High tax rates, limited access to finance and shortage of electricity emerged as the top constraints to business in a survey whose findings were released by the Private Sector Federation on Tuesday.
The report, "Rwanda Prosperity Ecosystem Survey 2013,” measures the gravity of constraints on a scale of 1-7, with scale one being not a problem at all, and scale seven being a very big problem to business.
According to the study, loan interest rates are the biggest constraint to business with a score of 4.7, followed by high taxes at a score of 4.59, while collateral requirements scored 4.5. With a score of 4, availability of alternative financing is the fourth constraint to business, followed by limited access to finance at 3.8 and access and cost of electricity with a score of 3.2.
Increasing cost of business
"Limited capital and high operational costs emerge as the top constraints. High tax rates and limited access to finance mean that businesses have less money to run and operate businesses,” the report reads.
It adds that expensive and limited electricity, land, raw materials and telecommunications all contributed to the increasing cost of business and are also a major hindrance to growth.
The report, however, indicates that whereas constraints persist in 2013, they are not as grave as they used to be, reducing in severity from 4.4 per cent in 2008 to an average of 2.8 per cent in 2013.
Necessary pain
Reacting to the survey, investors said tax policies must be streamlined to facilitate trade in the country.
"Taxes such as VAT and Pay As You Earn are essential to us and to the country because they show that we are working and making profit. I am not against paying district fees but they many times bring inconveniences,” Jackie Rurangwa, the managing director of Multilines International local freight and Logistics Company, said.
Celestin Bumbakare, the commissioner for domestic taxes at RRA, said there should be no confusion since different laws govern official taxes collected by RRA and district taxes levied by local government.
"We handle taxes collected at national level, whereas districts collect trade licence fees, property tax and rental income tax, plus other different fees for services to the public,” Bumbakare said.
RRA Commissioner General Ben Kagarama said they have been educating districts and the business community on laws for the service fees.
"The research acknowledges in the opening chapters that there have been business-friendly tax reforms that have helped small scale industries,” Kagarama said.
François Kanimba, the minister for trade and industry, said government will continue collaboration with the business community to implement sustainable reforms.
"The need for responsible institutions to find long-term and sustainable solutions that will ensure a more conducive and competitive business environment is still paramount if we are going to achieve our Vision 2020 as a country,” Kanimba said.
Benjamin Gasamagera, the chairperson of PSF, said the main objective of the survey was to identify the key bottlenecks that affect the business environment.”
"Rwanda’s private sector is at the heart of EDPRSII, whose goals can only be realised by a vibrant and growing private sector. Although still small, the private sector has the potential to transform Rwanda’s economy and needs to be supported to play its role,” Gasamagera said.
The report recommends the streamlining of district fee collection practices, as well as the introduction of a business hotline to report cases of corrupt fees collection in order to ease tax administration.