The government of Tanzania is providing a wide range of tax incentives to businesses to attract greater levels of Foreign Direct Investments (FDIs) into the country. A number of tax incentives are granted to both local and foreign investors and governed by the Tanzania Investment Act 1997
Tax incentives are now granted in the form of enhanced capital deductions and allowance structured according to lead and priority sectors which include agriculture, agro based industries, mining, tourism, petroleum, gas and economic infrastructures
Tax Incentive package
- Provision of strategic investor’s status with incentives beyond those provided to normal investors.
- Royalty 3% except for diamonds, which is 5% and 12.5% for petroleum and gas
- No tax, duty, fee or other fiscal impost on dividends
- No capital gain tax
- Losses carried forward for unrestricted period
- Duty rate of 5% and VAT will be charged after the first five years of commercial production.
- Yearly appreciation of unrecovered capital in investment
- Importation by or supply to a registered licensed exploration, prospecting, mineral assaying, drilling or mining company of goods which if imported will be eligible from duty under customs law, and service for exclusive use in exploration, prospecting, drilling or mining activities
Road, railways, air and sea transport, port facilities, telecommunication, banking & insurance
Effectiveness of Tax Incentives
- Various methodologies have been to employ to study the effectiveness of tax incentive: Research on cost benefits analysis, sector specific approaches, Investor Motivation surveys
- Tax Expenditures
- In LDCs experience with tax incentives has produced mixed results
- Most countries however have had little to show in exchange for the incentives they have offered
- Econometric studies on investment incentives in developing countries are scanty, mainly due lack of good firm level data on investment in these countries.
- Investors have confirmed that while incentives were not an important factor in their decisions to invest, they would ask for them anyway because incentives improved their bottom lines