The Rwanda Government has approved comprehensive tax reforms aimed at easing pressure on small and medium enterprises and at the same time improving compliance, in a major move that is expected to benefit citizens and boost economic growth.
According to Richard Tusabe, the Minister of State in charge of National Treasury at the Ministry of Finance and Economic Planning, the comprehensive tax reforms approved by a cabinet meeting chaired by President Paul Kagame on Thursday are in line with the Head of State’s directive earlier this year, in January, to revise taxes to ease pressure on citizens while at the same time broadening the tax base.
Senior officials on Friday explained the rationale behind the tax reforms, which are also in line with the revised Medium Term Revenue Strategy (MTRS) passed in May 2022, pointing out that the major changes will not only encourage new taxpayers but they will also ensure that individuals and small business are cushioned from being overtaxed.
According to the government, the reforms, which mainly touch on Corporate Income Tax (CIT), Value Added Tax (VAT) and Excise Duty, are expected to reduce tax rates, broaden the tax base, improve tax compliance and curb tax evasion while ensuring that tax revenues increase by 1% of GDP by FY 2025/26.
Minister Tusabe pointed out that the reforms will not only lead to economic stability and improve the socio-economic wellbeing of Rwandans but they will also go a long way in giving investors confidence.
“We want to be a country with a strong and stable economy in which citizens feel less burdened by taxes and instead focus on growing their businesses and improving their lives. We took into account the economic challenges that we have been dealing with in recent years, including crises that led to prices skyrocketing,”
“These comprehensive tax reforms, which also align with VAT exemption on basic commodities such as maize flour and rice, are all aimed at cushioning citizens from inflationary pressures and also ensure that they are not burdened by the taxes they have to pay,” Tusabe said.
“We also believe that these reforms, including reducing corporate income tax statutory rate from 30%
to 28% with an eventual target of 20% in the medium term, will improve Rwanda’s competitiveness
and position the country as a preferred African investment destination,” he added.
Rwanda has also reviewed existing taxes and fees collected by decentralized entities, especially on land, following public outcry that land taxes were prohibitive.
According to the approved tax reforms on property tax and rates on land tax, the new rate applied on land
tax has been set between Frw 0 to 80 Frw per square meter from initial Frw 0 to Frw 300 rate. A second residential house will be taxed at 0.5% of the combined market value of the house and land.
The tax rate for commercial buildings is reduced from 0.5 % to 0.3% of its market value on both buildings and land. Tax charges on commercial buildings are capped at Frw 30 billion.
The government has also revised tax on sale of immovable property, with a new levy of 2% of the property value for registered taxpayers and 2.5% on non-registered taxpayers. The first five million of the sale of every immovable property will be tax exempt.
Among other key changes, the government will exempt VAT on rice and maize flour for both domestic trade and imports in a move that is expected to improve food security and the school feeding program.
The Minister of Trade and Industry, Dr. Jean Chrysostome Ngabitsinze said that the reforms came out of consultation between different institutions to see where changes can be effected to reduce prices on basic commodities.
“In some cases, we found that there are cases where actually VAT doesn’t have to be applied, potatoes for example. There is no value addition. The Head of State and institutions came together to see what can be done to reduce the cost of living, putting into account the recent crises we have been dealing with,” Dr. Ngabitsinze said.
Similarly, the Rwandan government has reformed the excise duty to boost Rwanda’s tourism and MICE industry, by adopting changes on taxation of high-end products, especially beverages.
Under the new reforms wine will be taxed up to Frw 50,000 of value meaning that the excise duty cannot exceed Frw 35,000 per liter (70% of Frw 40,000).
It is good news for small and medium businesses following the decision by the government to revise the cost of the trading license where businesses and traders will pay a single trading license tax that combines market and public cleaning fees.
Businesses with more than one branch will pay only one license per district while some fees previously charged by decentralized entities (on documents, or services) have been scrapped.
The Commissioner General of Rwanda Revenue Authority (RRA), Pascal Bizimana Ruganintwali said that in the short term, the reforms could lead to a reduction of the taxes the revenue body collects annually but in the long run, the friendly taxes will lead to more people becoming compliant.
“Right now, the government is more concerned by the wellbeing of the people, not the amount of taxes we can collect but we believe in the long term, more people will be complying with taxation,” he said, warning people against engaging in practices such as making unrealistic VAT claims based on goods purchased earlier.
With the reforms and directives on commodity prices taking effect immediately, some members of the business community have lamented that they had already purchased stocks on existing prices and exemption of VAT on the said commodities would mean that they make losses if they sell at a lower price.
Ruganintwali encouraged traders who have such claims to file their reports with RRA and those with legitimate claims will be refunded, warning traders again defying the new set prices.
Previously, the government capped prices on cooking gas but traders were reluctant to implement the new prices which they said would plunge them into a loss. Dr. Ngabitsinze said the government will ensure that the new changes are effected for the benefit of the people and also lead to a stable revenue growth path in the medium term.