Digital services tax in Tanzania

After months of rumours, Tanzania has announced a digital services tax (DST). The Minister of Finance, in the 2022/23 budget speech, announced a 2% tax on the revenues of non-resident digital platforms. No cost-benefit analysis has been publicly released. Nor are there any details on when the DST would be imposed, how it would be collected and what penalties would be incurred if digital platforms did not comply. In addition to the DST, the Minister also announced the removal of the VAT exemption for smartphones because it “didn’t lead to reduction of prices to final consumers rather benefited traders”. Unfortunately, there is no data to back up this claim. The best measure would be to look at total sales of smartphones prior to the VAT exemption and after the VAT exemption. The budget speech also announced that digital platforms would be subject to VAT and that a “a simplified registration process to accommodate digital economy operators who have no presence in Tanzania” would be developed. Unlike the other taxes, this is entirely reasonable and follows what many other countries around the world have done as well, such as Canada, the UK and France. The table below shows the expected revenues from the new taxes. The DST is expected to only bring in USD 2 million per year. An estimate of the costs of the new tax, including the risk of trade retaliation by the US, is needed. 

TaxRate Expected revenues (million TZS)Expected revenues (million USD)
DST2% on revenues 4,8892.09
Removal of VAT exemption on smartphones18%33,70514.41
VAT on digital platforms18%34,24014.64

These new taxes must be placed within the context of Tanzania’s overall performance. Looking at RIS’s Next Generation Internet Index, Tanzania does not perform well. It is ranked last in East Africa and 31st in Africa. The Internet in Tanzania is slow, expensive and laggy. Instead of imposing new taxes, Tanzania should be focusing on how to improve affordability and rollout new digital infrastructure, especially fibre.  

 NGIIRankRegionRank in region Sub-regionRank in sub-regionFast symm-etrical Internet  Low latenciesAfforda-bilityCyber-security
Tanzania3%124Africa31Eastern Africa130%0%0%12.99%
Other news from around Africa 
  • Telecom taxes in the DRC: It is nearly universally true that digital taxes are poorly implemented and the DRC is no exception. The fight over new taxes continues with the Federation of Companies of Congo pointing out that prices are required by law to be cost-based and an increase in taxes therefore justifies an increase in retail prices. Currently, the ARPTC has prohibited any price increases due to the new taxes. 
  • Kenya and over-regulation: The ICT Practitioners Bill is before the President, the last step before being passed into law. The Bill requires that any ICT practitioner to have an ICT-related degree from a recognised university and also pay an annual licence fee. If there is a faster way to destroy innovation in the sector, it’s difficult to think of what it might be. 
  • Nigeria’s code of practice for digital platforms: The code of practice requires social media platforms to incorporate in Nigeria, to appoint a Liaison Officer to report to government and to report popular content and the person / people responsible for that content. The Code of Practice is a draft and hopefully it will be significantly changed in future versions. 
  • South Africa and 2G: The South African government announced that is banning the import of any 2G devices by March 2023.