The 2014/15 fiscal year is likely to see a rise in the prices of goods and services, leading to reduced consumption and hurting the profitability of nascent manufacturing sector.
The worry comes at the back of the recent expiry of the five-year tax duty remission scheme on raw materials and industrial inputs.
The raw materials and inputs imported from outside the bloc attract duty of upto 100 per cent.
Rwanda manufactures are disadvantaged partly because of the distance from the sea — which increases transport costs, high energy tariffs and uncompetitive human resources.
Rwanda Manufacturers Association chairman Robert Bayigamba sounded unaware of the decision by the Rwanda Revenue Authority.
“I am not aware of the reinstating of the tax. But definitely the prices of goods manufactured in Rwanda will have to increase,” said Bayigamba, explaining that the country is already choking with high production costs, which make some goods and services in expensive.
Analysts warn that though the taxman expects to collect more, this will result in VAT losses as consumption shrinks with high prices. If this is not checked in time, other taxes like pay as you earn and profit tax could also be negatively affected.
The expiry of the duty remission scheme paves way for RRA to start the full implementation of East African Community Common External Tariff on goods imported from outside the region, said Richard Tusabe, RRA Commissioner General.
Tusabe said the full implementation of CET on goods imported outside EAC partner states under the duty remission scheme is in line with the protocol on the establishment of the Common Market, EAC Customs Management Act and regulation on duty remission.
“Rwanda and Burundi joined the community in 2009. We are compelled to use the Common External Tariff like other partner states,” said Mr Tusabe.
Rwanda was granted permission to apply the duty remission scheme to catch up with other member countries but some of the companies have not built the capacity, five years later. But Rwanda has remained a net importer of some of the goods these factories that have enjoyed tax waivers produce.
The National Bank of Rwanda Monetary Policy and Financial Stability Statement show 18 per cent growth in export value in 2013 while import sector slightly improved by 2.2 per cent.
“The EAC Customs Law requires that if you import at zero per cent and yet you are required to pay 10 per cent for the imported raw materials from outside the region, the final product will be taxed as if it has come from outside of the region,” Mr Tusabe explained.
“As a tax authority we are ready to start collecting the CET by April 1 but the manufacturers asked for an extension to align with the fiscal year which starts July 1,” said Mr Tusabe.