In Tanzania, VAT returns delayed months, even years leading to a refund bill in excess of $650 million. Tax reforms, however, will see businesses get settlement in just a month.

For years, Tanzanian businesses treated VAT refunds as a theoretical entitlement: owed in law, honoured in practice only after lengthy lobbying, informal pressure or sheer persistence. That era may now be ending.

Under reforms introduced alongside the 2026/27 budget, the government has made it mandatory to settle VAT refunds within 30 days. Crucially, the law now cuts both ways. If the state fails to pay on time, it faces statutory interest charges, a provision that converts a longstanding administrative promise into a binding fiscal obligation.

“Previously, refund timelines functioned more as administrative guidance than enforceable law…but now, any delays will carry with them a financial cost, turning VAT refunds into a binding obligation,” TRA Taxpayer Education Manager, CPA Paul Walalaze explained to press.

According to the TRA official, previously, businesses routinely waited months, sometimes years, to recover money they were legally owed.

Tanzania’s 2026/27 budget, had many highlights, including the ambitious 6.3% GDP growth and the jaw-dropping biggest spending plan in the country’s history. Yet the most compelling aspect of the budget remains to be the mandated timeframe for VAT refunds.

While it may seem, mundane compared to the ambitious GDP growth plan and the enormous public spending, however, delayed tax returns have been one of the biggest hindering factors when it comes to attracting investment to the country.

“For exporters, manufacturers and institutional investors, delayed VAT refunds have long acted like an invisible tax,” he noted.

The report reveals that as of last year, pending refunds had reached in excess of $650 million. What this means is that, in effect, companies were actually financing government with their own working capital yet did not have any clear repayment timeline or law to protect their repayment right.

This fact considerably affected Tanzania’s investment atmosphere, deterring investors despite having various incentives in place. In other words, the delay of tax returns to businesses worked against the country’s basic goal of attracting investors to the country.

“A country may advertise a competitive VAT rate, generous incentives and ambitious growth plans. But if businesses cannot reliably recover VAT credits, the real cost of doing business rises sharply,” the CPA explained.

Take for instance last year’s UNCTAD World Investment Report that cites the disparity in attracting Foreign Direct Investment (FDI) across the EAC bloc. It shows that Ethiopia attracted $4.3 billion in FDI which was more than four times Tanzania’s $1 billion and Uganda’s $1.1 billion.

“The gap has many causes, but administrative friction is consistently high on investor concern lists,” the report notes. Here, ‘administrative friction’ refers to aspects like delayed tax returns by governments.

It should be noted that while the tax code in Tanzania imposes serious penalties on businesses that underpay, but until now, it did not set equivalent consequences for the Tanzania Revenue Authority (TRA) when it failed to refund on time.

Analysts also underscore this double standard, Deloitte Tanzania notes in its review of the system that asymmetry gives the TRA little institutional incentive to act urgently.

Now, thanks to President Samia Suluhu Hassan’s Presidential Commission on Tax System Reforms, has identified VAT refunds as a structural barrier to the administration’s investment targets.

The drive to reform key issues like timely payment of tax returns has become a priority since foreign aid has been cut drastically. For this reason, countries must attract private sector investment to increase access to capital.

For example, Tanzania’s access to external financing has fallen sharply evident in the fact that in the 2026/27 budget, aid covers less than 1% down from the highs of 23% of government revenue in 2024.

“Attracting private capital has become a fiscal imperative, not merely an ambition. The government cannot afford to keep losing investors to avoidable administrative dysfunction,” details the report.

Commenting on the issue, Anthony Chamanga, Chief Development Manager of the Tanzania Horticultural Association, points out that VAT refund delays led to dire financial straits. He highlights the fact that some companies fail to meet critical obligations such as loan repayments and timely salary payment.

Similarly, Rahim Dossa, Vice Chairman of the Tanzania Truck Owners Association, says the reform will now improve cash flow, reduce investment costs and support fleet expansion for them.

Timely payment of tax returns has general benefits across the economy since it increases access to much needed liquidity. Lenders can assess financing more confidently and investors can model returns with greater accuracy.

In a nutshell, while African governments have previously focused their competition for investment by offering tax holidays, exemptions and special incentives ignoring the fact that investors care just as much about predictability and administrative efficiency.

“A tax incentive is worth little if it takes years to access…A favourable tax rate does not have much effect if compliance is cumbersome and refunds remain trapped in bureaucracy,” the report underpins.

The fact that Tanzania has made these reforms may give it an upper hand in attracting FDI given the fact that its neighbours are yet to make similar reforms.

For example, in Kenya, VAT refund delays remain a complaint among exporters despite formal mechanisms, the report reveals and also cites the case for Uganda where it says cash flow strain remains linked to compliance and verification i.e. government friction in aspects like timely tax returns.

“Tanzania’s move to hard-code a 30-day limit with penalties is therefore a meaningful step toward international best practice,” concludes the report.

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Tanzania tax reforms: No expiry date on VAT deferment for imported capital goods

Tanzania’s new refund law also provides for the removal of expiry on VAT deferment for imported capital goods. Thanks to this reform, importers of machinery, industrial equipment or infrastructure inputs will no longer face uncertainty like the question of paying VAT upfront before production begins.

“This reform aspect is also vital since upfront costs can materially reshape project financing,” the report authors explain.

It follows that, the two reforms are expected to have significant impact, on one hand, VAT deferment reduces the cash investors must commit at the start of a project and on the other, faster refunds ensure that VAT credits do not become trapped in the system.

“The combined effect is a meaningful reduction in the cost of investment within a single fiscal cycle,” notes the report.

When it is all said and done, Tanzania’s corporate tax rate which is pegged at 30%, is still considerably higher than its regional competitors like Kenya and Ethiopia which are at a lower 25%, this according to PwC Tax Summaries.

However, analysts point out that; “…serious investors are not simply comparing headline rates…they assess whether refunds arrive on time, whether deferred obligations end up as liabilities, and whether the system performs as advertised.”

Given this fact, through the said reforms, Tanzania has taken an important step to beat the competition so to speak. At the end of the day, implementation will determine whether the reform deliver the expected impact.

It remains to be seen whether TRA will live up to the new law requirements because credibility is built through on ground execution rather than paperwork.

Investors will be watching closely to see whether refunds will now be processed within the promised timeframe and whether interest payments will be honoured in the event that there are delays.

However, the message is clear; “The most competitive economies are not always those with the lowest taxes, but those where systems work smoothly, consistently and predictably.”