Tanzania cuts VAT rate by 2% on electronic payments to encourage digital transactions
The Government of Tanzania has announced a significant change in the 2025 Finance Act to its VAT framework aimed at promoting digital payments, reducing cash transactions, and improving the availability of transactional data for government agencies. From 1 September 2025, VAT on e-payments will be cut from 18% to 16%.
This reform is part of broader efforts to support the digital economy, formalise more business transactions, and strengthen the country’s tax base through improved compliance and transparency.
2% reduction in VAT to 16% for e-payments
As it stands, the standard VAT rate applicable on taxable supplies in mainland Tanzania is 18%. This rate generally applies to most goods and services supplied by VAT-registered businesses to both registered and non-registered customers.
New reduced VAT rate for electronic payments
Effective 1 September 2025, the VAT regime will introduce a reduced standard rate of 16% in specific circumstances. This lower VAT rate will apply when the following conditions are met:
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A taxable supply of goods or services at the standard rate is made to a person in Mainland Tanzania who is not VAT registered, and
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The payment for that supply is made through a bank or an electronic payment system approved by the Commissioner General (CG) of the Tanzania Revenue Authority (TRA).
This incentive directly targets business-to-consumer (B2C) transactions, encouraging consumers and businesses to shift from cash payments to more traceable electronic payment methods such as card transactions, mobile money, and bank transfers.
Supplier obligations and compliance
To apply the reduced VAT rate, suppliers will be required to:
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Ensure that payment is received through a bank or electronic system approved by the CG.
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Maintain clear evidence of the electronic payment, such as transaction confirmations or electronic receipts. This documentation must be kept in line with any procedures specified by the CG and will be critical during TRA audits to justify the application of the 16% rate.
Additionally, the CG will issue detailed guidelines specifying:
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Who qualifies for this reduced rate, and
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How the reduced VAT rate is to be implemented and verified, including any reporting or system requirements that suppliers must adhere to.
Objectives of the VAT cut
The main goals of introducing this measure include:
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Encouraging greater digital adoption and reducing reliance on cash, which often remains outside formal financial channels.
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Enhancing transparency and the availability of payment data, which supports audit trails and helps various government agencies access accurate economic information.
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Increasing the formalisation of small and medium-sized businesses by incentivising them to accept electronic payments, which will bring more transactions into the tax net.
Business considerations and challenges
While this measure is expected to be well received by consumers, particularly in urban areas where digital payment infrastructure is more developed, it does pose some operational challenges for businesses. Retailers, supermarkets, restaurants, and other B2C suppliers will need to adjust their accounting and point-of-sale systems to apply different VAT rates depending on the mode of payment. This dual-rate environment may lead to additional costs related to software upgrades, staff training, and internal process changes.
There is also a need to ensure that small and medium-sized enterprises (SMEs) have affordable access to the necessary technology to process electronic payments. Without targeted support, there is a risk that these businesses could be left behind, undermining the inclusiveness of the initiative.
