seats were last held on 25th October
2015 in which the ruling part CCM won by more than 58% of all votes.
I.5.2 Executive
The President of Tanzania and the members of the National Assembly are elected concurrently bydirect popular vote for five-year terms. The vice-president is elected for a five-year term at the sametime as the president and on the same ticket. Neither the president nor the vice-president may be amember of the National Assembly. The president appoints a prime minister, subject to confirmationby the assembly, to serve as the government's leader in the assembly. The president selects his or
her cabinet from assembly members.
I.5.3 Legislature
All legislative power relating to mainland Tanzania and union matters is vested in the National
Assembly, which is unicameral and has a maximum of 357 members. These include members elected
to represent constituencies, the attorney general, five members elected by the Zanzibar house ofrepresentatives from among its own members, the special women's seats that constitute at least 30%of the seats that any party has in the assembly, the speaker of the assembly (if not otherwise a memberof the assembly), and the persons (not more than ten) appointed by the president. The Tanzania
Electoral Commission demarcates the mainland into constituencies in the number determined by thecommission with the consent of the president.
I.5.4 Zanzibar
The legislative authority in Zanzibar over all non-union matters is vested in the House ofRepresentatives (per the Tanzania constitution) or the Legislative Council (per the Zanzibar
constitution).The Legislative Council has two parts: the President of Zanzibar and the House ofRepresentatives. The President is Zanzibar's head of government and the chairman of the
Revolutionary Council, in which the executive authority of Zanzibar is invested. Zanzibar has twovice-presidents, with the first being from the main opposition party in the house. The second is from131the party in power and is the leader of government business in the House. The President and themembers of the House of Representatives have five-year terms.
The President selects ministers from members of the House of Representatives, with theministers allocated according to the number of House seats won by political parties. The
Revolutionary Council consists of the president, both vice presidents, all ministers, the attorney
general of Zanzibar, and other house members deemed fit by the president. The House ofRepresentatives is composed of elected members, ten members appointed by the president, all theregional commissioners of Zanzibar, the attorney general, and appointed female members whose
number must be equal to 30% of the elected members.
I.6 Foreign Relations
I.6.1 Bilateral Relations
Tanzania–China relations have strengthened in recent years as trade between the two countries andChinese investment in Tanzanian infrastructure has increased rapidly. Relations with the UnitedStates are warm, with President Barack Obama visiting Tanzania in 2013.Tanzania's relations withother donor countries, including Japan and members of the European Union, are generally good,though donors are concerned about Tanzania's commitment to reducing government corruption.
I.6.2 Multilateral Relations
Tanzania is a member of the East African Community (EAC) 6, Southern African Development
Community (SADC) 7 .The EAC, the SADC, and the Common Market for Eastern and Southern
Africa (COMESA) 8

6

The EAC is an intergovernmental organisation composed of five countries in the African Great Lakes region in eastern
Africa: Burundi, Kenya, Rwanda, Tanzania, and Uganda. The organisation was founded originally in 1967, collapsed in
1977, and was revived on 7 July 2000
7
The SADC is an inter-governmental organization headquartered in Gaborone Botswana. Its goal is to further socioeconomic cooperation and integration as well as political and security cooperation among 15 southern African states. It
complements the role of the African Union.
8
The COMESA is a free trade area with twenty member states stretching from Libya to Swaziland. COMESA was formedin December 1994, replacing a Preferential Trade Area which had existed since 1981132

II. Macroeconomic activity
II.1 International Environment
Tanzania has continued to maintain a healthy fiscal position, keeping the deficit at sustainablelevels and managing expenditure growth in line with the broad objective of sustaining macroeconomic
stability. In the medium term, the fiscal deficit is projected to be maintained at around 5-6% of GDP,
while expenditures and government net lending are projected at around 25% of GDP, in line withtargets of the Policy Support Instrument programme. Financing uncertainties emerged in the first halfof fiscal year 2014/15 due to delayed disbursements of budget support funds by development partners,
partly resulting in the frontloading of government domestic borrowing to finance development
projects.
Spatial inclusion remains problematic in Tanzania, mainly due to regional disparities. The poorer
regions are predominantly rural and their economies are much less diversified. Agriculture is the maineconomic sector in these areas, with low productivity and low-paying employment. As a result, percapita incomes in these regions are less than half that of Dar-es-Salaam, the wealthiest area. And thepoverty rate is eight times higher than in Dar-es-Salaam. To increase spatial inclusion, Tanzania needs
to boost earning opportunities for the rural population, mainly through improved productivity inagriculture supported by rural infrastructure investments, particularly rural roads, and improved
overall connectivity between rural and urban areas
Table 1: Trends in selected macroeconomic Indicators, 2008 – 2013 (In percentage)
Description
National Accounts
Real GDP growth at market priceNominal GDP growth at market pricePrices
CPI inflation eop
CPI inflation pav
GDP deflator inflation (factor cost)
GDP deflator inflation (market price)Money
M3 growth rate
M2 growth rate
Growth rate of credit to private sector
Balance of payment
Exports of goods to GDP ratio
Exports of goods and services to GDP ratio
Imports of goods to GDP ratio
Imports of goods and services to GDP ratio
Reserves months of imports (not in %)Government
Revenue to GDP ratio
Total government expenditure to GDP ratio
Current expenditure to GDP ratio
Development expenditure to GDP ratio
Official grants to GDP ratio
Deficit to GDP ratio (excl grants)
Deficit to GDP ratio (incl grants)
Overall deficit
Foreign borrowing to GDP ratio
Domestic bank borrowing to GDP ratio
Source: Ministry of finance Tanzania

2008

2009

2010

2011

2012

2013

7.4
18.3

6.0
13.8

7.0
14.5

6.4
16.2

6.9
19.1

7.0
18.9

13.5
10.3
10.1
10.1

12.2
12.1
7.2
7.4

5.6
7.6
7.3
6.9

19.8
12.7
9.2
9.2

12.1
16
11.7
11.4

5.6
7.9
11.5
11.2

19.8
24.4
44.6

17.7
20.8
9.6

25.4
21.8
20

18.2
15
27.2

13.1
16
18.2

10
10.9
15.3

17.3
26.9
33.8
41.9
4.3

15.2
23.8
27
35
5.7

18.8
27.6
31
39.1
5.4

21.1
30.6
40.8
49.9
3.7

21
30.2
36.2
44.5
3.8

21.7
29.3
33.2
42.7
4.5

15.9
22.8
14.9
7.9
6.9
-8.6
-1.7
-1.7
3.2
-1.4

16.2
25.7
17.7
8
4.7
-9.3
-4.5
-4.5
3.6
0.8

15.4
27
18.3
8.6
4.6
-11
-6.4
-6.4
4.6
1.9

16.3
26.6
19
7.6
4.7
-11.6
-6.9
-6.9
3.4
2.6

17.6
26.2
17
9.2
4.5
-9.6
-5
-5
4.2
0.2

17.1
26
18.5
7.5
2.8
-8.9
-6.1
-5
3.5
1.4

II.1.1 External Debt and borrowing
As at the end of June 2013/14 Tanzania’s external debt stock was USD 14,021.2 million, an
increase of USD 1,655.1 million over the amount recorded in the corresponding period in 2013. The
increase was on account of new disbursements and accumulation of interest arrears. Out of theexternal debt stock, 88.5 percent was disbursed outstanding debt (DOD) and the remaining wasinterest arrears. The ratio of external debt stock to GDP in nominal terms was 42.5 percent, while thatof public and private external debt to GDP was 35.0 percent and 7.5 percent, respectively (Table 2)133

Table 2: External debt stock

USD millionYear
2009/10External Debt Stock
8,197.8
GDP, at Market Price
22,903.2
as % of GDP
35.8
Public External Debt Stock
6,471.4
as % of GDP
28.3
as % of External Debt Stock78.9
Private External Debt Stock
1,726.4
as % of GDP
7.5
as % of External Debt Stock
21.1
Source: Bank of Tanzania Annual report 2013/14

2010/11
9,637.5
23,745.8
40.6
7,791.4
32.8
80.8
1,846.1
7.8
19.2

2011/12
10,354.6
24,099.2
43.0
8,440.0
35.0
81.5
1,914.6
7.9
18.5

2012/13
12,089.2
28,451.6
42.5
9,958.7
35.0
82.4
2,130.5
7.5
17.6

2013/14
14,021.2
34,502.5
40.6
11,802.6
34.2
84.2
2,218.6
6.4
15.8

II.1.2 Foreign Direct Investment
FDI consistently continued to be a dominant component of FPI. During the year 2012, Tanzania
attracted FDI inflows amounting to USD 1,799.6 million, 46.4 percent higher than the amountreceived in 2011. Despite this increase, the level of inflows in 2012 was still lower than the peak of
USD 1,813.3 reached in 2010 as a result of recovery from the global financial crisis which coincidedwith new inflows to the electricity and gas activities. The annual average inflow between 2008 and2012 was USD 1,435.7 million. Large inflows in 2012 emanated from new equity and investment
fund shares (i.e. equity capital) as well as increase in reinvestment of earnings. Loans from relatedparties, which is part of FDI inflows, recorded net outflows of USD 17.8 million reflecting more
repayments of principal and interest than loans received during the year
Table 3: Foreign Direct Investment 2008 – 2012 (USD Millions)Components
Equity andinvestment
fund shares

2008

2009

Inflows
2010
2011

2012

2008

2009

Stocks
2010
2011

2012

178.4

397.2

464.7

304.1

909.0

2,896.4

3,293.5

3,758.3

4,062.4

4,971.5

219.2

267.8

578.5

1,248.6

908.4

653.1

920.9

1,494.4

2,743.0

3,651.3

722.2

257.7

162.5

-252.1-132.5

3,037.1

3,294.8

3,457.3

3,205.2

3,072.7

263.4

30.4

612.5

-71.2

114.6

359.0

389.4

1,002.0930.8

1,045.4

Total FDI
1,383.3 953.1 1,813.3
Source: Tanzania Investment report 2013

1,229.4

1,799.6

6,945.6

7,898.7

9,712.0

10,941.3

12,740.9

Reinvestmentof earnings
Long-termloan from
related parties
Short-termloan from
related parties

