A look at new tax incentives to boost revenue collections

The government projects to spend an estimated Rwf4.6 trillion in the fiscal year 2022/2023, with expenditures expected to rise by Rwf217.8 billion. The government mobilises funds through different means including taxes, loans and grants. Another revenue stream is from non-tax collections such as visa charges, traffic fines and licenses. For this fiscal year, it opted to make some tax policy changes expected to boost revenue collections and support businesses. Incentives to some strategic sectors are expected to promote made in Rwanda products and to boost the economy. Here, Doing Business looks at some of the tax incentives to be implemented under the EAC Customs Act. Products or equipment will attract import duty as follows: rice will pay an import duty rate of 45 per cent ($345 per metric tonnes) instead of 75 per cent or $345/MT; sugar will pay import duty rate of 25 per cent instead of 100 per cent or $460/MT. Oil and soap will now pay 25 per cent instead of 35 per cent; second hand clothes will pay $2.5 per kilo instead of 35 per cent while second hand shoes will pay $5 per kilo instead of $0.4 per kilo or 35 per cent. However, in a move to protect local producers, some products will pay an increased import duty rate of 35 per cent up from 25 per cent. These include natural honey; doors, windows and their frames; steel tubes, wheelbarrows; and handbags with an outer surface of sheeting of plastics or of textile material. Goods imported for use by the Armed Forces Shop (AFOS) will pay zero per cent instead of 25 per cent. Duty rate for road tractors for semi-trailers was reduced to zero per cent instead of 10 per cent. Motor vehicles for transport of goods with gross weight exceeding five tonnes but not exceeding 20 tonnes will pay an import duty rate of 10 per cent instead of 25 per cent. Those with a gross weight exceeding 20 tonnes will be exempted from tax whereas buses for transportation of more than 25 persons will pay a duty rate of 10 per cent, instead of 25 per cent. Buses transporting 50 persons and above will pay a duty rate of zero per cent instead of 25 per cent. To further increase the stock of luxury cars needed to host high level events in line with MICE (Meetings, Incentives, Conferences and Exhibition), the government exempted tax on cars with the CIF (price paid at port of importation) value of more than $60,000 while those below will be rated at 25 per cent and all relevant taxes. In 2021, the government introduced the Manufacture and Build to Recover Program (MBRP) to help the economy recover from the effects of Covid-19. Under this program, construction materials are exempted from import tax and Value Added Tax. However, capital machinery and raw materials used in manufacturing of textile garments and footwear will pay import duty of zero per cent instead of 10 per cent or 25 per cent. Telecommunication equipment from within EAC are also exempted from paying import tax. On the other hand, devices used for electronic transactions such as smart cards, point of sale, cash registers and cashless machines will pay import duty of zero per cent. With the new tax reforms under the EAC Customs Act, importers of products such as construction materials, furniture, wine, beauty and makeup products from countries outside the community are set to pay more taxes as per the latest EAC directive. EAC Ministers in charge of trade and finance, on May 5, adopted 35 per cent as the fourth band of the region’s Common External Tariff (CET). Tariff lines in the fourth band include dairy and meat products, cereals, cotton and textiles, iron and steel, edible oils, beverages and spirits, furniture, leather products, fresh-cut flowers, fruits and nuts, sugar and confectionery, coffee, tea and spices, textiles and garmets, head gears, ceramic products and paints. Implementation of the reviewed EAC CET commenced on July 1.

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A look at new tax incentives to boost revenue collections