The government of Rwanda has said that it targets to increase its tax to gross domestic product (GDP)ratio from the current 14.6 per cent to 19 per cent by 2029, as the country seeks to accelerate socio-economic development.

This was revealed by the Minister of Finance and Economic Planning, Yusuf Murangwa, as the government announced new tax reforms that were approved by the cabinet on Monday, February 10.

Rwanda’s tax-to-GDP ratio – a key indicator of a country’s tax revenue relative to its economic size – currently stands at 14.6 per cent, falling short of the global benchmark of 16 per cent.

ALSO READ: What you need to know about Rwanda’s new tax reforms

To realise its ambitious transformation agenda under the second National Strategy for Transformation (NST2), Murangwa observed that there is a need to expand the country’s tax base to finance development activities.

According to the Rwanda Revenue Authority (RRA), the government collected Rwf2,619 billion in tax revenue during the fiscal year 2023/2024.

Projections from the Ministry of Finance indicate that total tax revenue for the national treasury is expected to exceed Rwf2,970 billion in the 2024/2025 fiscal year.

Murangwa stated that lower middle-income countries should maintain a tax-to-GDP ratio of at least 19per cent, while upper middle-income countries should target 23 per cent, and high-income countries should reach at least 38 per cent.

"In the short term, by the end of NST2, we aim to reach at least 18% or 19%, with further increases in the following years,” he said. "To achieve upper-middle-income status by 2035, Rwanda will need a tax-to-GDP ratio of around 23%.”

By 2050, as a high-income country under Vision 2050, this ratio should reach approximately 38 per cent, the finance minister noted.

ALSO READ: Rwanda reintroduces VAT on hybrid vehicles to spur e-mobility

New tax reforms

The government has introduced a series of tax reforms designed to support the implementation of the country&039;s five-year development programme, NST2.

The new reforms include increase of taxes on select products and services such as cigarettes and alcoholic drinks, introduction of new taxes such as digital services tax, as well as reinstatement of value added tax (VAT) on ICT equipment, phones, and cars.

For instance, hybrid vehicles will be subject to an 18 per cent VAT rate – starting from 2025/2026 – ending the exemption that had been in place since 2021.

Murangwa emphasised that increased tax revenue, when effectively allocated to infrastructure, education, healthcare, and other essential services, leads to improved economic growth and overall welfare.

"The goal is to facilitate the country’s transition from one stage of development to the next,” he said.

ALSO READ: Rwanda introduces ‘tourism levy’ to boost investments

The reforms will be implemented in phases. Some will take effect immediately upon publication in the official gazette, while others will be introduced progressively—beginning in the 2025/2026 fiscal year and continuing through 2026/2027, 2027/2028, and up to the conclusion of NST2 in 2028/2029.

"We are proceeding cautiously to ensure we do not place an undue financial burden on taxpayers,” he said, citing modest increases such as the excise duty on airtime.

He explained that the current 10 per cent excise duty on airtime will be gradually adjusted, rising to 12 per cent in the first year (2024/2025) and reaching 15 per cent by the third year (2027/2028).

If telecom companies do not absorb the additional cost, he noted, the price of airtime could increase from Rwf40 per minute to between Rwf40.8 and Rwf42 in the third year.

"That is an impact, but we believe it is reasonable – it remains lower than the rate of inflation," he added.

ALSO READ: Rwanda to increase taxes on beers, tobacco

Stephen Ruzibiza, the chief executive of Private Sector Federation (PSF), noted that the phased implementation of new tax measures will ease the transition for businesses, particularly regarding the acquisition of essential machinery for factories.

Additionally, he pointed out that the tax reforms broaden the tax base by including more products, which helps distribute the tax burden more evenly and prevents over-reliance on existing taxpayers.