MP Theogene Munyangeyo has proposed that Rwanda should make reforms in lowering major tax rates for all concerned entities, instead of giving tax breaks to some investors, arguing that the latter has not been adequately productive.
Munyangeyo, who is the Chairperson of the Parliamentary Standing Committee on Economy and Trade, revealed the proposal while speaking to The New Times on what should be done to ease the tax burden for taxpayers, at the same time helping the country to mobilise the needed public resources, and boost investments.
He said that tax cuts should be mainly made to the Corporate Income Tax (CIT), and Value Added Tax (VAT), which are among the major sources of revenue for Rwanda’s budget.
Data from the Rwanda Revenue Authority (RRA) indicates that VAT and CIT account for about 50 per cent of tax revenues collected in the country.
According to the World Bank, collecting taxes and fees is a fundamental way for countries to generate public revenues that make it possible to finance investments in human capital, infrastructure, and the provision of services for citizens and businesses.
Rwanda levies a corporate income tax rate of 30 per cent on the profit made by entities such as companies and profit-oriented organisations.
As things stand now, large investors enjoy tax incentives that small and medium businesses do not.
For instance, the law of 2021 on investment promotion and facilitation provides that a registered financier who invests at least $50 million and contributes at least 30 per cent of this amount in form of equity in the specified sectors, is granted a maximum of a seven-year corporate income tax holiday.
Those sectors include energy projects producing at least 25 MW, manufacturing; tourism; health; information and communication technology (ICT) with an investment involving manufacturing, assembly, and service, and export-related investment projects.
For Munyangeyo, it is better to revise tax rates so that they can help the country attract investors, rather than granting incentives to some, which might in some cases be abused and kill competition.
"At the end of the day, when the investors have gotten the incentives, you find that (sometimes) they sell the companies to others, who will also need the same incentives as new investors,” he said, adding that they might even reinvest in a disguised form to get similar advantages.
He suggested that corporate income tax should not be flat for all businesses or investors, but rather be based on categories, with the small ones being charged lower rates than the large ones, something that should be determined by a study.
"If we set rates that are between those of Mauritius and Singapore (two countries whose taxes are relatively low and have a highly conducive business environment), we can attract investors with the same obligations, instead of continuing to give incentives and tax holidays to some,” he said.
Munyangeyo indicated factors that explain why some international entities choose to have their headquarters in Mauritius, which include the fact that the corporate income tax of 15 per cent set in that country is relatively low.
"For instance, if we can reduce the 30 per cent corporate income tax to 15 per cent like Mauritius, it means that the remaining 15 per cent could be reinvested in the country’s economy,” he said, adding that can go a long way in ensuring tax compliance and revenue increase.