New Budget: A bold move that must be well balanced - experts

The next financial year Budget will be internally funded at 66 per cent, amounting to Rwf1.174 trillion, up from 60 per cent in the financial year ending June 30. According to experts, such a bold move will require expanding the tax base, proper resource management and increasing the country’s productivity. Andrew Mold, a United Nations Economic Commission for Africa senior economic affairs officer for eastern Africa, believes the global economic situation is still delicate and commodity prices are still weak which is reducing Rwanda’s import bill for oil but also hindering its export earnings. “The government’s forecast to increase domestic revenue of Rwf41.6 billion might seem large, but only represents an increase of about $6 million. Besides, government earlier this year scrapped several VAT exemptions, as well as revisited the investment code to make the application of tax benefits more focused,” Mold told The New Times. “It is against this backdrop in principle that the investment code should not prove too difficult to implement.” “There has been a long-standing commitment to raising the level of investment in the economy. Under the second Economic Development and Poverty Eradication Strategy (EDPRSII), for example, the target is to reach nearly 30 per cent of GDP. At present it stands in the region of 24-25 per cent. “Therefore, this push toward infrastructural development can be seen as part of a strategy to raise the long-term rate of growth and development of the economy,” he said. Streamlining tax compliance Allan Gichuhi, the Rwanda E&Y partner, said focusing on infrastructure is a wise decision that will help reduce the cost of doing business and boost the country’s private sector making it more competitive in the region. “It is a budget that is in line with the East African Community integration project; however, for the government to be able to raise domestic resources amounting to 66 per cent, Rwanda Revenue Authority will have to work hard and bring more people into the tax net, reduce on tax leakages and tax avoidance,” Gichuhi said.Tax exemptions and reductions Although the government is coming up with tax exemptions and reduction, Nelson Ogara, the head of tax services at PriceWaterCoopers Rwanda, says the strategy needs to be well balanced to ensure sustained investments and protection of local industries. “The tax changes announced by the Government were few as a comprehensive review of the law is currently ongoing. This has been a consultative process,” Ogara said. He said the focus on widening the tax base was positive as it should bring more taxpayers within the net, adding, however, that the process should be sustained to realise meaningful gains. “A new investment code was enacted recently, which provides targeted tax incentives for a select priority sectors and should result in more positives. There are many of tax incentives at EAC level which should contribute to stimulating domestic industries such as reduction of raw materials to 0 per cent for certain approved items,” Ogara said. Peter Rwema, the executive secretary of Association of Microfinance Institutions in Rwanda, believes having infrastructure sector take the lion’s share of the budget is a strong backbone for other sectors to thrive. “However, the government will have to work round the clock to ensure there is increased productivity, proper value chain management to counterattack price volatility in international markets,” he said. “This way, we will be able to narrow trade deficit gap and propel economic growth.” Private sector wants more commitments Although the Rwf1.768 trillion National Budget suggests a strong partnership between the government and the private sector, Antoine Manzi, the director of advocacy at Private Sector Federation, said there was need to invest in more infrastructure to boost the federation’s capacity to deliver. And one such area where the government must double its resources, according to Anne Rwigara, the secretary-general of Rwanda Association of Manufacturers, is energy. “The government should make energy as top priority because that is what is driving the cost of production high,” Rwigara said. “We are talking about boosting exports, but without enough affordable power supported by strong infrastructure, you are less competitive,” she added. ******************************** What they said Allan Gichuhi Allan Gichuhi ‘It is a huge budget that is in line with the East African Community integration project; however, for the government to be able to raise domestic resources amounting to 66 per cent, Rwanda Revenue Authority will have to work hard and bring more people into the tax net, reduce on tax leakages and tax avoidance.’ Andrew Mold Andrew Mold ‘The government’s forecast to increase domestic revenue of Rwf41.6 billion might seem large, but only represents an increase of about $6 million. Besides, government earlier this year scrapped several VAT exemptions, as well as revisited the investment code to make the application of tax benefits more focused.’ Anne Rwigara Anne Rwigara ‘You may be allocating Rwf298.1 billion to support infrastructure; however, the government should make energy top priority because that is what is driving the cost of production high. We are talking about boosting exports, but without enough affordable power supported by strong infrastructure, you are less competitive.’ Peter Rwema Peter Rwema ‘The government will have to work around the clock to ensure there is increased productivity, proper value chain management to counter attack price volatility in international markets. This way, we will be able to narrow trade deficit gap and propel economic growth. editorial@newtimes.co.rw

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New Budget: A bold move that must be well balanced - experts