- Treaties, donor funding arrangements, or MOUs with Government ministries do not automatically grant tax exemption.
- Under Section 10 of the Income Tax Act, 2004, tax exemption must be effected through a Ministerial Order published in the Government Gazette. Without publication, the exemption is legally invalid.
- Charitable or public health activities alone are not enough to qualify for SDL exemption under the VETA Act. The Commissioner General must formally determine and be satisfied that the entity qualifies as a charitable organization.
On 15 December 2025, the Court of Appeal of Tanzania sitting at Morogoro rendered a significant decision in The Commissioner General of the Tanzania Revenue Authority v. MSPH Tanzania LLC, Civil Appeal No. 358 of 2024. The judgment carries important implications for non-governmental organizations, charitable institutions, and donor-funded projects operating within Tanzania.
BACKGROUND OF THE CASE
The dispute arose after the Tanzania Revenue Authority (TRA) conducted a tax audit on MSPH Tanzania LLC covering the years 2013 to 2018. TRA assessed the organization for Skills and Development Levy (SDL) and Pay As You Earn (PAYE) tax.
MSPH, a non-profit entity implementing public health programmes funded through United States government initiatives (including PEPFAR through the CDC), objected to the assessments.
It argued that it was exempt from SDL and PAYE by virtue the of the 1968 bilateral agreement between the Government of Tanzania and the Government of the United States (commonly referred to in the proceedings as the Lexis Treaty), as well as Memoranda of Understanding (MOUs) entered into with the Ministry of Health.
The Tax Revenue Appeals Board and subsequently the Tax Revenue Appeals Tribunal ruled in favour of MSPH. The Commissioner General appealed to the Court of Appeal.
ISSUES FOR DETERMINATION
The Court of Appeal overturned the decisions of the lower tax foras. In doing so, it addressed two central questions:
- Whether a PAYE exemption could exist without publication of a ministerial order in the Government Gazette under section 10 of the Income Tax Act, 2004, and;
- Whether SDL exemption could be claimed without the Commissioner General formally determining the organization’s charitable status under section 19 of the Vocational Education and Training Act (VETA Act).
No Automatic PAYE Exemption Without Gazette Notice
The Court held that a tax exemption under section 10 of the Income Tax Act is not automatic. Even where a treaty exists, or an MOU provides that a ministry will “facilitate” tax exemption, the exemption must be effected through an order published in the Government Gazette by the Minister responsible for Finance. In this case, no such Gazette Notice was issued.
The Court further observed that there was no evidence of Cabinet approval as contemplated under section 10(3) of the Act. It emphasized that MOUs are administrative arrangements and cannot override statutory provisions.
Tax statutes must be strictly construed, and compliance with the legal procedure for exemption is mandatory. In the absence of Gazette publication, the claimed PAYE exemption could not stand.
DECISION OF THE COURT
Ultimately, the Court allowed the appeal in favour of the Commissioner General, holding that there had been non-compliance with both section 10 of the Income Tax Act and section 19 of the VETA Act. Although the Court made no order as to costs, the substantive outcome is clear: MSPH was not legally exempt from PAYE and SDL.
WHAT THIS MEANS FOR DONOR-FUNDED AND NON-GOVERNMENTAL ORGANIZATIONS IN TANZANIA
First, it confirms that tax exemptions must strictly follow statutory procedures. The existence of a treaty, donor funding arrangement, or MOU does not in itself confer exemption.
Second, where an exemption is claimed under section 10 of the Income Tax Act, a valid Government Gazette Notice is essential.
Furthermore, donor-funded entities and non-governmental organizations engaged in social or developmental activities do not automatically qualify for charitable status merely by virtue of their operations. Such status must be formally applied for, granted, and recognized by the Commissioner General in accordance with the VETA Act.
The Court of Appeal has reaffirmed a strict principle: tax exemption in Tanzania is a matter of law, not assumption or an administrative expectation. Organizations operating in the NGO and development sector should urgently review their tax positions to ensure that any claimed exemptions are properly grounded in statutory compliance. Failure to do so may expose them to significant and unexpected tax liabilities.
