Rwanda approves draft law on new tax for financing AU

Tuesday February 14 2017

 

By EDMUND KAGIRE

Rwanda has introduced a new law enabling the levying of a tax on imported goods, with proceeds going to the financing of the African Union.

A Cabinet meeting chaired by President Paul Kagame passed the draft law to establish the 0.2 per cent tax on imported goods.

At the 27th African Union Summit held in Kigali in July 2016, African governments unanimously adopted a formula known as the Kigali Declaration proposed by a review team led by the former African Development Bank president Dr Donald Kaberuka, that would see AU member states finance the continental body.

“We had given ourselves a period of one year for all countries to implement the decision. Member states are currently working on implementing the Kigali Resolution but the pace is not the same,” Rwandan Minister of Finance and Economic Planning Claver Gatete said.

The levy, if passed by parliament, will be charged from July this year. Mr Gatete added that Kenya, Chad, Ethiopia and the Congo Republic were at various stages of coming up with a law to implement the Kigali Declaration.

It is estimated that if all AU members execute the plan, $1.2 billion will be raised annually. That would make the AU, which has an annual budget of $782 million, self-sustaining and end dependence on donors.

At least 74 per cent of the AU’s funding comes from donors who will this year provide $576 million compared with $205 million from member states.

Implementation of the financing mechanism was supposed to begin immediately with member states putting in place national legislation.

However, when AU leaders convened in Addis Ababa last month, there were concerns that some member countries were dragging their feet on coming up with domestic legislation and figuring out how it will be effected.

The AU funding mechanism was spearheaded by President Kagame, who led a team of experts to come up with reforms of the African Union Commission and the AU in general, key among them the urgent need for member states to finance activities of the AU and end dependence on foreign aid.

Explaining how the law will work, Mr Gatete said that Rwanda was among at least five countries that have moved forward on implementing the Kigali Declaration.

“We have made some good progress on the initial work of opening an account and putting in place the necessary mechanisms and laws that will give us a go ahead on this. The draft law will be sent to parliament immediately for us to have the right legal instruments to raise this money,” Mr Gatete said.

He also said that Rwanda will be among the first countries to put in place domestic instruments to raise funds for the AU. The money will be channelled through an account in the National Bank of Rwanda before it is remitted to the AU.

Goods originating from East African Community countries with a certificate of origin, as well as tax-exempt goods including industrial equipment, agricultural inputs and others already exempted by the EAC member states will not be taxed.

Rwanda’s imports are higher that its exports. In the first half of 2016, formal imports recorded an increase of 3.3 per cent in value, amounting to $1,171.25 million from $1,134.10 million, after a decrease of 5.1 per cent in the same period of 2015, while it decreased by 5.1 per cent in volume, according to the Central bank figures.

Much needed reforms

Experts say that if member states show commitment, a big chunk, if not the entire budget of the continental body can be raised from member states. The AU has in recent years been ridiculed by African citizens for depending on aid while member states default on membership fees.

“On average, 67 per cent of the assessed contribution is collected annually from member states. About 30 member states default either partially or completely annually, creating a significant funding gap between planned budget and actual funding, which hinders effective delivery of the African Union’s agenda,” says an AU report.

Ahead of the January summit, the incumbent AUC Commissioner for Economic Affairs Anthony Mothae Maruping expressed concern that countries are already showing signs of slowing down on their commitments as their bureaucracies delays processes of putting in place domestic legislation to implement the decision.