The country’s investment code needs to be aligned with the existing tax acts to further enhance investor-friendly environment and spur economic growth experts from EY, a professional international tax and audit research firm said yesterday.

Experts say Rwanda’s investment code contradicts tax acts such as customs tax, and value added tax (VAT) making it difficult for them to advise investors and market the country’s "excellent tax reforms.”

"By the time the investment code was enacted, the EAC Common Market Protocol had not yet been signed, so upon the signing, Rwanda had to amend most of the tax acts without amending the investment code,” said David Baliraine, the Associated Tax Director at EY Rwanda.

He added that the situation had also made it difficult for investors to make choices, adding that all the instruments needed to be aligned.

Finance minister Claver Gatete told media recently that the country will soon allow derivatives trading on its stock exchange.

He said a new investment code which could offer tax breaks for foreign investors has been sent to Parliament for ratification.

Baliraine, who was addressing members of the private sector and chief executives during the EY budget breakfast meeting, added that the need to review the company’s act aims at creating room to deal with the situation that arises from taxes related to dividends, interest, royalties, technical fees, capital gains and corporation tax.

"The challenge on dividends is that people who  invest in long term finance by way of equity struggle to pass the solvency test making it difficult to pay back returns.   It’s therefore very imperative that the company’s act be reviewed to attract long term equity form of financing,” Baliraine said.

The private sector, through their federation, had requested government to review taxes related to dividends, interest on royalties, capital gains and corporation tax in general and also review personal income tax for specific talents and skills to help boost the economy.

However, government, through the budget proposal 2014/2015, which was presented to Parliament last week, suggested a reduction on some of the indirect taxes, including customs and excise duty such as tax exemption on passenger vehicles carrying more than 25 people, wheat flour, and sugar and telecommunication equipments.

Taxes on unprocessed rice were reduced from 75 per cent to 45 per cent  while tax on cement reduced from 35 per cent  to 25 per cent.

Allan Gichuhi, the Rwanda EY partner, said the 2014/ 2015 budget, is an indicator that Rwanda is moving in the right direction.

"The proposed tax reforms on indirect taxes could trickle down on the rural poor with a deliberate motive to alleviate poverty and spur economic growth,” Gichuhi said.