The government of Tanzania has been shaken by the findings of a report from Tax Justice Network (a UK-based independent financial advocacy group) which revealed that Tanzania is one of the region’s top havens for illegitimate money. In response, the Bank of Tanzania (BOT) has tightened rules governing the ownership and operation of foreign exchange bureaus with the view to prevent money laundering and capital flight.
One of the measures taken has been to raise the minimum and maximum capital requirements for foreign exchange shops, which arose after Deputy Minister for Finance and Planning, Ashatu Kijaji, informed Tanzania’s parliament in 2017 that the government was monitoring exchange bureaus.
The minimum capital requirement has now been raised from Tsh100 million (US$44,000) to Tsh300 million (US$132,000), while maximum capital was raised from Tsh250 million (US$110,000) to Tsh1 billion (US$440,000). All forex shops are now required to seek new licences for them to operate.
These foreign exchange reforms are part of the ongoing initiatives geared towards achieving tangible results in tax reforms. The government is mindful of the under-developed fiscal system and of potential revenues to be made in the commercial and, in this case, alternative spaces.
Favourable reforms to investments — such as reduced tax rates and a simplified tax structure to revise the current one which is unclear — will probably be achieved when capital flight is prevented, revenue collection is more effective, and tax base is broadened.
One noticeable risk which has arisen from this shift in governance is the pressure administered on the Tanzania Revenue Authority by the government to deliver hard targets for tax revenues. This will filter down to more vulnerable commercial entities, such as SMEs, in the short run. However, with a more transparent tax system reducing financial corruption, such measures could indirectly incentivise economic investments in Tanzania in the long run.
To receive a free sample of our Tanzania, Kenya and Uganda country analysis, contact us here.