High FDI inflows in 2012 were driven by increased investments in extractive projects including oil
and gas. The results are consistent with changing pattern of the global investment flows in which casedeveloping economies have surpassed developed economies as recipients of FDI. Africa as a region
for instance, recorded USD 50,041.0 million of FDI inflows in 2012 compared with USD 47,598.0
million reported in 2011 (WIR,2013)
II.1.3 Sources of Foreign Direct Investments
FDI inflows to Tanzania in 2012 originated from ten major countries. Inflows from the developed
countries namely the United Kingdom, Canada, Switzerland, the USA and Luxemburg reached USD
1,586.1 million with UK remaining the leading source country since 2011. Most of the investmentsfrom these countries went to the mining and quarrying, manufacturing, finance and insurance, andwholesale and retail trade, and information and communication activities.
Inflows from emerging economies mainly originated from South Africa and Brazil while thosefrom developing economies came from Kenya and Botswana. However, South Africa, which was thesecond largest source of FDI inflows in 2011, became the fifth following substantial investments inelectricity and gas from other countries during that year134

Figure 1: Top ten source countries of FDI flows, 2012 (USD Millions)

Source: Tanzania Investment report 2013

Despite the decline in inflows from South Africa in 2012, it remained the leading source country interms of stock of FDI with USD 3,221.0 million compared to USD 3,072.7 million in 2011. During
2012, the top 5 source countries namely South Africa, United Kingdom, Barbados, Canada and Kenya
reached USD 7,423.5 million being 58.2 percent of the total stock of FDI implying that FDI for
Tanzania continue to originate from few source countries.
Figure 2: Stocks of FDI, Top 10 source countries, 2012 (USD Millions)

Source: Tanzania Investment report 2013

II.1.4 Balance of payment and development
During 2013/14 the overall balance of payments recorded a surplus of USD 268 million which wasmore than half the amount recorded in 2012/13. The decrease of the surplus was driven by wideningof current account deficit by 12.9% to USD 4,790.2 million. This was on the account of increase inimports of goods and services relative to exports.

135

Table 4: Balance of payment Millions of USD
Description
A. Current accountGoods: exports f.o.b.
Goods: imports f.o.b.
Balance on Goods
Services: credit
Services: debit
Balance on Services
Balance on Goods and Services
Income: credit
Income: debit
Balance on Income
Balance on Goods, Services and Income
Current transfers
Current transfers: credit
Current transfer: debit
B. Capital account
Capital transfers credit
General government
Capital transfers: debit
Total, Groups A plus B
C. Financial account, excl. reserve and related
items
Direct investment abroad
Direct investment in Tanzania
Portfolio investment
Other investment
AssetsLoans (banks)
Currency and deposits
Other assets
Liabilities
Trade credits
Loans
Monetary Authority
General government
Banks
Other sectors
Currency and deposits
Total, Groups A through C
D. Net errors and omissions
Overall balance (Total, Groups A through D)
Source: Bank of Tanzania

2008/09-2,136
3,268-6,220-2,952
1,842-1,673169-2,783
125
-417
-292
-3,076
940
1,006
-67
386
386
324
0
-1,7502009/10-2,235
3,749-6,596-2,847
1,954-1,804150-2,698
160
-581
-421
-3,118
883
955
-72
514
514
451
0
-1,721

2010/11-2,534
4,896-8,012-3,1152,160-1,984176-2,939
199
-789
-590
-3,529
995
1,079
-84
563
563
499
0
-1,971

2011/12-4,652
5,562-10,609-5,0472,425-2,33788-4,959
153
-771
-619
-5,578
926
1,037
-111
820
820
756
0
-3,832

2012/13-4,402
5,398-10,482-5,084
2,943-2,390554-4,530
123
-771
-648
-5,179
776
853
-76
608
608
545
0
-3,7942013/14-5,281
5,248-11,347-6,0993,341-2,619722-5,377
124
-772
-648
-6,025
744
800
-56
748
748
684
0
-4,534

2,102
0
1,168
6
927
-9
-45
36
0
937
0
1,064
0
731
-7
340
-127
352
-329
23

2,386
0
1,383
1
1,002
-426
-19
-407
0
1,428
0
1,445
249
1,118
-21
100
-18
665
-187
477

2,853
0
1,521
-4
1,336
23
-5
28
0
1,313
-2
1,248
0
1,014
99
135
67
882
-782
100

3,363
0
1,515
16
1,832
120
74
46
0
1,712
0
1,694
0
1,094
-97
697
18
-469
678
209

4,688
0
1,943
1
2,744
66
43
24
0
2,677
0
2,419
0
1,350
63
1,007
258
894
-442
452

4,296
0
2,068
6
2,222
-176
-57
-119
0
2,398
0
2,451
0
1,633
137
681
-53
-237
506
268

II.1.5 Goods exports
During the year 2013/14 the value of goods exported were USD 5,619.1 million equivalent to4.1% higher than the value of export in the preceding year. Traditional and Non-traditional exports
increased by USD 16.5 million and USD 175.7 million respectively. (Charts 3 Export performance
2013/14 and chart 4 Composition of export commodities 2013/14)

136

Figure 3: Export performance 2013/14 (Millions USD)

Source: Tanzania Revenue Authority data base and Bank of Tanzania

Figure 4: Composition of export commodities 2013/14

Source: Bank of Tanzania

II.1.6 Goods Imports
During the year 2013/14 the value of imports of goods increased by 8.3% to USD 11,347.1 million
from the amount recorded in the preceding year. All import categories, namely; capital, intermediate
and consumer goods increased. (Chart 5 Composition of imports by major categories 2013/14)

137

Figure 5: Composition of imports by major categories 2013/14 (Millions USD)

Source: Bank of Tanzania

II.1.7 Major trading partners 2013/14
During this period, the major trading partners were India, Switzerland, South Africa, China and theUnited Arabs Emirates. (Table 5 Trading partners 2013/14)
Table 5: Trading partners 2013/14
Exports by Country of destination
CountrySouth Africa
India
Switzerland
China
Democratic Republic of Congo
Kenya
Japan
Germany
ZambiaBelgium
Others
Source: Ministry of Finance Tanzania

Percentage share
17.3
17.0
9.2
7.0
5.4
5.2
5.0
3.6
2.1
2.0
26.2

Imports by country of origin
Country
Percentage share
India
18.4
Switzerland
12.9
China
12.2
United Arabs Emirates
9.5South Africa
5.8
Japan
4.1
Kenya
2.7
United Kingdom
2.2
U.S.A
1.9
Saudi Arabia
1.8
Others27.9

II.1.8 Foreign Exchange
The Tanzania Shilling remained fairly stable though depreciating moderately against major
currencies particularly US Dollar. The currency keeps on loosing value against US Dollar at an
average of 4.1% every year reaching at TShs. 1,654 per Dollar in the year end 2014
Figure 6: Trends of Exchange rates of the Tanzanian Shillings against Us Dollar

Source: Bank of Tanzania

138

II.2 Domestic Environment
II.2.1 Economic Growth
The economic growth of Tanzania remains strong as Gross Domestic Product (GDP) in 2013 grewby 7.0 percent in real terms compared with 6.9 percent in 2012. GDP at constant prices amounted to
TZS 20.5 trillion compared with TZS 19.2 trillion in 2012. The strong economic performance wasbasically supported by communication, financial intermediation, construction, and trade and repairs
activities. Medium-term prospects are favourable, with growth projected to remain above 7%,
supported by public investments in infrastructure, particularly in the transport and energy sectors.
Agriculture remains the mainstay of the economy, employing the majority of the workforce, but thesector is plagued by infrastructure gaps and low productivity. Despite Tanzania’s impressive
macroeconomic achievements, growth is not sufficiently broad based, and poverty levels remain high.
Figure 7: GDP at current market price and real growth

Source: Ministry of Finance Tanzania

II.2.2 Real GDP growth by Activity
In terms of share to GDP in 2013, agriculture, hunting, forestry and fishing activities had thelargest share of 22.2 percent, followed by trade and repairs 15.0 percent, and real estates and businessservices 10.2 percent
Figure 8: Real GDP growth by Activity

Source; National bureau of statistics and Bank of Tanzania

139II.2.3 Inflation
For the past five years, Tanzania has experienced different patterns of annual average inflations
rates for headline, food and non food items. The economy experienced low pace of speed increase forprices of commodities in 2010 and 2013 where the annual average headline inflation rate were 5.5
percent and 7.9 percent respectively. The highest price increase for goods and services was recordedin year 2012 with the annual average inflation rates of 16.0 percent while year 2010 recorded thelowest annual average inflation rates of 5.5 percent for the past five years. The decline in annual
average headline inflation rates for 2013 is highly attributed to the decrease in prices for food items
especially rice and other major cereals. This was attributed to favourable weather condition andconcerted effort taken by the Government to increase the stock of food in the local market specificallyprovision of import permit for rice and sugar.
Figure 9: Percentage of CPI Inflation

