A new proposal submitted by the Rwanda Revenue Authority (RRA) could, among others, see a decrease on land taxes (immovable properties), as well as the current rates of the corporate income tax lowered, The New Times has learned.
Under the proposal, RRA said, the government would maintain former land taxes of up to Rwf80, from the current Rwf300 per square meter (that were set under the property tax law enacted in 2018).
The public has in the recent past decried high taxes, a concern President Paul Kagame reiterated on Monday while presiding over the election of the new Senate President, François-Xavier Kalinda.
During the ceremony, hosted at the parliamentary buildings in Kimihurura, Kagame tasked the entities responsible for taxation policy and legislation to consider all possible ways that can address the vice, effective immediately.
In an exclusive interview with The New Times, Roy Valence Gasangwa, Director for Research, Policy Analysis and Statistics Unit at RRA argued that one of the ways the issue could be addressed is to maintain the previous land taxes, a move that could lessen the tax burden for the majority of Rwandans.
"Implementing the new land tax has failed, putting into consideration the current turbulent economic situation. We proposed to maintain the former land taxes and ignore the current charges because they have failed," he said.
Land taxes remain a substantial issue in revenue collection, and according to Gasangwa, it affects the majority of the taxpayers.
Lowering corporate income tax
And with a tax base of approximately 300,000 registered taxpayers, of which only 50,000 - or almost 17 per cent pay taxes, he said there is also a need to innovatively devise ways of expanding the tax base.
Despite a 15.8 per cent tax to GDP ratio, Gasangwa says that central taxes can roughly fund 50 percent of the national budget, down from 56 percent, two years ago.
"So we are looking at different aspects including introducing a minimum tax in order to lower the income tax to maybe 20 percent."
"With this proposal, we see the tax bracket expanding, and also lessening the burden."
Corporate Income tax is currently levied at 30 percent in Rwanda, charges that are relatively similar to the region.
This is a tax imposed on the profit of a taxpayer other than an individual, meaning entities such as companies and organizations established to realize profits.
On the VAT front, Rwanda charges 18 per cent rate, with the threshold for this tax set at an annual business turnover of Rwf20 million.
In the East African Community (EAC) region, only Kenya imposes a lower VAT rate of 16 per cent, while other countries of the bloc charge, namely Burundi, Tanzania and Uganda, charge the same as Rwanda.
Gasangwa shared similar sentiments with MP Théogène Munyangeyo, Chairperson of the Committee on Economy and Trade, who pointed out that high taxes are one of the factors blamed for tax evasion as they overwhelm those supposed to pay them.
For instance, he said, the tax on residential buildings increased to 1 per cent of their market value per year, according to the property tax law. Such a rate implies that this particular tax rose by 10 times from the previous thousandth (1/1000).
"The hike in taxes leads some parents to concealing the possession of residential houses by registering them to the names of their children, which contributes to tax evasion as they try to escape the excessive tax obligation," he said.
"If we make taxation reforms, we will collect more taxes, get many taxpayers at ease, and there will be reinvestments," he said.
A tax expert's take
For Paul Frobisher Mugambwa, Head of Tax and Fiscal Policy at PwC Rwanda, tax rates are "probably high" looking at the size of our economy.
And looking at the tax system structure, more people are taking on the tax burden, he added.
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"There is a need for an efficient way of designing the tax policy at the same time maximizing tax collections."
According to Mugambwa, it has previously proven to be difficult to expand the local tax base, at a time when major sectors are not tasked.
"There are implications when a sector like this one is not taxed. Secondly, there is the shadow economy where the revenue body does not reach."
This means that you will need to digitize the process, and that is where Rwanda is doing very well and actually leading, he asserted.
"Tax to GDP ratio currently stands at 15.8 percent compared to major economies like Nigeria with 6 percent. Meaning automating the process has really played a huge part in collecting the revenues in an effective way."
"This makes it simple and less costly. Because it is true that there is a compliance burden, but once the process is automated, and the taxpayers are motivated, this will increase your tax bracket and thus give you the potential to reduce the rates," Mugambwa added.
