Professionals speak out on budget
Rwanda is seeking a balance between incentives and development in 2012/13 budget unveiled yesterday by Finance Minister, John Rwangombwa, a move that is tailored to cushion the economy from the global financial situation.
“We are at a time when the global situation is unpredictable, and given all the demand, revision of the general investment code is one of the long-term answers to the problem,” said Herbert Gatsinzi, the Director of Tax Advisory Services in Ernst and Young.
The Government in the 2012/13 budget intends to increase salaries of civil servants, teachers and additional Rwf 5 billion to increase capital in Umwalimu SACCO, a teachers saving scheme.
The revision of investment code is expected to generate Rwf 5.2 billion, while effective next month, imported construction materials will have its duties, VAT and excise duties increased by 5 per cent on average, generating Rwf1 billion to government coffers.
“The 5 per cent increase on imported construction materials, is a soft target though a disappointment to the business community, but I am convinced it was taken after strong scrutiny,” Gatsinzi said.
IPAR and ActionAid in a joint statement sent to The New Times, welcomed the revision of the code, saying it’s the pro-poor character of the 2012/13 budget which shows prudence and responsiveness to the needs of the poor.
Contractors cry foul
Contractors say the proposed increase on imports of tax on construction materials is a big blow to their businesses, especially with the ongoing projects, because there is no provision to adjust to such changes.
“Immediately contractors will incur a big loss on ongoing projects, but after, the end consumers will have to pay more,” said Papias Zawadi Managing Director of Star Construction Company.
He added that such non provisional changes have always negatively impacted contractors because they are not able to convince clients on the changes to adjust the contract where need be.
Similar examples mentioned is the introduction of 15 percent on suppliers who are not registered with VAT and the scrapping of VAT on fuel prices.
Contractors spend about 40 per cent of the construction expenses on informal sector suppliers who are not registered with any tax administration.
“Some farmers have sand or stones in their yards but without the capacity to incur that cost, we have been negotiating with the government to scrap that amount but we have not received any positive response,” he said.
Jack Kayonga, Chief Executive Officer of Rwanda Development Bank, said the move is aimed at boosting production of construction materials by local industries.
“I am not sure if the increase is applicable on all construction materials, but at times we tend to import everything, even materials that are available on the local market,” Kayonga said.
Citing factories like the granite factory in Nyagatare District, steel industry in Ngoma District and the expansion of Cimerwa factory.
Chantal Mukakabera, a tax consultant, expressed concern on the tax increase, saying the decision would stifle growth of the sector.
“Construction sector has been the mirror of our economic growth and development, it gives a picture to those who don’t have time to get to know about the macro-economic situation,” she said, adding, “Importing is not a priority but a last resort, especially for finishing materials.”
Lawson Naibo, Chief Operations Officer, Bank of Kigali, said the decision in the short term will compromise the government policy to bridge the gap of low cost units.
“In the medium term, it’s a challenge for local industries to build capacity to be able to produce sufficient material locally, but it’s an incentive if they are able to take up the challenge,” Naibo said.
He projected that bank’s mortgages will be high and they will receive many requests from clients seeking for an extra hand to take up their projects in construction.
Faustin Mbundu, Chairman, Private Sector Federation, said the 2012/13 budget indicates a strong partnership and engagement with the private sector.
“They acknowledge us (private sector) as strong partners to drive the economic growth, especially in areas of transport and energy, thus contributing to internal trade and reducing poverty,” Mbundu said.
ActionAid and IPAR commend the government’s commitment to scale-up farmer extension services, investing in fertilisers and commercialize the agriculture sector.
However, they highlighted the need to “ensure rural women smallholder farmers continue to meet daily food requirements for their households and earn an income from their agricultural surplus”.
They said the budget lacks “concrete measures that will create jobs, especially for the youth and women, in order to achieve Rwanda’s vision 2020 objective of becoming a middle income country”.
However, the International Monetary Fund (IMF) Resident Representative, Dmitry Gershenson, noted that Rwanda is doing well in the fiscal policies, reaffirming their support to the government fiscal policies.
With a long period of volatility in the global economy, as the Euro-Zone debt crisis escalates, Gershenson cautioned there could be risks.
“We (IMF) and the government take into consideration these issues. In principle, if the Euro crisis persists and with oil factors, it would affect Rwanda, but we are confident that the government has resources and fiscal policy programs to deal with the crisis,” Gershenson said.