Taxation for the digital era: Tanzania

Accessible, reliable and affordable broadband Internet is the foundation of the digital economy and digital inclusion. Improved broadband penetration is associated with substantial socioeconomic benefits, contributing to enhanced productivity, facilitating information exchange, and improving service delivery across the economy.

Tanzania’s National Five Year Development Plan III (FYDP III) recognizes the significance of improved broadband penetration to both the job creation as well as the positive impact on the service sector, which contributes significantly to the country’s GDP (MoF 2021).

The ICT sector in Tanzania is heavily taxed. Consumer taxes represent 32% of the total cost of mobile services (GSMA 2021). The ICT sector contributed 4.3% of total tax revenue

in Q2 2021, yet its GDP contribution is only 1.5% (Figure 1).

The introduction of another tax – such as a Digital Services Tax (DST) – that singles out an enabling sector like the ICT sector discourages investment and makes the target of universal broadband access and usage difficult to achieve.

This policy brief shows that there is an alternative option to a DST for Tanzania. The context surrounding this policy brief is an unprecedented new global tax framework that was adopted by the OECD in October 2021. This framework solves the main challenge that many unilateral DST’s cannot address: a fair allocation of taxing rights so that the home country is no longer the sole beneficiary of taxation of multinational companies (MNEs). It also prevents MNEs from avoiding corporate income tax. Download the Policy Brief here.