Key Highlights:

– To comply with the directive, all prices of goods and services in Tanzania should be quoted in Tanzanian shillings.

– Tourists and non-resident customers may pay in foreign currency for services like accommodation, travel, and cargo handling.

– The exchange rate used must be displayed and not exceed the prevailing market exchange rate.

– Residents of Tanzania should only use Tanzanian shillings for payments within the country.

Brief:

Recently the Tanzania’s Finance minister, Dr Mwigulu Nchemba, issued a decisive directive on June 13, 2024, aimed at curbing the widespread use of the US dollar within the country in a bid to address a critical challenge impacting the economy.

The Finance Minister also instructed all government agencies that collect fees, taxes, and other charges in foreign currency to amend their regulations to ensure these payments are made in Tanzanian Shillings. He added that even foreign nationals seeking services within Tanzania should convert their currency to the local Shilling to facilitate transactions.

He has announced that all domestic transactions must be conducted in Tanzanian Shillings starting from July 1, 2024. This directive targets all local stakeholders, including public institutions, businesses, civil society organizations, international bodies, and individuals operating within Tanzania.

Presenting the 2024/2025 fiscal budget to the Parliament in Dodoma, Dr. Nchemba emphasized that pricing and payment for goods and services should be exclusively in Tanzanian Shillings.

He stated, “If you possess foreign currency, you are required to exchange it through banks or authorized forex bureaus before making any payments in Tanzanian Shillings. The Bank of Tanzania and other relevant agencies are directed to closely monitor this practice and take appropriate legal action against offenders.”

The importance of maintaining the integrity of a country’s currency and financial system cannot be overstated. In line with this principle, the Government of Tanzania, through the Bank of Tanzania, has issued directives prohibiting domestic payments for goods and services using foreign currencies within the United Republic of Tanzania.

This legal update serves as a reminder and a clarifier on the responsibilities and obligations of residents and non-residents when it comes to dealing in foreign currency in Tanzania.

The Bank of Tanzania had issued a public notice reminding the general public of the prohibition on domestic payments for goods and services using foreign currencies within the United Republic of Tanzania. This directive was initially issued in August 2007 and December 2017 by the Government but has been observed to be violated recently. These directives were put in place to protect the Tanzanian economy and ensure the stability of the Tanzanian shilling as the primary legal tender in the country.

Compliance Requirements

To comply with the directives, all prices of goods and services in Tanzania should be quoted and paid in Tanzanian shillings. This includes a wide range of goods and services such as rent, education fees, medical services, transport services, electronic equipment, and more. It is crucial for residents and businesses operating within Tanzania to adhere to this requirement to avoid any violations of the law.

Tourists and Non-Residents

While residents are required to use Tanzanian shillings for domestic transactions, tourists and non-resident customers are encouraged to exchange foreign currency for Tanzanian shillings to facilitate transactions that support the local economy .

They are to exchange and pay on a quote in Tanzania Shillings. The payment should be in Tanzanian Shillings upon exchanging the foreign currency. This includes services like accommodation, travel, airport and visa fees, transit trade, and cargo handling.

Exchange Rate Compliance

For transactions involving foreign currencies, the exchange rate used should be displayed and must not exceed the prevailing market exchange rate. It is imperative for all parties involved in such transactions to ensure transparency and compliance with the set exchange rate regulations. Commercial banks and bureaux de change are the authorized institutions for determining exchange rates in Tanzania.

Other Countries

Several countries around the world have implemented restrictions or bans on the use of foreign currencies for domestic transactions. These measures are typically put in place to protect the national currency, maintain stability in the financial system, prevent capital flight, and control inflation. Some examples of countries that have imposed bans or restrictions on dealing in foreign currency include:

Venezuela: Due to hyperinflation and economic instability, Venezuela has strict controls on foreign exchange transactions. The use of foreign currency for domestic transactions is heavily regulated, and the official exchange rate is tightly controlled by the government.

