The government’s expenditure for the next financial year could suffer a setback after the Rwanda Revenue Authority (RRA) failed to meet its revenue targets for the second time in a row.

RRA is struggling to meet its quarterly targets mainly because of slow economic growth occasioned by declining imports and the impact of aid cut in 2012.

The taxman missed the target by Rwf27 billion for the first nine months of the current fiscal year.

The shortfall in revenue collection comes at a time the government is shifting its attention to domestic financing of its budget. The government plans to reduce donor budget support from the current 40 per cent to 38 per cent in the next financial year.

Meet targets

“We still have one more quarter left where we might meet our targets and until then, we can’t conclude that the economy will suffer,” said Drocella Mukashyaka, Deputy Commissioner for Taxpayer Services.

Ms Mukashyaka, however, contend that if the initial revenue collection is not met, the government’s spending could be affected next year.

RRA’s initial target was to raise Rwf783 billion this fiscal year but it has only collected Rwf555 billion.

According to the government, the Cost Insurance and Freight (CIF) value of all goods imported during the period reduced by 12.9 per cent compared with the previous fiscal year’s growth of 17.8 per cent.

The taxman in the first quarter suffered mainly because of a decline in major imports such as vehicles and sugar, which account for more revenue.

READ: Tax target is missed as Rwanda economy slows

Figures show that imports registered at the borders during the first quarter of the year declined by 3.8 per cent.

Motor vehicles are the second highest among imported goods in revenue generation for the country after petroleum products.

Importation of motor vehicles declined by 50 per cent in the first quarter compared with the same period previous year.

In the first quarter of 2012, Rwanda imported more than 2,400 vehicles while last year car imports declined to 1,400. A reduction in vehicle importation affected the trading of spare parts and fuel consumption, whose imports also lead to revenue generation.

In financial year 2014/15, total tax revenue collection has been projected at Rwf906.8 billion compared with Rwf782.5 billion of 2013/2014.

The expected recovery of the economy as well as implementation of ongoing and new reforms could allow taxman to meet the target.

In the area of direct taxes, an increase from Rwf326.1 billion in 2013/14 to Rwf379.2 billion is projected.

However, taxes on goods and services are rising from Rwf397.7 billion in 2013/14 to Rwf461.5 billion, showing an increase of Rwf63.8 billion.

The estimated revenue from international trade is Rwf66.1 billion compared with Rwf58.7 billion in 2013/14 financial year.

The modest increase is attributed to the ongoing shift in the direction of trade with more imports, especially consumer goods, coming from the East African Community member countries.

Experts however, have challenged the government to look for other sources of revenue outside the ordinary tax collections to plug the deficit.

READ: Cost of trade to rise in new tax reforms ahead of budget

“Imports have reduced because consumers’ purchasing power is down and this is affecting revenue collections from VAT and international trade,” said Angello Musinguzi, a tax manager at KPMG Rwanda.

Recently, Finance Minister John Rwangobwa said tax reforms will will be made later this month after the government finalises assessing the findings of the tax reviews studies.

Economists and business executives say scrapping tax exemptions — informed by concerns the country was forgoing more revenues than any other country in the region in order to woo investors — would test Rwanda’s standing as East Africa’s most attractive foreign investment destination.