Rwanda has waived valued added tax and withholding tax for weather-based index insurance as part of efforts to make it more affordable for smallholder farmers.

The government also plans to subsidise weather-based index insurance premiums in a move to unlock lending to smallholder farmers.

According to experts, this waiver will help Rwanda boost food production, tame inflation and reduce the ballooning import bill, which has put pressure on the country’s foreign reserves.

While the budget for the National Agriculture Insurance Scheme and the rebate rate that the government plans to fund have not been made public, Rwanda Today has learnt that the scheme will start in the 2017/18 fiscal year.

“We are in the budgeting process. So the budget for the scheme is yet to be determined,” said Geraldine Mukeshimana, the Minister for Agriculture and Animal Resources, adding that, “We are going to do more with the subsidies plan that will be rolled out in the next financial year.”

The Natural Resources Policy Network and the private sector have been putting pressure on the government to waive the 15 per cent reinsurance tax — a withholding tax reinsuring companies domiciled outside the country have been paying.

The revenue authority has also stopped collecting 18 per cent VAT on weather-based index insurance.

In its May 2016 Policy Brief Taxation for Weather Based Index Insurance in Kenya, Malawi, Rwanda, Tanzania, Uganda and Zambia, the Agriculture and Natural Resources Policy Network — a global watch dog promoting effective food, agriculture and natural resources policies —recommended subsidies to promote weather-based index insurance.

The policy brief urges governments to consider a lower tax rate as a percentage of the total premium, tax-waivers or temporary tax relief in the early years of weather Based Index Insurance products for smallholder farmers.

“This has the potential to lead to more affordable products for the benefit of smallholder farmers. Simultaneously, policy-holder compensation funds can safeguard farmers and encourage market competition, which may lead to better product innovation and product improvement,” the brief says.

“A lower tax regime also has the potential of attracting more insurers and reinsurers to offer these products, which can lead to greater competition and so further reduce the premiums,” the experts note.

Agriculture insurance clients in Kenya, Uganda, Tanzania where the tax bodies do not collect VAT and withholding tax on weather-based index insurance programmes, are paying slightly lower premiums that average five per cent annually.

In Rwanda, the average rate of premiums paid annually is estimated at almost seven per cent, making it too expensive for smallholder farmers to insure their crops and animals.

Robinah Batamuliza, the head of agriculture insurance at UAP Insurance Rwanda said while there is growing appetite for agriculture insurance in the country, high premium rates are locking out many potential clients.

UAP agriculture underwriting capital since 2015 has averaged Rwf50 million ($61,000) annually.

Kenya’s Agriculture and Climate Risk Enterprise Ltd (Acre) is another player in the market but the company is an agent for Soras, a local insurance company.

“The insurance agency licence that we have restricts us to only work for Soras but we are in the process of getting a new insurance brokerage firm licence, which will allow us work with more insurance companies,” said Thomas Bazarusanga the country manager of Acre Rwanda.