Zimbabwe: In Zimbabwe, the Reserve Bank has imposed restrictions on the use of foreign currencies for domestic transactions. Following the reintroduction of the Zimbabwean dollar as the sole legal tender, the use of foreign currencies has been limited in an effort to stabilize the economy.

Iran: Iran has placed restrictions on the use of foreign currencies in domestic transactions to maintain control over the value of the Iranian rial. Only authorized financial institutions are allowed to exchange foreign currencies, and individuals and businesses are required to use the official exchange rates set by the government.

Argentina: Argentina has experienced currency fluctuations and economic instability, leading to restrictions on the use of foreign currencies. The government imposes limits on buying foreign currency and requires businesses to conduct transactions in Argentine pesos to promote the use of the national currency.

Kenya: In Kenya, the Central Bank has also taken measures to regulate the use of foreign currency in domestic transactions. The Central Bank of Kenya Act stipulates that the Kenyan shilling is the only legal tender in the country, similar to the directives in Tanzania. Kenya’s President William Ruto, has also been championing the abandonment of the globally bullish US dollar by signing up for a pan-African payments system to facilitate trade within the continent.

Ruto has increasingly urged his peers in Africa to mobilise central and commercial banks to join the Pan-African Payments and Settlement System (PAPSS), which was launched in January 2022

These examples demonstrate that restrictions on dealing in foreign currency are not unique to Tanzania and that various countries implement such measures for different economic and regulatory reasons. Understanding the legal framework and compliance requirements related to foreign currency transactions is crucial for businesses operating in these jurisdictions to ensure adherence to the law and avoid potential legal issues.

Implications for Businesses in Tanzania:

For businesses operating in Tanzania, compliance with the directives on dealing in foreign currency is essential to avoid legal repercussions and maintain a good standing with regulatory authorities. Adhering to the requirement of quoting prices in Tanzanian shillings for goods and services is crucial to avoid any violations of the law and potential penalties. Businesses should ensure that their pricing policies and payment methods align with the directives issued by the Bank of Tanzania to operate legally within the country.

With regards to tourism and hospitality businesses, understanding the MInesterial directive vis a vis exceptions earlier given by BOT for tourists and non-residents is paramount . The BOT directive had mentioned that they are to pay in foreign currency is  however the Misniterirla Directive catters for exchange to be done so that payment is done in Tanzanian Shillings upon being quoted in Tanzania Shillings . Proper documentation and compliance with the exchange rate regulations are necessary to facilitate seamless transactions with foreign customers while ensuring compliance with the law.

Furthermore, businesses engaged in international trade and transactions must exercise caution and follow the prescribed exchange rate guidelines to maintain transparency and avoid any discrepancies in payment processing. Working with authorized financial institutions like commercial banks and bureaux de change for determining exchange rates is recommended to ensure compliance and reliability in foreign currency transactions.

Legal Implications

Violating the directives on dealing in foreign currency within Tanzania can have legal consequences. Section 26 of the Bank of Tanzania Act 2006 clearly states that the Tanzanian shilling is the only legal tender in the country. Any act of refusing payment in Tanzanian shillings could be considered a violation of the law and subject to penalties as outlined in the Act.

Conclusion

In conclusion, the directives issued by the Minister of Finance of the Government of Tanzania and the directives by BOT regarding the use of foreign currencies in domestic transactions are crucial for maintaining the stability and integrity of the Tanzanian financial system. Businesses in Tanzania need to be vigilant about the regulations on dealing in foreign currency and incorporate them into their operational and financial practices. Proper training of staff, clear communication of pricing policies, and regular compliance checks are essential to ensure adherence to the legal requirements and promote a culture of compliance within the organization. By proactively aligning their operations with the directives issued by the Bank of Tanzania, businesses can mitigate risks, enhance credibility, and contribute to a stable financial environment in Tanzania. It is incumbent upon all residents, businesses, tourists, and non-residents to adhere to these directives to promote compliance and uphold the legal framework governing currency transactions within the United Republic of Tanzania. The regulations of various institutions are to be amended to comply with the directive.