Tanzania's Budget 2026/27: The purchasing power of a million Tanzanian shillings

Almost two decades ago, one million Tanzanian shillings (USD 860) had strong purchasing power compared with today (USD 400). At the time, someone earning a million signalled affluence; today, however, it barely covers essentials. The decline in purchasing power is largely attributable to inflation, which increases the cost of goods and services and further constrains households’ ability to meet basic needs.

Under the Income Tax Act Cap 332 [R.E 2023] (the “ITA”), an employee is required to pay tax from earned income from employment, commonly known as “Pay as You Earn” (PAYE). Since PAYE is paid parallel to earnings, the ITA applies progressive rates to tax that income. For example, a person who earns more than one million shillings monthly after pension contributions pays tax as 30% of the excess of one million shillings, plus a fixed amount of TZS 128,000. After PAYE deductions, the remaining is disposable income that can be saved, invested, or spent.

In 2021 and 2022, the government introduced transaction levies on mobile money transfer, electronic transfers, and cash withdrawals. These levies were not introduced to tax additional income earned by individuals but rather the same disposable income that has already been subjected to PAYE. Three years later, the government introduced various taxes and duties on consumable products and services, such as alcoholic drinks, betting, fuel, precious minerals, train tickets, and airport service charges to support the AIDS Trust and Universal Health Insurance Funds.

There is no doubt that the intended use of collected levies is beneficial, but the question to ask is whether Tanzanians have enough disposable income to spend on luxuries, let alone basic needs. To remind you, we are referring to the same disposable income above, already subjected to a series of taxes and levies. For salaried earners, these levies have a substantial impact on their disposable incomes, since they are imposed on taxed income and on consumable products and services, which the taxed income is expected to be spent on.

Let us set aside the series of levies and discuss some proposed ways that can help counter the impact of these changes. Generally, income is the amount that remains after deducting all expenses from revenues. Under the PAYE regime, unlike corporations, an individual's employment income is taxed without any deduction for expenses incurred in generating that income.

Does this mean individuals do not incur expenses when generating their employment income? What about transport costs to and from work, meals consumed during working hours, housing costs, and medical bills? These are direct costs incurred in generating employment income and should be considered as deductible.

I appreciate that some employers offer cafeteria and medical benefits, which the ITA provides relief for employees, only if benefits are available to all employees without exclusion. However, not all employers in Tanzania offer these benefits, so employees must cover expenses themselves.

In this regard, there is a strong case for reviewing the progressive tax rates applicable to employment income to increase individuals’ disposable income. One possible approach would be to allow, at least in part, the deduction of direct expenses incurred in generating employment income. Although verifying the legitimacy of each employee’s work-related expenses may be administratively difficult, lawmakers could consider amending the ITA to introduce standardised or progressive allowances for such expenses. A useful example can be drawn from neighbouring Kenya, where employees benefit from a personal relief amount that is deducted from PAYE.

To broaden the tax base while reducing the tax burden on the working class, the government can focus on formalising informal businesses, which currently contribute little to tax revenues. Tanzania's implementation of Vision 2050, anchored in human capabilities and social development, makes individual taxation even more relevant for achieving the vision's pillars and aligns with the theme of “Maendeleo ya Nchi ni Watu”.

Yusuph Jackson is a Tax Manager with Deloitte Consulting Limited. The views presented are his own, not necessarily those of Deloitte. He can be reached at yujackson@deloitte.co.tz.