[SPONSORED] Fair tax regimes; a robust pillar for economic growth and development

The role of Private sector in generating domestic and customs revenues has enabled the steady increase of Gross Domestic product (GDP), eased national budget’s dependency on foreign donations and grants by over 60%. There is more to celebrate about Private Sector Federation (PSF), especially its impact on the thriving nature of business community in Rwanda that has enabled the above mentioned milestones to happen. PSF has successfully devoted her advocacy efforts towards supporting revenue generation by government of Rwanda through the establishment and sustenance of a culture of respect for paying taxes for national development, alongside advocating fair taxation regimes. PSF continuously engages with various key stakeholders, notably the utilities regulatory body (RURA), Rwanda Revenue Authority (RRA) and their supervisory ministries, advocating VAT exemption and excise duties levied on some of the would-be categorized as “basic products and services” PSF has successfully negotiated the removal of withholding tax on international calls, with the involvement of the Ministry of Youth and ICT, the Ministry of Trade, Ministry of Finance and Economic Planning as well as Rwanda Development Board (RDB). This achievement complements the recent strategic implementation of the One Area Network covering Rwanda, Uganda, Kenya and South Sudan. Through dialogue, initiated by PSF and facilitated by Trademark East Africa, the following far-reaching resolutions were adopted and implemented. • Bonus airtime does not attract tax (VAT and Excise). However, the bonus airtime does not include airtime given by telecommunication companies to their employees. • Telecommunication companies that have already paid taxes related to bonus will get a tax credit to compensate them. • The ratification process of the DUBAI treaty on International Telecommunication regulation has been speeded up and the treaty to be applied retroactively • Companies that had paid their tax liability related to international calls will get an equivalent tax credit instead of a refund and all cases currently in court withdrawn. Telecommunication companies operating in Rwanda, such as MTN, TIGO, and Airtel, agree in one accord that, “charging of VAT and Excise duty on bonus airtime did not only reduce the mobile penetration margins but also increased the cost of doing business for Telecommunication companies.” This, PSF says, “discouraged the telecommunication companies from investing in other incentives thus affecting mobile penetration levels and in a long-run leading to tax reductions with low levels of penetration.” Sunny Ntayombya, the TIGO corporate communication, and government relations manager says, “As a proud member of the PSF Golden Circle, TIGO has seen great value in being an active member of the Private Sector Federation. We have benefited not only in terms of taxes but also through PSF’s advocacy.” Lifting the ban on the Right-Hand Drive (RHD) vehicles for transport PSF was at the center of negotiations that led to the waiver of the ban on the import of Right-Hand Drive (RHD) Transport vehicles and trucks. Issa Mugarura, a member of the Rwanda Truck drivers association noted that the ban on RHD trucks made Rwandan transporters uncompetitive compared to the other East African Community member countries. Consequently, Rwandan transporters argued that they experienced numerous challenges in buying Left-hand drive (LHD) vehicles expensively. Evidence showed that more accidents emanated from changed steering systems of LHD to RHD in a bid to comply with the LHD regulations. Mugarura and several other private sector players say that the waiver of the ban on the import of Right-Hand Drive (RHD) has increased the competitiveness and readiness of Rwandan Transporters in cross-border logistics, transportation and handling, which has seen an increase in revenues and reduce the cost of doing business. Removal of Import Duties and VAT on Imported trucks In accordance with the recent Road Freight Industry Competitiveness policy approved by the Cabinet, the 5% import duty on imported trucks was removed to level the playing field for Rwandan transporters with the neighboring EAC member states. PSF tirelessly engaged the respective authorities such as RRA and Ministry of Trade and Commerce in having the VAT levied on Trucks for transportation and logistics arrangements removed so as to promote the sector and give it an edge to compete with other transporters from the region. The 18% tax reduction is expected to decrease the overall cost of operations. Prompt reimbursing of VAT funds to coffee exporters The coffee exporters faced barriers in their business transactions as far as exporting their products to other destinations was concerned. This came as a result of delays by the Tax Administrator to reimburse VAT back to exporters. “This situation was made more difficult by the fact that usually the money used by coffee exporters in the transactions was acquired from banks as loans. It became hard to transact a business to its completion with the VAT reimbursement occurring far in the future, thereby affecting business cash flows. Through fruitful dialogue by PSF with the Tax Administrator (RRA), it was resolved that the latter will be reimbursing VAT to Coffee exporters within one month, as opposed to the previous three months period before reimbursement. Removal of VAT on Service Exports Through consultations and dialogue between PSF and the key stakeholders mainly the Tax Administrator (RRA), the decision to review the VAT law and adopt the destination principle was reached, with a need to align local principles with international VAT guidelines. According to most VAT jurisdictions around the globe; the export of a service qualifies for zero-rating—subject to satisfactory documentary evidence—when the beneficiary of the supply is a foreign customer. This was not the case for Rwanda because of the way the VAT law was stipulated, requiring that VAT be charged at the rate of 18% in respect of services provided to foreign customers if that service is provided from within Rwanda. This effectively increased the cost of Rwandan services to foreign-based clients, thereby negatively affecting the international competitiveness of Rwanda’s services sector, particularly services exports under Mode 1 (GATS). Imposing VAT on exported services under Mode 1, in Rwanda, meant a VAT reverse charge mechanism. For instance, for every US $100 paid by a Ugandan businessperson to a Rwandan business, the Ugandan Business would have to pay US $36 in VAT (US $18 Rwandan VAT +US $18 Ugandan VAT reverse charge). This resulted in foreign buyers opting to source from service providers based in other jurisdictions that don’t charge VAT on exported services under Mode 1. This therefore required PSF’s intervention to restore balance by pushing for the review of the VAT law to adopt the destination principle, thereby aligning local principles with international VAT guidelines. VAT exemption on mineral exports The second largest foreign exchange earner for Rwanda is minerals. Ordinarily, VAT payments on mineral exports are refundable. However, since all minerals traded are mostly exported, then a VAT exemption on minerals sales is applicable. VAT on mineral sales ties up a huge amount of cash given the high value of minerals. This has tended to negatively impact cash flow, jeopardizing enterprise growth, likely constraining increased production ultimately reducing mineral export volumes. It was resolved through dialogue with RRA that the VAT law will be amended to cater for the VAT exemption since it is among the leading export earners of the Rwandan economy. The exemption on mineral exports is now in the amended VAT law. For continued support to economic growth and development, Private Sector Federation will continue playing its advocacy role for the growth of business community for economic sustainability.

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[SPONSORED] Fair tax regimes; a robust pillar for economic growth and development