The Governor of the National Bank of Rwanda (BNR), John Rwangombwa, has said that the newly introduced taxes are expected to have little impact on overall consumer prices.

The new tax reforms approved on February 10, aim to increase the country’s tax to gross domestic product (GDP) ratio from the current 14.6 per cent to 19 per cent by 2029.

The reforms include a 15 per cent excise duty on imported cosmetic and beauty products (with exemptions for critical pharmaceutical beauty products), increased vehicle registration fees (including electric vehicles), and a shift in the fuel levy from a fixed fee to 15 per cent of cost-insurance freight.

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Value-added tax (VAT) will be reintroduced on mobile phones and select information and communication technology (ICT) equipment that were previously exempt.

The tax on gross gambling revenue will rise significantly, from 13 per cent to 40 per cent, with a corresponding hike in withholding tax of 10 per cent on winnings.

The new tax reforms have sparked mixed reactions, with some expressing concerns about their potential impact on purchasing power. Many worry that, despite high inflation in 2022 and 2023, their stagnant salaries leave them struggling to absorb additional tax burdens.

While inflation has since stabilized, some argue that the reforms could further strain workers already facing reduced take-home pay due to recent increases in pension contributions.

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"There is no new tax among the recently introduced that is likely to have a negative impact on consumer prices on the market that would increase inflation beyond the central bank target band of 2-8 per cent,” the governor told a press briefing on Thursday during the presentation of the outcomes of the quarterly Monetary Policy Committee (MPC).

Rwangombwa reassured the public that the government thoroughly evaluated each tax measure before implementing the new reforms, emphasizing that their impact on inflation would be minimal.

"There might be slight effects on certain commodities, but when looking at the overall picture, the impact on the consumer basket won’t be significant enough to warrant a shift in our monetary policy,” he stated.

In case of unforeseen impact of a given tax, especially that related to oil products that fluctuate depending on the global market, Rwangombwa said the government would intervene with incentives.

The central bank projects inflation to remain within the target range, averaging 6.5 per cent in 2025 and 4.1 per cent in 2026, with a lookout on potential risks including geopolitical tensions and adverse weather conditions.

Experts argue that the new tax policy reforms will affect different taxpayers in different ways, depending on their income, consumption, and production patterns. However, some taxpayers may benefit from the reforms, while others may face a higher tax burden.

The tax 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.

Impact of U.S aid freeze

Rwangombwa said that the United States decision by the administration of President Donald Trump to cut funding to key programmes in developing countries is currently not seen to have a monetary impact on Rwanda’s economy.

"The quick analysis we did in this MPC round, there is no impact on monetary policy side, their (USAID) programme in Rwanda was mainly in health, finance is also doing analysis to see what that means on the fiscal side. The impact might not be that big,” he noted.

Global economic metrics indicate 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.

Rwanda’s finance ministry intends to reach at least 18 percent of tax-to-GDP ratio by the end of NST2 and further increase in the following years to 23 percent to achieve upper-middle-income status by 2035.

ALSO READ: Central bank Governor Rwangombwa confident in strong economic outlook

Economic growth to exceed projections

Rwanda’s economy grew by an average of 9.2 per cent over the first three quarters of 2024, with the first two quarters performing at 9.7 per cent and 9.8 per cent, respectively, before moderating to 8.1 per cent in the third quarter.

Rwangombwa noted that preliminary data show that Rwanda’s economy grew beyond the previous projections of 8.3 per cent.

"We expect this growth momentum to continue, and it is highly likely that the original 2024 projection of 8.3 per cent will be surpassed,” he said.