A common characteristic of recent Rwanda annual budgets is the attempt by the Economic Planning Department at the Ministry of Finance walk a thin line between increasing domestic tax receipts without increasing tax rates for residents.
The 2018/2019 budget read last week on Thursday was no different. The Rwf2.4 trillion budget has reduced dependence on aid and assistance to just 16 per cent.
As opposed to raising taxes, which would make it difficult for local tax payers, the new budget is looking to tax efficiency, increasing compliance and expanding the tax bracket.
There were no major tax policy changes announced despite the aims to increase tax revenue included in the 2018/19 budget.
However, Rwanda Revenue Authority (RRA) says that they will be building on measures taken in the past few years as well as implement a number of administrative reforms to boost efficiency.
Among the new avenues of tax receipts is capital gains tax of 5 per cent of sales or transfer of shares. This means that direct and indirect sale of shares in a Rwandan company is now considered to be taxable income.
It is still not clear to what extent this could impact trading activity on the local bourse.
To increase tax receipts, the government also excluded liberal professionals such as independent professionals from the lump sum tax regime to 30 per cent tax.
The 2018/2019 budget is also looking to tighten restrictions on expense deduction for the determination of taxable income.
For instance companies that have management fees, technical fee, and royalty fees are now restricted to 2 per cent of the company’s turnover. Anything above the cap is subject to taxation.
Second hand apparel imports will are also expected to increase revenue receipts as used clothes imports will be taxed at $4/kg for imports up from $2.5/kg.
Second-hand shoe dealers will now pay $5/kg of import up from $0.4 in the current fiscal year.
This is part of an East African Community move to encourage the development of the local apparel industry.
There are also adjustments such as expansion the scope of those required to issue EBM invoices beyond VAT taxpayers. Previously, EBM invoices were solely by VAT taxpayer.
However, the Ministry of Finance will be able to determine who should issue an EBM invoice under the new procedures.
RRA Commissioner General Richard Tusabe said that some enterprises such as garages and hardware stores have often come off as lacking in transparency, hence the intervention.
It is not yet a sigh of relief for other taxpayers who were not ‘touched’ on Thursday last week as there is in the coming months, the revised excise tax law which could increase taxes on alcohol (beer, wines, liquors) and mobile data among other products.
There is also going to be adjustment in tax procedure law for income and Value Added Tax, immovable property tax as well as customs tariff within the East Africa community.
Commenting on the budget at a budget analysis convened by regional audit form, KPMG, RRA Commissioner General Richard Tusabe said that they were well on track to achieve and probably surpass projections of 2017/2018 budget of Rwf1,200.3 billion.
In the coming financial year, he said that they expect to grow receipts by about 10 per cent to Rwf1,351.7 billion.
Among the factors that he said give him confidence on realising projections for the next year include growth of the Gross Domestic Product and improved compliance by tax payers.
"There is however room for improvement in efficiency in tax collection which is which we seek to make the most of. Through reducing cost and easing the tax declaration and payment procedures, by innovation such as EBM version two, we are hoping to further improve efficiency,” Tusabe said.
Commenting on what came off as the priorities of the local budget, Angelo Musingizi, a tax expert at KPMG Rwanda said that energy received the highest allocation, followed by export diversification then job creation.
Other major allocations in order of share include transport, healthcare, education and governance.
What experts say about the 2018/2019 budget
PWC Rwanda Budget analysis:
There has been a deliberate move over the last five years to modernise the major tax laws in Rwanda.
These include the following new laws: VAT law, Investment Promotion and Facilitation law, Mineral Tax law, Gaming law and Income Tax law which was recently gazetted on 16 April 2018.
There were no specific tax policy changes announced aimed at increasing tax revenue included in the 2018/19 budget. However, building on from pronouncements in previous years, RRA are implementing a number of administrative reforms which are expected to generate more tax revenue.
Rwanda has taken numerous tax policy and revenue administrative measures to boost domestic revenues.
The Government is committed to continue its current efforts towards promotion of transport services, "Made in Rwanda”, cashless economy, access to basic needs for the population and supporting sporting activities.
KPMG Rwanda:
The government has remained consistent in its objective of reducing aid dependency and financing the national budget entirely from internal resources.
The budget has set a revenue target if Rwf 1353Billion for the fiscal year 2018/2019 for the revenue authority. Some of the key domestic tax measures that may help RRA achieve this target include the amendment of the law on tax procedures involving EBM for all, which aims at rolling out EBMs to selected non-VAT tax registered taxpayers, addressing loopholes in the existing law and improving some tax payers’ compliance procedures.
Enactment of the law amending excise duty on beer, wines, liquors as well as mobile data will also help towards the achievement of the targets.
Amendments to taxes on income involving capping of management fees, excluding liberal professionals from lump-sum regime and implementation of transfer pricing guidelines will further help RRA.
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