Introduction

Section 124(6A) of the Excise (Management and Tariff) Act, R.E 2019 (now section 126(12) of the Excise (Management and Tariff) Act, R.E 2023) imposes excise duty at the rate of ten percent (10%) on charges/fees payable by a person to a financial institution for service provided by such institution.

The ambiguity marring the practicality of the above provisions rested on the technical interpretation of the term “financial institution” as the Excise (Management and Tariff) Act, R.E 2023 (“Act”) does not provide a technical meaning for the term.

In civil appeal No. 203 of 2025 between the Commissioner General of the Tanzania Revenue Authority and Brac Tanzania Finance Limited TZCA 33 (5 Febper centruary 2026), the Court of Appeal of Tanzania (“CAT” or “Court”) addressed such ambiguity by holding that a non-deposit taking microfinance service provider may still qualify as a “financial institution” liable to excise duty.

Background of the Case

The Commissioner General of the Tanzania Revenue Authority (TRA) assessed BRAC Tanzania Finance Limited (“BRAC”) for excise duty and interest for the year 2021, amounting to over TZS 1.25 billion. The assessment was premised on the assertion that BRAC qualified as a financial institution providing chargeable financial services. BRAC objected unsuccessfully before the Commissioner but succeeded before both the Tax Revenue Appeals Board (“Board” or “TRAB”) and the Tax Revenue Appeals Tribunal (“TRAT” or “Tribunal”), which held that BRAC didn’t qualify as a financial institution envisaged for excise duty chargeability.

Gist of the Dispute

The core issue was whether a Tier 2, non-deposit-taking microfinance service provider, licensed by the Central Bank of Tanzania such as BRAC, qualifies as a “financial institution” for the purpose of excise duty chargeability. The dispute hinged on statutory interpretation and the interaction between tax statutes and the financial sector regulatory laws.

Court’s Decision

The Court of Appeal allowed the appeal and reversed the Tribunal’s decision, holding that:

1. Tax statutes must be interpreted strictly, but by reference to their own charging scheme and allied tax laws, not to regulatory classifications under non-tax statutes.
2. The absence of a definition of “financial institution” in the Excise Act permits recourse to definitions in tax and financial statutes such as the Income Tax Act, the Bank of Tanzania Act and the Banking and Financial Institutions Act.
3. Deposit-taking is not a mandatory determinant of whether an entity is a financial institution for excise duty purposes.
4. The Tribunal erred in relying on the Microfinance Act’s tier-based regulatory framework to determine the tax liability.
5. BRAC’s licensed financial activities place it within the scope of a financial institution liable to excise duty.

Accordingly, the excise duty assessment was upheld and the appeal was allowed with costs.

Our Commentary

This decision represents a clear and deliberate shift toward a substance-over-form approach in the tax classification of financial service providers. By drawing a firm distinction between regulatory status and tax liability, the Court has unequivocally affirmed that sector-specific licensing frameworks cannot be relied upon to circumvent tax obligations where the legislature has expressed a contrary intention. Therefore, the ruling dismantles attempts to use regulatory categorisation as a tax shield and reinforces the primacy of tax statutes in determining liability.

From a practical standpoint, the decision significantly broadens the tax exposure of non-deposit-taking microfinance institutions by subjecting such institutions to excise duty, thus, a potential surge in interest costs imposed on credit advanced by such institutions to absorb the excise tax.

This is likely to prompt widespread reassessments and enforcement actions across the microfinance sector. This approach is consistent with international practice. Notably, Kenya’s Excise Duty Act No. 23 of 2015 expressly includes persons licensed under the Microfinance Act, 2006 within the definition of “financial institutions,” thereby leaving no ambiguity as to the legislature’s intention to subject microfinance institutions to excise duty.