Source: world Bank 9

II.2.4 Monetary Policy
The Bank of Tanzania has continued to pursue a prudent monetary policy with the objective of
supporting economic growth and maintaining price stability. A mix of monetary policy instruments is
deployed: sale of government securities, foreign exchange operations, repurchase agreements, andstand-by facilities, namely, the discount window and Lombard facility.
Growth of money supply in the year ending November 2014 accelerated to 17.4%, up from 9.7%
growth in the corresponding period in the previous year. The growth in money supply was driven by
an increase in net domestic assets of the banking system due to an expansion in credit to the private
sector and government. Private sector credit grew by 20.1% in the year ending November 2014,
compared with 14.6% growth recorded in November 2013. The leading sectors in private-sector credit
are trade, mining and manufacturing, agriculture and construction. Private-sector credit has increased
significantly, to 22.4% of GDP in March 2014 from 16.3% of GDP in March 2012.
Net borrowing by the government from the banking system grew by 75% in the year ending
November 2014, up from growth of 24.8% recorded in November 2013. The increase in net claims on
the government stemmed from the government’s decision to frontload domestic borrowing to financedevelopment projects as a result of delays in the disbursement of concessional foreign funds tosupport the 2014/15 budget.
Prudent monetary policy, coupled with improved food supply and the recent decline in fuel prices,helped to bring down inflation to an annual average of 6.8% in 2014 from 7.9% in 2013. Foodinflation has also declined, to an annual average of 7.7% in 2014 from 8.6% in 2013. Similarly, core
inflation, which excludes food and energy, has declined significantly, to an annual average of 3.7% in2014 from 6.2% in 2013.
Tanzania has continued to maintain a healthy external reserve position: at the end of November
2014, gross official reserves were sufficient to cover 4.1 months of imports of goods and services.
Although the Tanzania shilling lost about 9% of its value against the US dollar, the exchange rate of9

http://data.worldbank.org/country/tanzania

140

the shilling against the major foreign currencies remained relatively stable overall in 2014. Thisstability is partly explained by good export performance, as well as the country’s strong foreign
reserves position.
II.2.5 Monetary Policy Implementation
During 2013/14, the Bank of Tanzania implemented monetary policy in line with the broad
macroeconomic objectives of the Government through maintaining appropriate level of liquidity inthe economy. In achieving the low and stable inflation, the Bank of Tanzania continued to use
monetary targeting framework with reserve money as an operating target. During 2013/14, liquidity inthe economy was modest as mirrored in the performance of reserve money and developments in themoney markets. Reserve money was kept within the targets throughout the period under review,
except for December 2013 due to seasonal demand for cash. Interest rates on Treasury bills averaged
at 14.07 percent in 2013/14 while overall interbank cash market rate averaged at 8.03 percent. The
peak of 11.56 percent was observed in January, following the seasonal demand for cash related to endof year festivals and end of quarter tax obligations.
II.2.6 Money Supply and Credit Developments
In line with the monetary policy stance for 2013/14, extended broad money supply (M3) increased
by TZS 2,415.4 billion, translating into a growth rate of 15.8 percent compared with 14.9 percent
recorded in 2012/13 and the projection of 15.0 percent. The increase in M3 was largely driven byincrease in domestic credit and accumulation of foreign assets by the banking system. During theperiod, domestic credit grew by 25.4 percent compared with 21.1 percent recorded in the preceding
year, mostly driven by credit to private sector. The private sector credit increased by TZS 2,036.4
billion compared with TZS 1,389.6 billion recorded in 2012/13. This represents an annual growth rateof 21.4 percent, higher than 17.1 percent recorded in 2012/13. The net foreign assets of the banking
system increased by TZS 556.5 billion compared with TZS 186.0 billion recorded in 2012/13,
following receipt of foreign inflows from capital gain tax
II.2.7 Interest Rates Developments
During the period 2013/14, overall time deposit rate declined to an average of 8.76 percent from8.79 percent registered in 2012/13, while the overall lending rates increased to 16.14 percent from15.84 percent. As a result, the spread between one year lending and deposits rates widened slightly toaverage of 2.84 percentage points in 2013/14 from 2.80 percentage points recorded in 2012/13

II.3 Fiscal Position
II.3.1 Fiscal Policy
Tanzania’s fiscal position remains healthy as the government continues with measures to manage
expenditure and keep the fiscal deficit within sustainable limits. In fiscal year 2013/14, domestic
revenue fell short of target by about 10%, mainly because some of the planned revenue measures
could not be implemented, notably a SIM-card tax, which was strongly challenged by mobile phone
operators. The proposed SIM-card tax was replaced by an increase in excise tax on mobile services,
but implementation was delayed and the ensuing gap could not be fully covered. But domestic
revenue collection increased significantly by 31.7% to TZS 11.5 trillion (Tanzania shillings) in fiscal
year 2013/14 from TZS 8.8 trillion in fiscal year 2012/13. This indicates that the revenue shortfall in
2013/14 resulted from an overly ambitious revenue target.
Domestic revenues were estimated at 17.4% of GDP in 2013/14, up from 16.8% of GDP in
2012/13. Total expenditures and net lending for 2013/14 were estimated at 24.5% of GDP, down froman estimated 27.7% of GDP in the previous fiscal year. Both the fiscal deficit of 3.8% of GDP in
2013/14 and expenditure levels are in line with those programmed by the International Monetary
Fund (IMF). Net domestic financing remains capped at 1% of GDP to ensure non-inflationary
financing of the deficit and to avoid crowding out private sector credit demand.
The government continues to implement measures to improve domestic revenue mobilisation byidentifying new sources to widen the revenue base, by strengthening the administration of current

141sources and through proper management and reduction of tax exemptions. On the expenditure side,
the government continues to focus on reducing recurrent expenditure in areas considered to be “nonpriority”, among them seminars, domestic and foreign travel, exhibitions and trade fairs.
The 2014/15 budget aims to achieve medium-term growth objectives while maintaining single
digit inflation. The level of total expenditures is expected to remain around 26% of GDP in themedium term. The wage bill is estimated at around 7% of GDP in the medium term, and the overall
fiscal deficit is expected to remain around 5% of GDP. In line with the ceilings established under the
IMF’s Policy Support Instrument (PSI) programme, non-concessional financing is budgeted at 2% ofGDP. Implementation of the budget during the first half of 2014/15 was affected by financing
uncertainties due to delayed disbursement of budget support funds by development partners. The
funds were delayed because of governance concerns in the case involving Independent Power
Tanzania Limited
II.3.2 Debt Policy
Tanzania’s total public debt has stabilised at around 42% of GDP for the past three years. The
external debt stock is estimated at USD 13.7 billion as of November 2014, having increased by 5.3%
from the level recorded in corresponding period in 2013. The most recent debt sustainability analyses,
by the government in 2013, and jointly by the IMF and World Bank (WB) in 2014, indicate that
Tanzania’s public debt remains sustainable in both the short and medium term. The risk of debt
distress remains low due to the structure of debt, which is largely concessional, coupled with highoutput growth forecast scenarios and ambitious revenue collection targets.
Tanzania’s borrowing and public debt policies are currently guided by the 2013 Medium-Term
Debt Management Strategy, which aims to meet government financing requirements at the lowest
possible cost with a prudent degree of risk, and to develop domestic financial markets. The
government is required by law to conduct debt sustainability analysis (DSA) on an annual basis toassess the state of the country’s debt and its ability to service the debt in the short, medium and longer
terms. According to the government’s recent DSA, in present value (PV) terms, external debt to GDP
is 20% against a sustainability threshold of 50%; the ratio of debt service to revenue is 4 against asustainability threshold of 35; and the ratio of PV of debt to exports of goods and services is 78
against a sustainability threshold of 200.
In line with the Medium-Term Debt Management Strategy, the government has continued to takemeasures to fine-tune debt management operations in order address co-ordination challenges. A
particularly noteworthy development is the recent establishment of a separate department at the
Ministry of Finance that will be responsible for government debt issues. The new department willconsolidate and co-ordinate all government debt functions from analysis to contracting and recording.
This arrangement will address the previous fragmentation in Tanzania African Economic Outlook ©
AfDB, OECD, UNDP 2015 government debt functions, which involved separate debt sections within
the policy analysis department and accountant general’s office under the Ministry of Finance, as wellas the financial markets department and the debt management department within the Bank of
Tanzania.
II.3.3 Domestic Debt
The stock of domestic debt increased to TZS 6,535.5 billion at the end of 2013/14 from TZS
5,640.4 billion registered at the end of 2012/13. The increase was on account of large issuance ofgovernment securities compared to maturing obligations. The domestic debt stock was equivalent to14.6 percent of GDP and 25.7 percent of the national debt stock. Government bonds accounted for73.9 percent of the domestic debt stock, followed by Treasury bills and Government stocks which
accounted for 22.1 percent and 3.9 percent, respectively.

142

Figure 10: Trend of Government Domestic Debt stock (TZS Billions)

Source: Bank of Tanzania

Table 6: Government Domestic debt by instrument (TZS Billions)
Instrument

2010/11Government
securities
3,726.2
Treasury
bills
586.3
Government
stocks257.1
Government
bonds
2,882.8
Taxcertificates
0.1
Non securitizeddebt
8.3
Mabibohostel
8.2
Other
0.0
Total domestic
debt
3,734.5
Interest arrears
0.0
Total domestic
debt stock
3,734.5
Source: Bank of Tanzania

Percentage
share2011/12Percentage
share2012/13

Percentage
share

2013/14

Percentage
share

99.8

4,174.2

100.0

5,630.9

99.8

6,529.1

99.9

15.7

849.0

20.3

1,195.8

21.2

1,444.1

22.1

6.9

257.1

6.2

257.1

4.6

257.1

3.9

77.2

3,068.0

73.5

4,177.9

74.1

4,827.8

73.9

0.0

0.1

0.0

0.1

0.0

0.1

0.0

0.2

0.0

0.0

9.6

0.2

6.4

0.1

0.2
0.0

0.0
0.0

0.0
0.0

0.0
9.6

0.0
0.2

0.0
6.4

0.0
0.1

100.0
0.0

4,174.2
0.0

100.0
0.0

5,640.5
0.0

100.0
0.0

6,535.5

100.0
0.0

100.0

4,174.2

100.0

5,640.5

100.0

6,535.5

100.0

In terms of holder category, commercial banks were the leading creditors, accounting for 50.5% of
the domestic debt stock, followed by the Bank of Tanzania (22.8%) and pension funds (15.1%).
Holding of domestic debt by the banking system increased from 71.8% in 2012/13 to 73.3% at the endof 2013/14. Commercial banks also dominated in holding long-term domestic debt, accounting for
44.0%

