Countries may use a fiscal or tax policy as a tool to promote or enhance the growth of a country’s industrial base. This can be through providing incentives to potential investors to attract new investment or implementing an import substitution strategy.
For a while, Tanzania has been embracing a VAT deferral regime that intends to provide relief to investors who import capital goods (plant and machinery) to conduct economic activities that will generate taxable or vat-able supplies.
The Finance Act 2023, has amended the Value Added Act Cap 148 through Section 11 to introduce a VAT deferral on locally manufactured capital goods and seize application of this provision on imported capital goods effective 30th June 2026 hence leading to a policy shift dilemma.
Numerous questions among investors, fiscal policy experts, policy-makers, etc. have been raised including whether this police move will cause more harm than good. That is, is Tanzania ready to manufacture capital goods competitively to meet investors’ demand?
This policy brief attempts to inform various stakeholders about the new policy stance and trigger a discussion that intends to improve the proposed regime to propel private sector participation in economic growth.