The Tanzania Revenue Authority (TRA) is facing growing criticism for its “pay-to-complain” policy, which forces businesses to deposit one-third of a disputed tax assessment before they can formally challenge it. Entrepreneurs argue that this practice is draining vital working capital, stifling business growth, and discouraging investment in the East African nation.
Small and medium-sized enterprises (SMEs) across Tanzania, especially in regions like Dar es Salaam and Namanga, are bearing the brunt of this policy. Under the current regulations, companies are required to pay a substantial portion of a disputed tax bill upfront—a crippling requirement that can freeze operational funds for months or even years while the TRA processes the appeal. This has led to growing concern that the policy is not only harmful to business cash flows but also damaging the overall investment climate in Tanzania.
The “Guilty Until Proven Innocent” Tax
According to Section 51(6) of the Tax Administration Act, businesses can request a waiver of the deposit under “good reasons.” However, these waivers are rarely granted, leading to accusations of inconsistent application of the law. Business groups argue that the policy is effectively used as a tool of extortion, as companies are left with few options: pay the deposit or accept an incorrect tax assessment.
For example, a business that receives a tax assessment of TZS 100 million (approximately KES 5 million) is forced to pay TZS 33 million simply to dispute the claim. If the deposit is rejected, they face the difficult decision of either paying an unjust bill or going without the funds needed for operations. Such scenarios are frequent, and the lack of transparency surrounding waiver applications only fuels frustration.
Impact on Cross-Border Business and Regional Investment
The policy is also causing tension within the East African Community (EAC), as Kenyan investors cite it as a key obstacle to regional trade. The required deposit acts as a non-tariff barrier, discouraging cross-border expansion and undermining efforts to integrate the region’s economy. Investors in Tanzania are increasingly wary of entering the market, aware that they may need significant capital just to protect themselves from unpredictable tax disputes.
The growing consensus among business leaders and tax analysts is that the TRA must adapt its approach. They argue that a more flexible solution, such as allowing companies to provide a bank guarantee or a bond in place of a cash deposit, would secure the government’s interests without harming businesses’ financial health.
“You cannot milk a cow by starving it,” said one tax analyst in Dar es Salaam, emphasizing the long-term consequences of freezing vital working capital. While the government may secure short-term deposits, it risks alienating businesses, which could reduce their ability to generate tax revenue in the future.
As Tanzania positions itself as a key player in Africa’s investment landscape, the policy stands as a significant barrier to achieving its goals. Calls for reform are growing louder, with investors urging the government to introduce more business-friendly tax practices that encourage growth rather than stifle it.
Until the policy changes, businesses in Tanzania are being warned to prepare for additional costs, as the tax system remains a substantial hurdle to operating in the country.