143

Figure 11: Percentage Share of Holding of Government Domestic Debt

Source: Bank of Tanzania

II.3.4 Government Expenditure
The Government continued to accord priorities for programs outlined in the Development Plan
2012/13 with the aim of increasing pace of economic growth and reduction of poverty. In 2013/14,
the Government spent a total amount of TZS 14,011.1 billion or 83.8 % of the budget and 25.2% ofGDP. Out of this amount, recurrent expenditure was TZS 10,085.1 billion equivalent to 91.1% of thebudget while development expenditure was TZS 3,926.0 billion equivalent to 69.5% of the budget,(Chart 11 Government expenditure 2013/14).
Figure 12: Government expenditure 2013/14 (Billions TZS)

Source: Ministry of Finance Tanzania

144

III. Tax system
Taxes in Tanzania are administered by Tanzania Revenue Authority (TRA) a semi autonomous
government agency established by Act of Parliament No. 11 of 1995, and started its operations on
1st July 1996. Prior to establishment of Tanzania Revenue Authority tax collection had been afunction of three revenue departments within the Ministry of Finance (MOF), and, as such, fell within
the normal civil service framework. The rationale for the TRA’s inception was; weaknesses in tax
administration and tax policy formulation; widespread tax evasion; the desire to limit politicalinterference and to free tax administration from civil service constraints. In carrying out its statutoryfunctions, TRA is regulated by law, and is responsible for administering impartially various taxes of
the Central Government.
The functions of the Authority are;a) To assess, collect and account for all government revenueb) To monitor, oversee, coordinate activities and ensure the fair, efficient and effective
administration of revenue laws by revenue departments in the jurisdiction of the Union
Governmentc) To advise the Minister and other relevant organs on all matters pertaining to fiscal policy, theimplementation of the policy and the constant improvement of policy regarding revenue laws
and administrationd) To promote voluntary tax compliance to the highest degree possiblee) To take such measures as may be necessary to improve the standard of service given to
taxpayers, with a view to improving the effectiveness of the revenue departments andmaximising revenue collectionf) To determine the steps to be taken to counteract fraud and other forms of tax and other fiscal
evasionsg) To produce trade statistics and publications on a quarterly basish) To perform such other functions as the Minister may determine.
Tanzania Revenue Authority, in performing its duties, has a responsibility of supervising thefollowing tax laws;a) Tax administration Act 2015b) Income tax Act 2004, Cap 332
c) The Value Added tax Act 2014d) The Tax Revenue Appeals Act, Cap 408e) The hotels Act, Cap 105f) The ports service charges Act 1973, Cap 264g) The Motor vehicle (Tax registration and transfer) Act 1972 Cap 124h) The Airport service charges Act 1992, Cap 365i) The road and fuel Act 1985, Cap 220j) The stamp duty Act 1972, Cap 189k) The East African Community customs management Act 2004l) The Excise management and tariff Act, Cap 147
III.1 Tax Administration
TRA is under the direction and control of a Board of Directors as a governing board responsible informulation and implementation of the policies of the Authority. It is also responsible for advising the
Minister for Finance on the fiscal policy of the country and tax matters in particular. The board has achairperson appointed by the President on the recommendation of the minister of Finance and various
board members including; permanent secretary of the ministry of Finance of the Union Government,
Principal secretary of the ministry of Finance of Zanzibar, Governor of the Bank of Tanzania,
Commissioner General of the Authority, permanent secretary of the ministry of planning and fourother members appointed by the minister with relevant professional knowledge, experience andcompetence in the relevant areas of finance, commerce or economics. The tenure of office for themembers is three years and the non-ex-officio members can be re-appointed only once.

145

The Commissioner General is the Chief Executive of the Authority. He is responsible for the daytoday operations of the Authority subject to the general supervision and control of the Board. The
Commissioner General is assisted by a Deputy Commissioner General and heads of departments inperforming his duties. Some Heads of Departments are in turn assisted by Deputy Commissioners /Directors at the head office level.
Figure 13: TRA Organizational structure (Top Management)

Source: Tanzania Revenue Authority

Basically there are four main departments responsible in tax administration and management (greyshaded) namely; Domestic revenue department, Large Taxpayers department, Customs & Excise
department and Tax Investigation department. All the departments are manned by Commissioners
who in turn report to the Commissioner General of the Authority.
III.2 Tax structureOver the last two decades Tanzania Revenue Authority (TRA) has matured from a tax
administration that provides tax type services for revenue collection to an efficient organisation thatdelivers one stop shop services for all types of taxes which has steered service delivery. Basically
Taxation in Tanzania is in two types of taxes; that is direct and indirect taxes.
Figure 14: Tanzania Tax structure146

III.3 Tax Revenue Collections
Since establishment of TRA in 1996, Tanzania has shown a positive growth of revenue collectionof about 20% on average each year. From its establishment in the year 1996-97 total revenue
collection grew from Tsh. 523,301.38 million to Tsh. 9,519,737.44 million in 2013-14 absolute values.
Revenue yield has increased from 11% in the FY 2004/05 to 16% of GDP in the FY 2013/14. The
increase in revenue collection has been associated with improved tax revenue collection. The current
overall domestic revenue yield in Tanzania is pretty close to the average yield in non-fragile low
income Sub-Saharan Africa countries which stands at 17.6% of GDP.
Figure 15: Total Tax Revenue collection as percentage to GDP ratio (TSHS Billions)

Source: Tanzania Revenue Authority data base

By tax type, Direct tax has being the major contributor to the total revenue collection contributing
more than 40% on average of the total taxes collected (Domestic and International taxes). Indirect
taxes collections; especially VAT has shown a downturn trend ranging from 15% to 13% average
percentage share between 2010/11 and 2013/14. This has mainly been contributed by the structural
weaknesses of the VAT Act, 1997 Cap 148. However the Act provided exemptions to huge number of
items leading to erosion of tax base to a large extent. To improve VAT collections, the government
replaced the VAT law with a new VAT Act, 2014 in which most of the structural weaknesses wereaddressed and number of exemptions was reduced.
Table 7: Percentage share to total tax revenue by tax items
Tax Item
2005/06 2006/07
Total Tax Revenue
100.0
100.0
Direct Taxes
31.7
32.6
P.A.Y.E.
14.3
15.6
Corporation Tax
10.1
10.2
Individuals
1.6
1.2
Other Income Taxes
5.7
5.6
Consumption Taxes
24.3
23.9
Domestic Excises duty
6.6
6.6
Domestic VAT
16.2
15.8
Other Domestic Taxes &Charges
1.5
1.4International Taxes
44.0
43.5
Import duty
9.0
9.6
Excises duty on Import
6.3
11.9
VAT on Import
24.9
17.8
Other Import charges
3.8
4.2
Source: Tanzania Revenue Authority Data base2007/08
100.0
31.9
14.8
10.8
1.1
5.3
24.0
6.3
15.6

2008/09
100.0
32.5
15.9
9.9
1.0
5.6
25.2
6.8
16.4

2009/10
100.0
32.9
16.3
9.1
1.1
6.3
24.4
6.6
15.7

2010/11
100.0
33.7
17.0
9.8
1.1
5.8
23.2
5.9
14.9

2011/12
100.0
37.0
17.0
11.6
1.0
7.4
23.4
6.7
14.5

2012/13
100.0
39.2
17.4
12.9
0.9
8.0
23.5
6.9
14.2

2013/14
100.0
40.1
16.5
14.9
0.9
7.8
22.8
7.5
13.1

2.1
44.0
9.0
12.7
16.0
6.3

2.0
42.3
9.0
11.4
15.5
6.3

2.1
42.7
8.5
11.6
16.7
5.9

2.4
43.1
8.7
11.2
16.7
6.5

2.2
39.6
7.9
8.8
16.4
6.5

2.4
37.3
7.4
8.7
15.2
5.9

2.2
37.1
7.7
7.7
13.7
8.0

147

III.4 Brief Overview of tax laws and taxes in Tanzania
III.4.1 Tax Administration Act, 2015
Tax Administration Act (TAA) is a new Act in Tanzania established in 2015 with the aim ofcreating a modern, effective, fair and transparent at administration by simplifying, unifying andharmonizing tax procedures from various tax laws in a single legislation with a view to promote
voluntary tax compliance, fair tax governance, remove duplicate procedures and increase tax revenue.
TAA emphasises the use of information technology in tax administration to enhance modern tax
administration, speedy and modified delivery of services to taxpayers with a view of minimizing
corruption. To easy administration of tax procedures from various tax laws, new provisions that caterfor all tax laws have been established in the TAA. Such provisions include; the powers of theCommissioner General to higher experts or use other public officers to assist him/her in the executing
statutory functions, recognition of establishment of electronic system for e-filling, e-payment andfurnishing of information to the authority, harmonised and simplified range of tax recovery measures,harmonised and streamlined penalties, interests and offences that caters for any tax law administeredby TRA, powers to publish tax offenders
However the Act has a special feature of the use of currency point for determination of fines andpenalties. Currency point means a value prescribed by a tax law for the purpose of protecting thevalue of the currency against the effects of inflation.
III.4.1 Income tax
III.4.1.1 Taxpayer registration
In Tanzania, registration is mandatory for all persons 10 doing business everywhere and for non
resident persons who carries on business in the United Republic of Tanzania. For the purpose ofidentifying persons liable to tax such persons shall apply to the Commissioner and issued with acertificate of Taxpayer Identification Number (TIN). The registered person shall use the taxpayer
identification number in all business transaction and tax records.
Income tax in Tanzania is charged under the Income Tax Act 2004 which came into operation on
1st July 2004 on the repeal of the Income Tax Act No. 33, of 1973. Income tax structure under this act
is in three distinct heads of business, Investment and employment. The act provides rules of granting
deductions in respect of various expenditures and reserves. In this act, anti-avoidance rules are well
stipulated to minimize use of arrangements and transactions designed to avoid or reduce tax payable
like income splitting provisions, transfer pricing adjustments for transactions between persons who
are associated such that they comply with arm’s length principle.
However the act counters the adverse effects of globalized economy on direct tax by providing
clear rules on quantification, characterization and allocation of income from intra-group and crossborder transactions. It provides rules for distinguishing between domestic and foreign sourced income
payments and expenses. It clarifies the concept of residence with respect to a resident of the United
Republic as applicable to individuals and entities.
III.4.1.2 Chargeable Income
Section 6 of the act provides the tax regime and scope of chargeable income under the act inrespect of resident and non resident persons. In the case of a resident person, is the person’s income
irrespective of the source (worldwide) and in case of a non resident person is the income that has thesource in the United republic of Tanzania.
III.4.1.3 Charge of income tax
Income tax is charged and is payable for each year of income by every person;a) who has total income for the year of income or a corporation which has a perpetual unrelieved
loss for the year of income and the previous two consecutive years of income attributable totax incentives,” ( Amended by Finance Act No. 13 of 2008)10"person" means an individual or an entity

