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Target to cut dependency on aid unlikely

Friday September 12 2014

Rwanda’s plan to cut its dependency on aid is unlikely to be realised especially during the next financial year with the Rwanda Revenue Authority falling short of its collection targets as the economy shrunk.

Throughout the last fiscal year, 2013/2014, the Rwanda Revenue Authority (RRA) has been struggling to meet its quarterly targets mainly because of the slow economic growth occasioned by declining imports and the impact of aid cut in 2012.

RRA collected $1.11 billion (Rwf769 billion) against the targeted $1.14 billion (Rwf793.2 billion). While celebrating the 13th anniversary of the taxpayer’s day in Kayonza District Eastern Province, RRA said that it expects domestic revenue for this fiscal year 2014/15, to contribute 52 per cent of the country’s budget.

The shortfall in revenue collection comes at a time when the government is looking more to domestic financing to fund 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.

RRA is blaming the economic slowdown to low revenue collections. Rwanda’s economic growth shrunk to 4.6 per cent last year — the lowest in more than five years — from 6.5 per cent a year before due to the aid cut that the country suffered in 2012.

“When economic activities are low like those experienced last year, revenue collections are also bound to suffer because we tax business activities,” said Richard Tusabe, the Commissioner-General of RRA.

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According to the government, the Cost of 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 — indicative of poor economic performance.

READ: Rwanda ranked most competitive economy in EA

Tax revenue also declined because of a decline in major imports such as vehicles and sugar. Figures show that imports registered at the borders during the first quarter of the year declined by 3.8 per cent.

Motor vehicles generate the second highest revenue among imported goods for the country after petroleum products. Importation of motor vehicles declined by 50 per cent in the first quarter compared with the same period the 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.

However, the government is optimistic that tax collections will increase and its targets will be achieved. “The level of compliance has increased and this trend will see a rise in domestic revenue,” said Claver Gatete, the minister of finance and economic planning at the Kayonza ceremony.

The total budget for the fiscal year 2014/15 is projected to be Rwf1,753 billion ($2.57 billion) representing 30.5 per cent of GDP compared with the revised budget of Rwf1, 677 billion ($2.46 billion) representing 32.8 per cent of GDP in 2013/14.

Although Rwanda has in the recent past borrowed heavily through the Eurobond and is expected to go back to the international debt market, the government maintains that it is still within its borrowing limits.

However, RRA also blames the low revenue collections to tax payers evading to pay VAT. The tax body said that currently, 5,000 businesses are paying VAT against 7,000 potential payers and it targets over 10,000 VAT payers.

In order to bring in all potential VAT payers into the tax bracket, RRA ordered businesses to use electronic billing machines.