Withholding VAT in Tanzania 2025

SRA

Understanding the New Withholding VAT Changes in Tanzania (2025)

The Finance Act, 2025 introduced a major change in Tanzania’s Value Added Tax (VAT) system – the introduction of withholding VAT on certain transactions. Many businesses are asking: How does the new withholding VAT work? and Does it apply to all traders?

In this article, we explain the new rules in simple terms, highlight who is affected, and outline what traders and suppliers need to know to stay compliant.

What Is Withholding VAT?

Withholding VAT is a mechanism where specific entities, known as withholding agents, are required to withhold part of the VAT charged on supplies and remit it directly to the Tanzania Revenue Authority (TRA).

Instead of the supplier remitting the full VAT collected, part of it is withheld at source. The supplier then claims the withheld VAT back as a credit when filing their VAT return.

How Does Withholding VAT Work in Tanzania?

From 1 July 2025, the rules apply as follows:

  • Rate of withholding:
    • 3% of VAT on taxable supplies of goods
    • 6% of VAT on taxable supplies of services

  • Who are the withholding agents?
    The law designates three categories:
    • The Ministry of Finance
    • Government entities that retain part of their collected revenue
    • Any other person or organisation appointed by the Commissioner General of TRA

  • Withholding VAT certificate:
    The withholding agent must issue a VAT Withholding Certificate to the supplier by the time VAT becomes payable. Without this certificate, the supplier cannot claim the withheld VAT as an input credit in their return.

Does Withholding VAT Apply to All Traders?

Not every trader or business is affected. The rules are specific:

✅ It applies if:

  • You are a VAT-registered supplier providing goods or services to a designated withholding agent.
  • The supply is standard-rated under VAT law.

❌ It does not apply if:

  • You are supplying to ordinary businesses or individuals who are not withholding agents.
  • You are not VAT-registered.
  • Your supplies are exempt or zero-rated (e.g., exports).

This means most small traders and businesses supplying the private sector will not be affected directly. However, if you deal with government institutions or entities appointed as withholding agents, the new rules will apply to you.

What Traders and Suppliers Should Do

If you supply to withholding agents in Tanzania, here’s what you need to keep in mind:

  1. Cash flow impact – You will receive less cash upfront since part of your VAT will be withheld.
  2. Documentation – Always ensure you collect a valid Withholding VAT Certificate to claim the withheld VAT in your returns.
  3. Record keeping – Your accounting systems must reflect both the VAT charged and the VAT withheld.
  4. Compliance – Without proper certificates, you may lose the right to claim withheld VAT, leading to higher tax costs.

Why This Change Matters

The withholding VAT system is designed to strengthen VAT compliance and improve revenue collection in Tanzania. While it may seem like an extra administrative step, it ensures VAT is remitted on time and reduces the risk of under-declaration.

For businesses, understanding how it works is crucial to avoid cash flow issues and ensure that all input credits are properly claimed.

Final Thoughts

The new withholding VAT rules in Tanzania mark a significant shift in how VAT is managed, particularly for suppliers to government entities. Although the changes do not apply to all traders, any business working with designated withholding agents must understand the requirements and adjust their accounting practices.

How S R Auditors Can Help

Navigating Tanzania’s tax and VAT regulations can be complex, especially with the latest changes under the Finance Act, 2025. At S R Auditors, we provide expert guidance on VAT compliance, tax advisory, and financial reporting to help your business stay ahead of regulatory changes.

👉 Contact us today to learn how we can assist your business in managing VAT, ensuring compliance with TRA requirements, and improving overall financial efficiency.

⚠️ DISCLAIMER

As always, anything on this site should not be relied upon in place of appropriate professional advice. Tax laws and regulations may change from time to time and may vary depending on your specific situation.

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