148b) Who has a domestic permanent establishment that has repatriated income for the year ofincomec) Who receives a final withholding payment during the year of income
And the amount of income tax payable by a person for a year of income shall be equal to the sum of
the income tax payable with respect to (a), (b) and (c).
The income tax rates applicable are stipulated under paragraph 1, 2 and 3 of the first schedule ofthe income tax Act 2004.
Table 8: Income tax rates applicable to various types of income 11
Tax base
Income tax for individuals
Presumptive income tax 12 for individuals
Entities
Corporation with perpetual unrelieved loss for five consecutive
years attributable to tax incentives
Withholding taxes
Capital gain tax
Source: Tanzania Revenue Authority

Rate
See table 8
See table 930%
0.3 percent of the turnover of the fifth year of
perpetual unrelieved loss
Varies from 5% to 15%
10% for residents and 20% for non residents

III.4.1.4 Pay As You Earn (PAYE)
Employees pay their monthly income tax under PAYE system during the year of income (thecalendar year) that starts on 1st January and ends on 31st December of every year. Employees' salaries
and all other payments or benefits which are paid to him or her are subject to the PAYE tax schemeand the amount of tax withheld by employers is remitted to the TRA on or before the 7th day of themonth following the month of deduction. The tax rates applicable are as per table 8 below. An
employee whose income is wholly comprised of emoluments from the employment does not need tocomplete tax returns. However if he has other sources of income, the Income Tax Law requires him to
file a return of income to the income tax office.
Table 9: Rate of income tax for individuals (who prepare audited accounts but also applicableto salary earner individuals)
Annual Taxable Income
Where total income does not exceed TSHS. 2,040,000
Where total income exceeds TSHS. 2,040,000 but does notexceed TSHS. 4,320,000
Where total income exceed TSHS. 4,320,000 but does not exceeds
TSHS. 6,480,000
Where total income exceeds TSHS. 6,480,000 but does notexceeds TSHS. 8,640,000
Where total income exceeds TSHS. 8,640,000

Tax Rate
NIL
11% of the amount in excess of TSHS. 2,040,000
TSHS. 250,800 plus 20% of the amount in excess of
TSHS. 4,320,000
TSHS. 682,800+25% of the amount in excess of
TSHS. 6,480,000
TSHS. 1,222,800 +30% of the amount in excess of
TSHS. 8,640,000

Source: Tanzania Revenue Authority

11

Most of these rates change from time to time depending on how it has being decided during parliamentary budget review
sessions. But currently these are the applicable rates
12This is a tax system where individuals are taxed based on their annual turnover (turnover of the business does not exceed
the threshold of TSHS 20 million). The Taxpayers under this system are not obligated to prepare and submit audited
accounts to the TRA. Tax payable is established basing on annual turnover shown by taxpayer’s records. In absence ofcomplete records, annual turnover will be estimated based on the best judgment of the commissioner.

149

Table 10: Rates of tax under presumptive tax System
Annual Turnover (TSHS)
Not exceeding 4,000,000
Excess of 4,000,000 but notexceeding 7,500,000
Excess of 7,500,000 but notexceeding 11,500,000
Excess of 11,500,000 but notexceeding 16,000,000
Excess of 16,000,000 but notexceeding 20,000,000
Source: Tanzania Revenue Authority

Tax Payable when records areincomplete(TSHS)NIL

Tax Payable when records arecomplete(TSHS)
NIL

150,000

3% of the turnover in excess of 4,000,000
135,000 plus 3.8% of the turnover inexcess of 7,500,000
285,000 plus 4.5% of the turnover inexcess of 11,500,000
487,000 plus 5.3% of the turnover inexcess of 16,000,000

318,000
546,000
862,500

III.4.1.5 Filing of tax returns and payment of taxa) The statement of estimated tax payable
The statement of estimated tax payable is a provisional return which a taxpayer is required tocomplete and file to the Commissioner within three months from the beginning of the year of income(which for individuals shall be calendar year).The taxpayer is supposed to pay the estimated tax in a
maximum of four installments each falling due after three months that is on or before 31st March,
30th June, 30th September and 31st December of each year of income.
b) Filing of Final returns
A taxpayer must file a final tax return to TRA within six months after the end of each tax year.
The taxpayer must file return in the period between 1st January and 30th June
Late payment of tax: Shall be charged interest at the prevailing statutory rate at the time of imposition
plus 5% per annum
III.4.2 Value added tax (VAT)
The introduction of VAT in Tanzania has a long history back before it was effectively
implemented. In December 1991 the Tax commission, appointed by the Government of Tanzania
offered a proposal to reform the Tanzania’s tax system by replacing the sales tax with VAT. On 1st
July 1998 with the coming into operation of the VAT Act 1997, VAT was introduced and replace theSales tax which was unable to generate sufficient revenue as it was narrowly based. Zanzibar has its
own VAT Act and its administration, and the tax was introduced there on 1st January 1999.
However, various amendments to the VAT Act 1997 were being made by the governments inthe process to enhance efficiency for better revenue yield. Due to structural weaknesses of the VAT
Act 1997, the government in 2014 decided to change the law and replace it with a new VAT Act 2014.
The major structural weaknesses of the previous VAT Act were; erosion of tax base due to large
number of tax exemptions, the law failed to address new forms of trade in particular cross bordertransactions, law revenue generation (4.8% of GDP) that could not meet the target of 6% of GDP by
2013, deviation from the international best practice to mention but few.
The new VAT Act 2014 came with some different features different from the previous one. The
Act assumes broad based VAT i.e. broad coverage in the sense that, every supply made in thefurtherance of economic activity is taxable, The Act adopts the term economic activity which is wider
than business and it includes:-business, profession, trade, manufacture, or undertaking of any kind
whether or not the activity is undertaken for a profit or not and many other features.
III.4.2.1 Registration for VAT
All taxpayers in Tanzania are registered under the Taxpayer Identification System (TIN system).
In addition, for VAT purposes a taxpayer must also be registered and only the registered taxpayers for
VAT purposes are required to charge and collect VAT. The registration criterion is annual businessturnover which at current is Tsh. 100,000,000. Any person with a turnover of Tsh. 100,000,000 orabove must register for VAT. So the registered persons are called taxable persons in this case. Persons
with turnover below Tsh. 100,000,000 are not required to be registered unless the Commissioner does150

so for the interest of the nation. Hence such persons are not allowed to charge, collect or pay VAT intheir business transactions.
III.4.2.2 Tax rates
The VAT in Tanzania has mainly two types of tax rates; the standard rate 18% (for all taxable
goods and services taxable at standard rate) and zero rate (0%) for immovable properties and exportsof goods outside United Republic of Tanzania. At its introduction on 1st July 1998, VAT standard rate
was 20% and on 31, June 2009 the government of Tanzania in its 2009/10 budget announced a
reduced rate of 18% which came in to effect in 1st July 2009 to present.
III.4.2.3 Input tax Credit system
Tanzania uses Invoice system in tax credit whereby taxable persons are required to maintainrecords of all accounts, returns and other records relating to VAT for at least a period of Five years. In
order for a taxable person to be credited for the input tax incurred the following three conditions must
be met; (Section 68 (1) of the VAT Act 2014)a) The goods and services, or immovable property on which the input tax was incurred wereacquired, or imported in to main land Tanzania by the person in the course of the person’s
economic activity and for the purpose of making taxable suppliesb) In the case of a supply, the person paid, or is liable to pay a consideration the consideration
for the supply andc) In the case of an import, the person paid, or is liable to pay the value added tax imposed on
the import
In case of imported services (Section 68 (2) of the VAT Act), the purchaser shall not be allowed
an input tax credit for that supply unless he has accounted for output tax in the same Value added tax
return in which the input tax credit is claimed. This means that the value added tax payable shall be
the output tax and input tax of that person.
III.4.2.4 Tax period, Tax return, and Tax paymenta) Tax Period
According to the VAT Act 2014, tax period for VAT purposes means a calendar month
beginning at the start of the first day of the month and ending at the last day of the month. This period
is applicable to all type of taxpayers who are registered for VAT.
b) Tax return and tax payment
The Value Added Tax Act requires every taxable person to lodge a Value added tax return inthe month after the end of the tax period to which it relates whether or not that person has a net
amount of tax payable for that period. The amount of value added tax payable by the taxable person in
relation to that tax period shall be calculated by adding all output tax that became payable by the
person in that tax period, subtracting all input tax credit allowed in that tax period and adjusting theresulting amount by; adding all increasing adjustments required to be made in that tax period andsubtracting all decreasing adjustments required in that tax period. Where the net amount for that tax
period is negative, it shall be carried forward in to one or more subsequent tax periods unless an
immediate refund is allowable.
III.4.3 Import Duties
The administration of Customs functions in East African countries is governed through theEast Africa Customs Management Act – EAC CMA (2004) established by Article 39 of the Protocol
for Establishment of the East African Customs Union of 2004. In all EAC Partner States customs is
not a standalone department; for instance in Tanzania Customs is integral part of the Tanzania
Revenue Authority and is assigned with annual revenue collection target like other taxation
departments.

