Finance Minister, John Rwangomwa, yesterday announced some changes in the tax regime as the Treasury increasingly seeks to raise domestic revenues to meet its increasing expenditure amidst budget constraints.Government spending will rise by 16 percent to over Rwf 1.38 trillion in the financial year 2012/13, from Rwf1.19 trillion in 2011/12.In the financial year 2012/13, which begins next month, total domestic revenues are projected to rise by 28.2 percent to Rwf724.4 billion from Rwf565.1 billion in 2011/2012, a reflection that domestic resources will fund more than half the total budget.Presenting the budget to parliament Rwangombwa said : "Domestic resources will finance 52.4 percent of our total expenditure and net lending in the fiscal year 2012/2013 as against 47.3 percent in 2011/2012”.Treasury is expected to raise Rwf641.3 billion from taxes while non-tax revenues are estimated at Rwf 83.2 billion.To meet this target, Rwangombwa proposed a series of changes to the Small and Medium Enterprises (SMEs) tax regime aimed at increasing compliance and lowering administrative costs.But alongside the changes that will see enterprises with a turnover of Rwf12 million to Rwf50 million paying a flat tax rate 3 percent instead of 4 percent per annum, Treasury slapped a 5 percent increase on import duties on construction materials.The decision to increase import duties on construction materials on Value Added Tax (VAT) and excise duties, will yield Rwf 1 billion and it comes at a time when the country is facing severe housing deficit, especially for low and middle-income earners.The minister also announced that enterprises with a turnover of Rwf 10,000,001 to Rwf 12 million will pay a flat tax of Rwf 300,000 annually while those from Rwf 7,000,001 to Rwf 10 million will be paying Rwf 210,000. R Rwf 2 million to Rwf 4 million will pay Rwf 60,000.The government also plans to review the investment code in the coming fiscal year, a move that is likely to see a raft of tax breaks and other tax free incentives for foreign investors scrapped. Revision of the investment code is expected to yield Rwf 5.2 billion while the Treasury will raise Rwf 10.9 billion through the introduction of the Electronic Sales Register (ERS) for recording taxpayers’ transactions to limit VAT evasion and help track potential taxpayers.  The government also plans to raise Rwf1 billion by introducing gaming tax."In addition to these measures, the increase in public sector wages and salaries whilst maintaining existing tax brackets and rates will yield an additional Rwf9.3 billion in revenue,” Rwangombwa said.External Financing Over the last 12 years, Rwanda has significantly reduced its dependence on donor aid from 85 percent of total budget to 46 percent. The country continues to rely on international development partners though. Rwangombwa says that whilst for many years Rwanda’s traditional sources of external support had been budgetary grants, the country has, starting from 2011/2012 fiscal year, become eligible to receive budgetary loans. "This was due to the fact that the international community has more confidence in Rwanda’s debt management capacity and has now classified it as a country with moderate risk of debt distress,” the Minister said.This, according to Rwangombwa, implies that Rwanda is eligible to receive budget loans from the African Development Bank (AfDB) and the World Bank Group. Deficit Due to increased spending, the overall cash deficit is projected at Rwf 137.3 billion in the next fiscal year, higher than the Rwf 77.1 billion estimated in 2011/12.This deficit will be funded with net foreign loans inflows of Rwf128.5 billion and net domestic borrowing from the banking system through sales of Treasury bills of Rwf8.7 billion."With this increase in debt, the government’s domestic debt stock which is estimated at Rwf 175.4 billion at end June 2012 will only rise marginally to Rwf184.1 billion by end June 2013,” Rwangombwa said.The largest share of this debt will be held by the banking sector, central bank and commercial banks.Economic outlook  Overall, next year’s budget raised hope for many people as the Minister outlined government’s strategy to support business and growth while boosting human development amid serious downside risks in the global economy due to weak global demand, lower commodity prices as well as high oil prices.Rwanda’s economy is projected to expand by 7.7 percent this year, lower than the 8.6 percent witnessed last year. Economic growth is expected to be driven by robust performance of agriculture, industry, construction, and then service sectors. The government also plans to scale up investment in infrastructure to facilitate doing business.