A fresh wave of tax reforms is being witnessed in East Africa after Tanzania officially lowered its Value Added Tax (VAT) rate from 18 per cent to 16 per cent under the Finance Act 2025.
The Tanzania Revenue Authority confirmed the change through a public notice. The Authority revealed that the reduced rates will be implemented once the Commissioner General issues guidelines specifying eligible persons and the operational framework.
"The public is hereby informed that the Finance Act 2025, which came into force on 1st July, 2025 among others, amended S.5 of the VAT Act Cap. 148 by introducing a reduced VAT Standard rate of 16% under subsection (6)," the statement read in part.
"In that regard, the Commissioner General is currently working on the requirement put by this provision of the law; once finalised, the public will be informed on the implementation of this law accordingly," the notice concluded.
Although the directive is not yet in force, the announcement signals a clear policy shift aimed at easing the tax burden for the East African nation.
VAT Reduction Proposals
The move by the neighbouring country has sparked debate in Kenya, where similar reforms were proposed but later shelved.
Kenya had envisioned similar reforms to those of Tanzania. Kenya’s Medium-Term Revenue Strategy had projected a VAT rate reduction from 16 per cent to 15 per cent, alongside an increase in the VAT registration threshold to Ksh8 million.
These were part of the measures included in the Finance Bill 2024, but were later rescinded before enactment, leaving Kenya's VAT structure unchanged.
The new directive by Tanzania may hurt Kenya's competitive advantage, as it now remains with the same VAT to its neighbour, Tanzania, who have other advantages like targeted relief for digital transactions.
Following the move by Tanzania, Kenyan exporters and retailers could face pricing pressure in shared markets. This could, in turn, negatively impact Kenyan businesses and affect the country's economy.
The East African Community (EAC) has long pushed for harmonised tax policies among member states. Kenya’s hesitation to implement VAT reforms may complicate regional integration efforts and delay progress on a unified tax framework.
