The proposed tax policy reforms could generate about Rwf300 billion by the fifth year of implementation – 2028/2029 – to support finance Rwanda’s economic development targets, according to Godfrey Kabera, the Minister of State for National Treasury at the Ministry of Finance and Economic Planning.

He provided the update on Tuesday, March 25, during a session in which members of the Chamber of Parliament’s Committee on State Budget and Patrimony was scrutinising some bills related to the tax reforms.

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The tax policy reforms are intended to strengthen financing for the second phase of the National Strategy for Transformation (NST2) – a five-year development programme running until 2028/2029.

The tax policy reforms are also aimed at enabling the country to grow the economy and transform livelihoods of all citizens, according to the Ministry of Finance and Economic Planning.

The bills that were tabled before parliament include a draft law establishing the excise duty, a bill amending the law of 2022 establishing taxes on income, and a bill amending the law of 2023 establishing value-added tax (VAT).

Kabera said that the proposed changes to excise duty could enable the government to collect about Rwf30 billion for the first year, adding that this is projected to gradually increase.

"All the taxes as a package will amount to about Rwf300 billion by the last year [fifth one], as additional revenue to our annual collection,” he said, adding that this will help us to raise the tax to gross domestic product (GDP) ratio by about 1 per cent every year.

The government targets to increase its tax to GDP ratio from the current 14.6 per cent to 19 per cent by 2029 as it seeks to accelerate socio-economic development, according to the Ministry of Finance.

This is the minimum rate required for the country to reach a lower middle-income status.

Tax to GDP ratio is a gauge of a nation's tax revenue relative to the size of its economy as measured by GDP. It indicates a country’s capacity to generate tax revenues with respect to the size of its economy.

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Rationale behind new reforms

The Minister told lawmakers that factors that are considered in reviewing the taxation policy include discouraging consumption of some products such as beer or alcohol, benchmarking against other countries’ tax rates for given products and services, and ensuring that the tax will not be a burden for taxpayers.

MP Odette Uwamariya, the Chairperson of the Committee on State Budget and Patrimony, observedthat there was an increasing trend in alcoholic beverage consumption.

"Instead of drinking less [alcohol], people are drinking more,” she asserted, pointing to the need for tax rates that can discourage the consumption of harmful products in line with saving lives.

She also indicated that there is a need to ensure that Rwandans find solutions within themselves to fund their country’s development agenda.

"The NST2 and targets under it should be achieved through everyone’s contribution,” she said, pointing to the importance of taxes in the country’s development.

The proposed tax changes whose bills were tabled before Parliament for consideration include a 15 per cent excise duty on cosmetic and beauty products. However, the finance ministry specified that, in consultation with the Ministry of Health, critical pharmaceutical beauty products will be exempted from such a tax.

Beer excise duty is expected to go up by 5 percentage points – from 60 per cent to 65 per cent of factory price.

The proposed changes also include VAT on mobile telephones which the government seeks to reintroduce. Mobile telephones had been exempted from paying VAT since 2010.

Similarly, the new reforms include a reintroduction of VAT on ICT equipment, which was exempted in 2012 to promote the adoption of ICT.

Still, VAT, and a withholding tax of 5 per cent, are projected to be reintroduced for all hybrid vehicles in what the government says is part of a move to promote green transportation through exempting pure electric cars.

Another proposed major projected change is the increase in the tax on gross gambling revenue (GGR) from 13 per cent to 40 per cent and a withholding tax on winnings from 15 per cent to 25 per cent.

This is intended to encourage responsible gambling, according to the government.

A new tourism levy of 3 per cent of the cost of rooms is expected to be collected on accommodation, which according to the government, is meant to support investments in the tourism and hospitality sector.