Tanzania's Budget 2026/27: A Case for Financial Inclusion: Rethinking Excise Duty on Microcredit Services

Tanzania’s Vision 2050 set out a development path that calls on the country to be three things: bold, inclusive, and people centred. Budget 2026/27 must answer this call. For the financial sector, this means stepping towards real and tangible financial inclusion.

Financial inclusion means responding to the needs of the broad spectrum of the population, including the lowest income end. One way this is done is through non-deposit taking institutions. Categorized as tier two microfinance institutions, non-deposit taking institutions focus solely on issuing microcredit and related financial services. They are often able to reach the most marginalized individuals and give them access to credit and business financing. Their products are flexible and customizable, and offer faster loan approval, thus answering the needs of persons otherwise considered high-risk by traditional banks.

The exponential growth of this sector speaks to the demand for such services. As of 28 February 2026, there were 3,047 tier two microfinance institutions registered with the Bank of Tanzania. In 2021 and 2022, there were only 692 and 1,095 institutions respectively. With such numbers, the potential for microcredit institutions to have real and tangible impact in the country is significant. But only if the microcredit and services provided to the end consumer are beneficial rather than exploitative.

To ensure real impact for the most marginalized, the government has a role to play in reducing borrowing costs. Borrowing costs are the total amount that a borrower pays over the life of a loan. It can include interest rates, fees and other applicable loan charges. Borrowing costs are also often influenced by the taxes and levies placed on financial institutions that are then passed on to borrowers.

Most recently, the Court of Appeal of Tanzania ruled that non-deposit taking microfinance institutions are liable to pay an excise duty at a rate of 10% just like any other financial institution. The court reasoned that the determination of what constitutes a “financial institution” for tax purposes must be drawn from tax-imposing statutes rather than from general regulatory laws. Accordingly, the court relied on the definition provided in the Income Tax Act, which defines a financial institution as a bank or institution approved under the Bank of Tanzania Act. Since tier two institutions are licensed by the Bank of Tanzania under that Act, the court held that they fall within the statutory definition for tax purposes. This decision, premised on the Courts interpretation of tax statutes, gives tier two microfinance service providers an additional tax liability that is inevitably going to be passed on to the final borrower.

It is proper, at this juncture, to remind ourselves of the rationale behind the imposition of excise duty. Excise duty is more than just a source of government revenue. It is particularly a tool to deter and discourage the consumption of products and services that are considered harmful. Its usefulness is in controlling consumer behaviour and regulating production and consumption. Hence, it is often applied to alcoholic beverages, tobacco products, luxury goods, and petroleum fuels among other products and services. With this background, it is easy for one to conclude that the imposition of excise duty on tier two microfinance service providers seems to be contradictory to the country’s vision for greater financial inclusion.

In the coming budget, it would be important for the government to rethink the imposition of additional taxes on tier two microfinance providers. Budget 2026/27 can begin with removing excise duty for tier two non-deposit taking institutions. By reducing the taxes and charges placed on these services, the will government can help moderate borrowing costs for micro-borrowers (low-income individuals and micro-entrepreneurs who rely on small-value loans).[SN1]  In so doing, we are recognising the important fact the tier two institutions are, in many aspects, designed to widen financial inclusion.

A tax and regulatory system that takes account of the unique requirements of non-deposit taking institutions ultimately benefits the final borrowers, in this case, often those who lack access to traditional banking services. In our journey towards Vision 2050, this is a reminder for tax policy makers to remember the common man. This will go a long way in making tax policy bold, inclusive, and people centred.

Disclaimer:

Mary Isaac is a Tax Associate with Deloitte Consulting Limited. The views presented are her own and not necessarily those of Deloitte. She can be reached at maisaac@delotte.co.tz