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III.4.3.1 The EAC Customs Administration
The East African Community (EAC) Partner states adopted the Common External Tariff, East
African Community customs management Act 2004, Custom regulations and rules of origin toadminister Import Duty within the member states. The process of harmonization of customs
administration has resulted into having Common External and Internal tariffs in respect of customs
import duty within East Africa.
III.4.3.2 Single Customs Territory
The operationalization of Single Customs Territory along the Central corridor was launchedin October, 2013 The Single Customs Territory (SCT) can be described as the stage for full attainmentof the Customs union which is achieved by the removal of duties and other restrictive regulations
and/or minimization of internal border customs controls on goods moving among Partner States with
an ultimate realization of free circulation of goods.
Under Single Customs Territory, all five Partner States: Tanzania, Kenya, Uganda, Burundi
and Rwanda are regarded as one Customs Territory which means there shall be only one Customs
declaration that will be made in the Country at which goods are consigned. Such one declaration will
replace the current system where imports to Rwanda, Burundi or Uganda requires multiple customs
declarations; first in Tanzania as Transit Goods and then in Rwanda, Burundi or Uganda as Importsthat ultimately involves two or more Customs Agents to clear the consignment. The overall benefit
will be time and cost saving
III.4.3.3 Rules of Origin
These are rules for determining the place from which goods originate within the EAC Partner
state. The purpose is to ensure that traders in the partner states are aware of the rules and there isuniformity with a view of transparency, accountability, fairness, predictability and consistency in theapplication of the rules of origin among East African Countries. Goods which meet the criteria will be
granted a certificate of origin and imported free of duty within the partner states.
Most of goods which are imported to Tanzania are charged Import Duty at the rate of 25%.
These are final consumer goods or finished goods. However, there are some sensitive items which
attract Import duty of more than 25%, to mention but few such goods include; Maize (Corn) 50%,
Rice 75%, Hard wheat 35%, sugar for industrial use 100%, cigarettes containing tobacco 35% and soon.
Other Import duty rates include 0% and 10%. Goods or items which are charged 0% Import
Duty mainly covers raw materials, capital goods, pharmaceuticals, agricultural implements and others.
Goods or items which are charged 10% Import Duty mainly covers semi-finished goods or inputs
which are used in production such as wheat starch, maize starch, cotton seeds, trailers and semi
trailers not mechanically propelled-assembled to mention but few.
III.4.4 Interest, Penalties and Offences for non complianceNon-compliance is enforced through a number sanctions specified in Tax Administration Act
2015. As mentioned earlier, Tax Administration Act is a new law enacted in May 2015 for easyadministration of tax procedures from various tax laws. It harmonised and streamlined penalties,
interests and offences that cater for any tax law administered by TRA. Interests, penalties and fines
imposed for different non compliance actions are as per table 11below.

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Table 11: Interest, Penalties and Fines
Activity
Understating estimated tax
payableFailure to Pay Tax
Failure to Maintain
Documents or File
Statement or Return ofIncomeFailure to file tax return

Interests
Statutory ratecompounded monthly
Statutory ratecompounded monthly
N/A

N/A

Penalties

Fine Payable

N/A

N/A

N/A

N/A

1 CP for Individuals and 10 CP
corporations each month and partof a month

N/A

N/A

Making False or
Misleading Statements

N/A

Aiding and Abetting

N/A

2.5% of tax assesses less tax paid, 5
CP for Individuals, 15 CP for
Corporations whichever is higher
50% of the tax - omission without
reasonable excuse or 75% of thetax - knowingly or recklessomission
100% of the tax

Failure to comply with the
law

N/A

N/A

Failure to Pay Tax

N/A

N/A

Failure to use Electronic
fiscal device

N/A

N/A

Failure to apply for VAT
registration

N/A

N/A

N/A

<100 CP and >200 CP or
imprisonment of < 1 yearand > 2 years or both
<20 CP and >50 CP or
imprisonment of > 6 months
or both<25 CP and >100 CP or
imprisonment <3 months or
both<100 CP and >150 CP or
imprisonment >3 years or
both<100 CP and >200 CP or
imprisonment <1 year and>2 years or both

Source: Tanzania Revenue Authority Tax Administration Act, 2015
*CP means Currency Point

III.4.5 Tax Appeals
In order to enhance taxpayers’ rights, reduce tax avoidance and increase voluntary tax compliance,
TRA administers Tax revenue appeals Act, Cap 408. For effective management of appeal cases in
Tanzania, tax appeals go through various processes. The first stage is tax objection to Commissioner
General of TRA whereby if a taxpayer is not satisfied with a tax assessment issued to him/her, thetaxpayer should file a notice of tax objection within 30 days from the date the assessment was issued
to him/her. If the taxpayer is aggrieved by the decision of the Commissioner at the first stage, thetaxpayer may appeal to the Tax Appeal board for further determination within fort five days following
the date on which the notice of final determination of assessment of tax is served on the appellant.
There after, any party who is aggrieved by the decision of the Board may appeal against thedecision to the Tax Revenue Appeals Tribunal within thirty days from the date of the decision. The
Board and the Tribunal shall respectively have the power to take evidence on oath, to resolve any
complaint or appeal by mediation, conciliation or arbitration, to issue warrants of arrest for failure tocomply with summons, to order payment of costs in relation to any matter referred to the Board or the
Tribunal, to dismiss any matter before it and to adjourn the hearing of any proceedings before it.
Any person who is aggrieved by the decision of the Tribunal may prefer an appeal to the Court ofAppeal. Appeal to the Court of Appeal shall lie on matters involving questions of law only and theprovisions of the Appellate Jurisdiction Act and the rules made there under shall apply mutatis
mutandis to appeals from the decision of the Tribunal.
III.4.6 Other Taxes
Together with the two major taxes described above, TRA collects revenue from other sources ofincome as listed hereunder;a) The Hotels levy

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The Hotels levy is charged under The Hotels Act, Cap 105. Section 26 of the Act imposes a levy on
every owner of a hotel or guest house shall pay, in respect of every guest, a levy of twenty per centumof the hotel charges. However, any person who or body of persons which has been registered for VAT
shall be exempted from the levy (Section 27 of the Act)b) The Port Services charges
The Port Services charges are charged under The Port Services charges Act, Cap 264. The Act
imposes a port service charge (Section 3 of the Act) to be paid by every passenger on each occasion
on which he embarks on a ship or a ferry, at a port in Mainland Tanzania, for a journey to a
destination within or outside the United Republic. In case of residents five hundred shillings and incase of non-residents five US Dollars or its equivalent in convertible currency. The charge shall be
paid prior to embarkation to a collection agent. Exemptions (Section 4 of the Act) shall apply to any
child under the age of two years, any passenger embarking at a port at which he is in transit, any
passenger embarking on a ferry which plies at a distance of up to three kilometres from the port.
c) The Air Port Services charges
The Air Port Services charges are charged under The Air Port Services charges Act of 1973, Cap
365. Section 3 of the Act imposes a charge known as airport service charge of five thousand shillings
to be paid by a passenger embarking on an aircraft at an airport within the United Republic who
intends to travel to a destination within the United Republic and thirty United States dollars forpassenger who intends to travel to a destination outside the United Republic whether or not a residentof the United Republicd) The Motor Vehicles registration taxes
In Tanzania, taxes on motor vehicle registration are charged under The Motor Vehicles (Tax onregistration and transfer) Act 1972, Cap 124. The rates of the charges are set out in the first scheduleof the Act and the taxes are charged upon first registration of any motor vehicle, where in the case ofany motor vehicle, registration tax has not been paid by reason of an exemption under section 6 upon
the expiry of the exemption or upon transfer of the motor vehicle to a person not enjoying similar
exemption, where subsequent to first registration of a motor vehicle to which the Act does not apply
the motor vehicle is so adapted as to bring it within a category of motor vehicles to which the Act
applies upon the adaptation.
However the Act charges tax on transfer (Section 8 of the Act) at the rate specified in the Second
Schedule to this Act, upon the transfer of a motor vehicle by the owner to his or her spouse, upon thetransfer of a motor vehicle to the personal representatives of a deceased owner and upon other cases
as stipulated in the Acte) The Stamp Duty tax
Stamp duty tax is administered under The Stamp Duty Act 1972, Cap 189. The Act imposes stamp
duty charges (Section 5 of the Act) to instrument specified in the schedule which is executed in
Tanganyika (Tanzania mainland) or if executed outside Tanganyika relating to any property or any
matter or thing performed in Tanganyika, must be charged with duty of amount that is specified or
calculated in the manner specified in the schedule in relation to such instrument unless it is exempted.
The Stamp Duty Act specifies the persons to pay stamp duty where in most cases it is payable by
the person drawing, making, or executing the instrument. When a person is in doubt as to whether or
not an instrument is required to be stamped or as to the amount of the Stamp Duty payable in respectof any instrument, he can refer the matter to the Stamp Duty Officer for adjudication.
f) Excise Duty
Excise Duty is a duty charged on specific goods and services manufactured locally or imported onvarying rates. It is charged in both specific and ad valorem rates.
Items charged under specific rates include: Wine, spirits, beer, soft drinks, mineral water, fruit
juices, Recorded DVD,VCD,CD and audio tapes, cigarettes, tobacco, petroleum products and Natural
gas.

