Firms may soon have to pay a corporate income tax (CIT) of 28 per cent instead of the current 30 per cent. Through a new law, the government is taking steps to reduce this tax, which is charged on their yearly profits, by two percentage points. The development under the law amending the current one establishing taxes on income, which was enacted on October 20, 2022, would reduce the tax burden on all taxpayers, expand the tax base, encourage reinvestment, and boost the tax collection in the country, according to the Ministry of Finance and Economic Planning (MINECOFIN). The new law was passed by the Lower Chamber of Parliament on July 20, and is awaiting promulgation in the official gazette, prior to coming into force. ALSO READ: What are the new tax reforms approved by cabinet? The Chairperson of the Parliamentary Standing Committee on National Budget and Patrimony, MP Omar Munyaneza, said the two percentage points reduction in the current CIT rate will result in a reduction of Rwf20 billion in taxes that Rwanda will collect in the current fiscal year 2023/2024, underscoring how even a small cut in such taxes leads to a significant amount if the country’s economy is considered as a whole. While explaining the relevance of the law to legislators on June 9, the Minister of State in Charge of the National Treasury at MINECOFIN, Richard Tusabe, said Rwanda is committed to a fundamental tax overhaul through a comprehensive tax reform strategy. Globally, Tusabe said, Rwanda is known as a country that has made significant strides in recent years in terms of economic growth and macroeconomic stability. He pointed out that one area where further improvements are urgently needed is the current corporate income tax rate of 30 per cent, which was introduced in 2005. Since then, he said, there have been tremendous improvements in the economic environment which necessitate revision, taking into account that Rwanda’s statutory corporate income tax rate is relatively high compared to many other African countries, which could make it less attractive to foreign investors. Furthermore, he indicated, it has been noted that the statutory CIT rate (at 30 per cent) is high relative to the global average (excluding Africa) of 21.83 per cent, thereby resulting in a higher deadweight loss – an economic (efficiency) loss that can be caused by damaging effects of a tax on supply and demand. ALSO READ: Cut taxes for all, instead of incentives for some – MP Munyangeyo MP Theogene Munyangeyo, the Chairperson of the Parliamentary Committee on Economy and Trade, said the reduction in CIT stimulates investment. He expressed that reducing income tax by two percentage points is a step forward, but suggested that more reforms should be made to bring it down further. Giving some context, he said that Singapore – an Asian country – was able to be a top petroleum products exporter despite the country lacking related natural resources, thanks to low tax as it cut CIT from 30 per cent to 17 per cent. Also, he said Mauritius – an African country – was able to attract more investors by reducing CIT from 30 per cent to 15 per cent. “When this (CIT) reduces, it increases investment,” he said, adding that it helps the government to cut incentives it gives to large investors as it enables a level playing field for all investors – small and big alike. For him, if Rwanda could cut corporate income tax from 30 per cent to 15 per cent, as is the case with Mauritius, it could help companies to reinvestment part of their profits into their businesses for expansion and encourage employment of citizens. ALSO READ: Govt mulls changes to land, corporate tax rates Meanwhile, Munyaneza said the Cabinet indicated that the CIT rate will progressively decrease – to 20 per cent in the medium term – as the country looks for other sources of revenue to fund its development initiatives, especially because “this will help us to encourage taxpayers to have tax compliance, hence expanding the tax base.”
