Dodoma: In a fiery exchange on X on June 12-13, 2025, Tanzania’s Finance Minister, Dr. Mwigulu Nchemba, and opposition leader Zitto Kabwe clashed over a proposed withholding tax (WHT) on retained earnings. Nchemba defends the tax as an anti-avoidance measure to ensure tax equity, while Kabwe calls it what it is: blatant double taxation that will choke Tanzania’s economic growth. Let’s be clear—Kabwe is unequivocally right, and Nchemba’s proposal is a dangerous misstep that threatens to undermine Tanzania’s businesses, deter investment, and reward short-term revenue grabs over long-term prosperity.
The Crux of the Debate
Retained earnings are a company’s lifeblood—profits left after paying corporate income tax, used to reinvest in growth, innovation, or stability. In Tanzania, companies already pay a 30% corporate tax on profits. For every $100 earned, $30 is paid to the government, leaving $70 to either distribute as dividends (taxed again via Withholding Tax) or retain for business needs. Nchemba’s proposal slaps an additional WHT on these retained earnings, taxing the same $70 before it’s even distributed. Kabwe rightly labels this double taxation, while Nchemba insists it’s a fairness measure to prevent companies from dodging dividend taxes by hoarding profits.
Nchemba’s Flawed Logic
Nchemba’s argument hinges on the idea that retained earnings let companies defer shareholder-level taxes indefinitely, creating inequity compared to taxed dividends. He frames the WHT as an anti-avoidance rule to level the playing field. Sounds noble, right? Except it’s built on shaky ground. First, retained earnings aren’t shareholder payouts—they’re corporate funds used for expansion, hiring, or debt repayment, directly fueling Tanzania’s economy. Taxing them as if they’re dividends ignores their role in growth. Second, where’s the evidence of rampant tax avoidance via retained earnings? Without data showing companies are systematically hoarding profits to evade taxes, Nchemba’s proposal feels like a solution in search of a problem.
Worse, Nchemba’s claim that this isn’t double taxation is technically absurd. The $70 in retained earnings is already after-tax profit, hit by the 30% corporate rate. Slapping a WHT on it—say, 10%—takes another $7, leaving $63. That’s the same profit taxed twice, plain and simple. Nchemba’s semantic gymnastics can’t dodge this reality. Even X users, from economists to everyday Tanzanians, see through it, with posts overwhelmingly backing Kabwe and slamming the tax as a disincentive to reinvestment.
The Economic Fallout
This tax isn’t just wrong—it’s reckless. Retained earnings are how businesses, especially small and medium enterprises, survive and scale in Tanzania’s challenging market. Taxing them shrinks the capital available for new equipment, hiring, or R&D, forcing companies to either cut back or distribute profits as dividends to avoid the WHT. That’s a lose-lose: less reinvestment slows growth, while early distributions favor short-term shareholder payouts over long-term economic stability. As Kabwe and X commentators point out, this could push companies to shift profits offshore, worsening the very avoidance Nchemba claims to target.
Globally, taxing retained earnings directly is rare for a reason—it’s economic sabotage. Countries like Singapore and Estonia thrive by encouraging reinvestment, not punishing it. Tanzania, with its ambitions to become a regional economic hub, should be fostering businesses, not bleeding them dry. A 2022 Tanzanian Tax Appeals Board case applied WHT on retained income in a specific dispute, but turning this into a blanket policy is a leap too far. Nchemba’s proposal risks making Tanzania less competitive, driving investors to neighboring Kenya or Rwanda, where tax regimes don’t choke growth.
Kabwe’s Clarity
Zitto Kabwe nails the issue: this is double taxation, full stop. His argument is rooted in economic logic and fairness. Companies already pay their share through corporate tax; taxing retained earnings again is a greedy overreach. Kabwe’s broader advocacy, seen in his X posts, pushes for smarter anti-avoidance measures—like cracking down on transfer pricing or aligning with global tax standards—without strangling local businesses. His stance resonates with Tanzanians on X, who fear this tax will hit small businesses hardest, widen inequality, and fuel distrust in government.
A Call to Action
Nchemba’s WHT proposal is a textbook case of good intentions gone awry. Equity in taxation is a worthy goal, but not at the cost of economic vitality. If the government wants to curb avoidance, it should target real loopholes—offshore havens, illicit profit-shifting—not the legitimate reinvestment that powers Tanzania’s future. The Finance Minister must shelve this ill-conceived tax and engage stakeholders to design policies that balance revenue needs with growth.
Tanzania stands at a crossroads. Will it nurture its businesses to compete globally, or hobble them with short-sighted taxes? Kabwe’s voice is a clarion call for reason, and the government would be wise to listen. Scrap the WHT on retained earnings, Dr. Nchemba. Your country’s future depends on it.