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Items charged under ad-valorem rates include: Money transfer services, electronic communication
services, pay to view television services, imported furniture, motor vehicles, plastic bags, specified
aircrafts, firearms, specified cases, cosmetics and medicaments.
Ad-valorem rates are: 0%, 5%, 10%, 17%, 15%, 20%, 25%, 30% and 50%.
III.4.7 Tax reforms
Tax reforms in Tanzania dates back in 1960 but since the establishment of Tanzania Revenue
Authority, as semi autonomous government agency which of course by itself was a major reform toenhance administration of taxes as a major source of government revenue, numerous reforms in the
tax system have being and are being made for the purpose of boosting revenue collection. To improve
efficiency in tax administration and collection, Tanzania Revenue Authority has being evolving fromtime to time. Some of the reforms carried out since the introduction of TRA include;a) Integration of TRA operations to form revenue departments; Large Taxpayers Department,
Domestic revenue department and Customs and Excise department. Before this integration,
VAT and Income taxes were separately administered by different departments and so formationof domestic revenue department merged these two type of taxes to be administered under one
departmentb) Payment of taxes through banksc) Use of ICT systems for tax operationsd) Governance and integrity by forming a special department (Internal Affairs Department)
III.4.7.1 Electronic Fiscal Devices (EFD)
Further, in the process to ensure high yield in revenue collection, Tanzania introduced Electronic
Fiscal Device (EFD) to VAT registered traders in 2010 as a first phase under the The Value Added
Tax Act (Electronic Fiscal Device) Regulation, 2010 with the main aim of enhancing VAT
compliance in Tanzania. TRA’s new EFD system became effective on July 1, 2010 (Finance Act,
2010). The system aims at allowing the taxman to get correct sales information from business people;
reduce tax collection costs and helping business people to comply with the Value Added Tax (VAT)
regulations among others in Tanzania.
However, after a successful implementation of the first phase, Tanzania Revenue Authority started
to implement the second phase of Electronic Fiscal Devise (EFD) in 2013 under the The Income Tax
Act, through the Income Tax (Electronic Fiscal Devices) Regulation, 2012 with the aim of boosting
revenue collections and simplify tax administration. The Second Phase was intended to cover non
VAT registered traders.
III.4.7.2 The new VAT Act 2014
Also in the process to enhance revenue collections, Tanzania adopted a new VAT Act 2014 whichcame into operation on 1st July 2015 replacing the existing one VAT Act 1997. Several reasons
including poor revenue yield and structural weaknesses of the previous VAT Act forced Tanzania tochange the law. Among other issues, tax exemption was the major issue addressed in this change.

155IV. Country Specific Issues: Where We are and where We go
IV.1 Political context
The United Republic of Tanzania remains a stable and peaceful country. The most important
recent development has been the writing of a new constitution, which will replace the existing 1977
constitution. The Constituent Assembly concluded its work in October 2014, tabling a proposed draftof the new constitution that preserves the current two-government union structure, with a Union
government for the mainland and Zanzibar, and a separate government of Zanzibar. A nationalreferendum to ratify the new constitution was planned for April 2015 and later postponed pending
General election.
Although Tanzania continues to make progress in political and economic reforms, there are mixed
results in the areas of governance and control of corruption in particular. According to Transparency
International’s Corruption Perception Index 2014, Tanzania’s rank slipped to 119th out of 175
countries in 2014, with a score of 31, down from 111th out of 177 countries and a score of 33 in 2013.
However, when benchmarked against its neighbours – Kenya (145th out of 175 countries), Uganda(142nd) and Burundi (157th) – the country is perceived to be performing better (Transparency
International 2014). Tanzania ranked 15th out of 52 countries in the Mo Ibrahim Index of African
Governance, with an overall score of 58.2 (out of 100) in 2014. This is higher than the African
average of 51.7 and the regional average for East Africa (48.5).
IV.2 Underlying assumptions
The current Debt Sustainability Analysis (DSA) assumes gradual and modest fiscal consolidationin the medium term, supported by revenue efforts. The deficit is projected to temporarily increase to
4.2 percent of GDP, partly on account of arrears clearance (0.7 percent of GDP) before declining to 3
percent of GDP in 2016/17 and stay slightly below that level in the outer years, consistent with theconvergence criterion agreed under the East African Monetary Union (EAMU) protocol. Domestic
revenues (excluding grants) are projected to increase significantly in 2015/16 backed by tax measures(including the new VAT law and new levies on imports and oil products to finance railway
development and rural electrification). The revenue ratio is projected to grow gradually as a share of
GDP in the medium-term, reflecting further revenue mobilization efforts required to address
Tanzania’s development needs in a context of a likely further decline in the aid to GDP ratio.
IV.2.1 External borrowings
The composition of external borrowing is assumed to gradually shift toward non concessional debt,
consistent with a reduction in aid dependency as the economy matures. External non concessionalborrowing (ENCB) has picked up in recent years (including 2014/15). ENCB would gradually
become the more prominent financing source.
IV.2.2 Other macroeconomic assumptions
Long-term average GDP growth is slightly lower at 6.6 percent which reflects the lower historical
average in the revised national accounts. The financing terms assumption are less favourable than in
the previous DSA, to reflect a slightly faster transition towards market financing. With offshore
natural gas exploration almost completed, net FDI inflows are expected to decrease as a share of GDP
in 2014/15 (a downward revision from the last DSA) and to stabilize at about 4 percent of GDP in themedium term.
IV.3 Emerging macroeconomic policy issues
IV.3.1 The prospect of natural gas to Tanzania economy
Together with other mineral resources such as gold, diamonds, coal, iron, titanium, uranium,
nickel, copper, soda ash etc, Tanzania's economy is projected to start accelerating at the rate of 15.3
per cent annually within the next 12 years, following massive off shore discovery of natural gas in the156country. However, there is undue foreign dependency and also lack of the capacity to employ theappropriate technologies required in the exploration and development of mineral resource extraction
ventures.
IV.3.2 Recent development in the gas sector
Recent natural gas discovery in deep sea and ongoing construction of natural gas pipeline from
Madimba (Mtwara) 13 via Somanga Fungu (Lindi) to Dar es Salaam and processing plants at Madimbaand Songo Songo are indications that oil and gas subsector is going to be a significant contributor to
economic development of Tanzania. Natural gas has been discovered in areas of Songo Songo, Mnazi
Bay, Mkuranga, Kiliwani, Ntorya and Deep Sea amounting to 46.5 TCF 14 of which Deep Sea(offshore) amounts to 38.5 TCF while that in onshore amounts to 8 TCF. The proven amount out of
46.5 is only 1.169 TCF all being the onshore gas distributed as follows: Songo Songo (880 BCF),
Kiliwani (27 BCF) and Mnazi Bay (262 BCF). At the moment natural gas is only produced at SongoSong and Mnazi Bay while Kiliwani, Ntorya and Mkuranga fields are expected to start supplying gas
early 2015. Other remaining fields (including offshore) are still in appraisal stage.
Gas production in Songo Songo field is about 100 mmscfd which is transported through thepipeline to Dar es Salaam and used to generate 320 MW of power as well as supplied to 37 industries.
Also, part of gas from Songo Songo is used for cooking and for running motor vehicle whereby 70
households and 40 vehicles are now consuming natural gas. Gas production in the Mnazi Bay area isonly 2 mmscfd which is used in electricity generation of 10 MW.
The Government is now implementing a project which involves construction of a pipeline from
Mtwara to Dar es Salaam via Somanga Fungu and processing plants at Madimba and Songo Songo.
The objective of the project is to bring gas to the market for power generation, industries, households
and motor vehicles. The pipeline will have outlets along the way leave in Mtwara, Lindi, Kilwa,
Somanga Fungu and Mkuranga. Currently, the biggest demand for gas is mainly for power generation.
Based on the existing infrastructure, power generation consumes about 85% of the gas while
industries, households and transport consume the remaining 15%.
IV.3.3 Natural Gas Policy Development
The Government finalized Natural Gas Policy in 2013 and is now drafting the Natural Gas Act
which will govern the natural gas activities in the country. Also, the government is in preparation of
the Petroleum Policy and Local Content Policy in Oil and Gas subsector. The major aim of thePetroleum policy is to govern petroleum upstream activities, midstream and downstream of oil while
the local content policy in oil and gas will guide maximization of national benefit by promoting local
value addition and ensure participation of Tanzanians in the oil and gas industry.
IV.3.4 Potentials of natural gas to the economy
Currently, Natural gas is used as alternative fuel for power generation, industries, institutions,households and vehicles. Power generated from Natural gas is about 320 MW and is expected toincrease up to about 2,216 MW within the next four years. This is expected to reduce power crisis that
Tanzania has been experiencing since 2006 and boost economic growth. On the revenue side, fromthe period when gas projects started to December 2013, the Government has been able to collect gas
sales and VAT amounting to 232.8 Million USD for Songo Songo gas and 6.7 Million USD for Mnazi
Bay. Further, gas activities have created employment to a number of Tanzanians. Besides government
employment through TPDC 15, there have been a number of Tanzanians employed in the oil and gas
subsector and service companies. Currently, there are 18 oil and gas exploration companies, estimatedto employ an average of 40 Tanzanians each and the number magnifies according to the needs. Also,
service companies in oil and gas have employed approximately 427 Tanzanians. In addition to that,everyday about 1,000 Tanzanian casual workers work in the new pipeline construction.

13

One of the administrative regions in southern Tanzania
Trillion Cubic feet
BCF is billion cubic feet
15
Tanzania Petroleum Development Corporation
14

157

IV.3.5 Gas Sector challenges and the way forward
Gas sector is facing various challenges in implementing its programs. In order to realize theeconomic potential of Tanzania basing on its natural resources, several fundamental challenges will
have to be addressed. To mention but few, the challenges include the following:a) Piracy: Exploration activities in the deep sea are jeopardized by Somalian pirate. To address
this challenge, the Tanzanian army in collaboration with the exploration companies is providing
security to the exploration ships.
b) Exploration in the Conserved areas: Some of the exploration fields are located in the conserved
areas; for example; Selous Game Reserve. Though TPDC holds the exploration anddevelopment license, it has not been allowed to undertake exploration 33 activities because
those areas are protected under the international law. Ministry of Natural Resources andTourism is preparing guidelines that will facilitate exploration activities in the protected areas.
c) Expertise: This challenge concerns requisite level of knowledge, competencies and experience
to successfully exploit the natural resources and manage the flowing benefits thereof. The
country is in a great need of skilled personnel to monitor and work in oil and gas sector In
addressing this challenge, it is important to have professional human capital through overseas
training in the field of gas. The government plans to employ more professions according to thedemand and the government is providing academic sponsorship to more than 200 Tanzanians.
d) Public expectations: Gas discoveries in the country have raised numerous people’s expectations.
Gas infrastructure development takes five to seven years to be able to operate at a level thatpeople anticipate. This has created a negative attitude towards the sector. In addressing thischallenge, the government has introduced several public awareness programs to educate people
more about the sector.
The challenges outlined above including others, are the main factors that constrain socioeconomic
development in Tanzania. In other words, they hinder fruitful exploitation of the abundant natural
resource endowment. Certain positive outcomes can be expected when the above constrains are
addressed right from the beginning, for instance: enhanced investments, revenues, growth andemployment.

