A new code to make Rwanda the destination of choice for capital flows in the region has passed through the lower house of Parliament and now awaits a decision from the upper chamber to become law.

The code will introduce new fiscal incentives for investors.  

“The strategy is to get investors to put their money in the country. As a result they will contribute in many other ways to the economy,” said Francis Gatare, the CEO of Rwanda Development Board (RDB).

The incentives include duty free importation of machinery and raw materials, and a 15 per cent duty on intermediate goods and 25 per cent on finished products.

The incentives will bring Rwanda closer to the EAC common external tariffs.

The code provides tax exemptions on industrial spare parts, and a 100 per cent write-off on research and development costs. Investors are also allowed duty free importation of one vehicle, which can be depreciated over two and a half years.

The code also halves the corporate income tax from 30 per cent to 15 per cent for energy companies producing up to 25 MW of power. In the other EAC countries, corporate tax is 30 per cent.

Investors in ICT and companies that export more than 50 per cent of their total production will enjoy reduced corporate tax as well as unhindered repatriation of capital and profits.

The investment code has received mixed reactions. Rwanda Revenue Authority Commissioner General Richard Tusabe said he had reservations about the tax waiver on capital gains. He said the tax should have been reduced from the present 30 per cent to 15 per cent, as it is in Uganda.

“A zero per cent waiver is giving away too much. If you are selling your ownership in a company and you are not taxed at all, it doesn’t add up; it’s the gain that is taxed, not profit. Why should the government walk away empty handed?” he asked.

Last month, Kenya started charging a capital gains tax of five per cent.  

READ: KRA wants anti-capital gains tax case dismissed

Mr Gatare defended the decision as well as a seven-year tax holiday on profit, saying many companies had found a way around the tax by declaring losses.

“This is intended to make Rwanda more competitive. We have provided incentives, which will make it a lot more efficient, cost effective and more profitable to do business in Rwanda,” he said.