RRA calls for VAT slash on foreign trucks

Though VAT is Rwanda’s top tax revenue earner, according to RRA it has reported a shortfall of Rwf1.6 billion for the first quarter of this year Rwanda Revenue Authority (RRA) has asked government to impose a zero-rated tax regime on Value Added Tax (VAT) reverse charge, on foreign trucks. This was in order to harmonize the rate with other East African Community (EAC) countries. The request also follows a series of complaints from Rwandan importers who say that the 18 percent charge imposed on foreign trucks that deliver cargo in Rwanda is too high. Other EAC countries like Kenya, Tanzania and Uganda don’t charge this tax. The current taxation law stipulates that anyone using a foreign service when there are local businesses that could provide the same should pay a VAT tax. Importers say that the charge is painful and it is one of the bottlenecks of doing business in the country. Currently the law does not even make provisions about what happens when such a service is unavailable when needed. “We were in agreement that it is one of the barriers of doing business. We have made proposals to government in order to have it zero-rated,” said Mary Baine, RRA’s Commissioner General. She however said that changing the tax regime on VAT reverse charge does not mean that these trucks will not be taxed. “They will be taxed but at a zero rate,” She emphasised. Experts say that the significance of this is that businesses may claim back their input tax (the VAT which they have paid to their suppliers). VAT is Rwanda’s top tax revenue earner. Having the VAT reverse charge on foreign trucks zero-rated would mean more squeeze on the fiscal budget which is also bound to lose Rwf12.4 billion as government implements the Customs Union in July 2009. Already, RRA has reported a shortfall of Rwf1.6 billion on its VAT collections target in the first quarter of this year. It collected Rwf8.6 billion against the targeted Rwf10.2 billion, which represent a deficit of 15.6 percent. The body is targeting Rwf176 billion of total tax revenue in the first six months of 2009. The zero-rated regime will however possibly relieve traders who say that transport alone contributes 40 percent of the total import costs into the country. Local traders also say that when they add VAT on cost insurance and freight (CIF) value for imported goods and VAT reverse charge, they pay 36 percent VAT on transportation and insurance. RRA has also identified and drafted amendments to the Rwandan laws that are expected to be affected by entry into the customs union. The laws to be amended include Income Tax Law, Consumption Tax Law and Law on Sugar Surcharge Ends

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RRA calls for VAT slash on foreign trucks