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V. Conclusion
Before independence Tanzania was colonized by Germany and British up to when it gained
independence from the hands of British rulers in 1961. From Independence to date Tanzania hascontinued being stable politically and the relationship with other neighbouring and donor countries iswarm. Tanzania is a union government formed of Tanganyika (currently Mainland Tanzania) andZanzibar (26 April 1964) and thus united republic of Tanzania with two presidents; the president of
the United republic of Tanzania and the president of Zanzibar. Basing on the strong social policies
laid down by Mwl. Nyerere that forge political stability, the economy of Tanzania has positively
being improving.
Looking at macroeconomic indicators of Tanzania, Tanzania has continued to maintain a healthyfiscal position, keeping the deficit at sustainable levels and managing expenditure growth in line withthe broad objective of sustaining macroeconomic stability. Given its health fiscal position, Tanzania isstriving to perceive with efforts at sustaining macroeconomic stability maintaining the fiscal deficit ataround 5-6% of GDP and government expenditure and net lending at around 25% of GDP. The
Medium-term prospects are favourable, with growth projected to remain above 7%. The strong
economic performance is basically supported by communication, financial intermediation,
construction, and trade.
During the year 2012, Tanzania attracted FDI inflows amounting to USD 1,799.6 million, 46.4
percent higher than the amount received in 2011. Despite this increase, the level of inflows in 2012
was still lower than the peak of USD 1,813.3 reached in 2010 as a result of recovery from the global
financial crisis which coincided with new inflows to the electricity and gas activities. The annual
average inflow between 2008 and 2012 was USD 1,435.7 million. However, during 2013/14 theoverall balance of payments recorded a surplus of USD 268 million which was more than half theamount recorded in 2012/13. The decrease of the surplus was driven by widening of current accountdeficit by 12.9% to USD 4,790.2 million. This was on the account of increase in imports of goods andservices relative to exports,
The economic growth of Tanzania remains strong as Gross Domestic Product (GDP) in 2013 grewby 7.0 percent in real terms compared with 6.9 percent in 2012. GDP at constant prices amounted to
TZS 20.5 trillion compared with TZS 19.2 trillion in 2012. The strong economic performance wasbasically supported by communication, financial intermediation, construction, and trade and repairs
activities. Medium-term prospects are favourable, with growth projected to remain above 7%,
supported by public investments in infrastructure, particularly in the transport and energy sectors.
For the past five years, Tanzania has experienced different patterns of annual average inflations
rates for headline, food and non food items. The economy experienced low pace of speed increase forprices of commodities in 2010 and 2013 where the annual average headline inflation rate were 5.5
percent and 7.9 percent respectively. The highest price increase for goods and services was recordedin year 2012 with the annual average inflation rates of 16.0 percent while year 2010 recorded thelowest annual average inflation rates of 5.5 percent for the past five years. The decline in annual
average headline inflation rates for 2013 is highly attributed to the decrease in prices for food items
especially rice and other major cereals. This was attributed to favourable weather condition andconcerted effort taken by the Government to increase the stock of food in the local market specificallyprovision of import permit for rice and sugar.
The Bank of Tanzania has continued to pursue a prudent monetary policy with the objective of
supporting economic growth and maintaining price stability. Growth of money supply in the year
ending November 2014 accelerated to 17.4%, up from 9.7% growth in the corresponding period in theprevious year. The growth in money supply was driven by an increase in net domestic assets of thebanking system due to an expansion in credit to the private sector and government. Net borrowing by
the government from the banking system grew by 75% in the year ending November 2014, up fromgrowth of 24.8% recorded in November 2013. In line with the monetary policy stance for 2013/14,
extended broad money supply (M3) increased by TZS 2,415.4 billion, translating into a growth rate of
15.8 percent compared with 14.9 percent recorded in 2012/13 and the projection of 15.0 percent. The
increase in M3 was largely driven by increase in domestic credit and accumulation of foreign assets
by the banking system

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Tanzania’s fiscal position remains healthy as the government continues with measures to manage
expenditure and keep the fiscal deficit within sustainable limits. In fiscal year 2013/14, domestic
revenue fell short of target by about 10%, mainly because some of the planned revenue measures
could not be implemented. Domestic revenues were estimated at 17.4% of GDP in 2013/14, up from
16.8% of GDP in 2012/13. Total expenditures and net lending for 2013/14 were estimated at 24.5% ofGDP, down from an estimated 27.7% of GDP in the previous fiscal year. The government continues
to implement measures to improve domestic revenue mobilisation by identifying new sources towiden the revenue base, by strengthening the administration of current sources and through proper
management and reduction of tax exemptions. On the expenditure side, the government continues tofocus on reducing recurrent expenditure in areas considered to be “non-priority”, among themseminars, domestic and foreign travel, exhibitions and trade fairs.
Tanzania’s total public debt has stabilised at around 42% of GDP for the past three years. The
external debt stock is estimated at USD 13.7 billion as of November 2014, having increased by 5.3%
from the level recorded in corresponding period in 2013. In line with the Medium-Term Debt
Management Strategy, the government has continued to take measures to fine-tune debt management
operations in order address co-ordination challenges. A particularly noteworthy development is therecent establishment of a separate department at the Ministry of Finance that will be responsible forgovernment debt issues. The stock of domestic debt increased to TZS 6,535.5 billion at the end of
2013/14 from TZS 5,640.4 billion registered at the end of 2012/13. The increase was on account oflarge issuance of government securities compared to maturing obligations. The domestic debt stock
was equivalent to 14.6 percent of GDP and 25.7 percent of the national debt stock.
In the struggle to mobilize domestic revenues, Tanzania continues to make some tax policy
reforms; notable ones include new VAT Act 2014 replacing the VAT Act 1997 to tackle theweaknesses of the previous act which yielded low revenue and the introduction of Electronic Fiscal
Devices (EFD) system aimed at improving revenue collection by electronically tracking all business
transactions by taxpayers in the system.
The countries specific issues have been the writing of a new constitution, which will replace theexisting 1977 constitution, underlying assumptions that the deficit is projected to temporarily increase
to 4.2 percent of GDP, partly on account of arrears clearance (0.7 percent of GDP) before declining to
3 percent of GDP in 2016/17 and stay slightly below that level in the outer years, Domestic revenues(excluding grants) are projected to increase significantly in 2015/16 and shifting the externalborrowing to non concessional borrowing and gradually become the more prominent financing source.
However, Tanzania's economy is projected to start accelerating at the rate of 15.3 per cent annually
within the next 12 years, following massive off shore discovery of natural gas in the country. Recent
natural gas discovery amounting to 46.5 TCF16 of which Deep Sea (offshore) amounts to 38.5 TCF
while that in onshore amounts to 8 TCF is an indications that oil and gas subsector is going to be asignificant contributor to economic development of Tanzania. The Government is now implementing
a project which involves construction of a pipeline from Mtwara to Dar es Salaam via Somanga
Fungu and processing plants at Madimba and Songo Songo. The objective of the project is to bringgas to the market for power generation, industries, households and motor vehicles. On top of that, theGovernment finalized Natural Gas Policy in 2013 and is now drafting the Natural Gas Act which will
govern the natural gas activities in the country.
Together with the prospects of economic acceleration due to gas discoveries, the gas sectors facesome challenges in which the government has planned the way forward in tackling them. To mention
but few, the challenges include; piracy by Somalian pirates, Some of the exploration fields are locatedin the conserved areas, lack of expertise to exploit the natural resources, Public expectation.
Development takes five to seven years to be able to operate at a level that people anticipate. This hascreated a negative attitude towards the sector. In addressing this challenges, the government of
Tanzania will enhance security in the explorations sites, in collaboration with the Ministry of Natural
Resources and Tourism the government will preparing guidelines that will facilitate exploration
activities in the protected areas, employ more professions according to the demand and providing

16
Trillion Cubic feet
BCF is billion cubic feet160

academic sponsorship to more Tanzanians to train more experts and provide public awarenessprograms to educate people more about the sector.

161

References
Charle. P, and R. DHLIWAYO (2015) “TANZANIA 2015” Available at
http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2015/CN_data/CN_Long_EN/Tanzania_GB_2015.pdf
http://www.tradingeconomics.com/tanzania/currency
https://www.transparency.org/whatwedo/publication/daily_lives_and_corruption_east_africa
Income Tax Act, 2004 Cap 332
Macro Economic Policy Framework for the five year development, Plan/budget 2012/13 – 2015/16,
Available at http://www.mof.go.tz/
Macro Economic Policy Framework for the five year development, Plan/budget 2013/14 – 2016/17,
Available at http://www.mof.go.tz/
Macro Economic Policy Framework for the five year development, Plan/budget 2014/15 – 2017/18,
Available at http://www.mof.go.tz/
Tanzania in Figure 2014 report, Available at http://www.nbs.go.tz/
Tanzania Revenue Authority Act, Cap 399
Tanzania Revenue Authority, http://www.tra.go.tz/index.php/tax-collection-statistics
Tanzania Revenue Authority: Tax Administration Act, 2015
THE CONSTITUTION OF THE UNITED REPUBLIC OF TANZANIA: Available at
http://www.judiciary.go.tz/downloads/constitution.pdf
The Economic survey 2011 report, http://www.mof.go.tz/
The Economic survey 2012 report, http://www.mof.go.tz/
The Economic survey 2013 report, http://www.mof.go.tz/
Value added Tax Act, 2014
World Bank Data, http://data.worldbank.org/country/tanzania

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