No tax changes for 2008
KIGALI - James Musoni will today unveil his second national budget since he became the country’s Finance minister. In his budget speech to MPs today at the Parliamentary Buildings, Kimihurura, the minister will give a breakdown of his fiscal year 2008 budget which is projected at Frw607.5b. The amount represents a 13 percent increment to the current financial year’s budget of Frw527.9b. Musoni’s proposals put next financial year’s domestic revenue at Frw277.9b with tax collections accounting for Frw262.9b, while non-tax revenue amount to Frw15.3b.
According to an explanatory note to the draft 2008 state finance law, grants during next year’s budget are projected at Frw282.1b while loans amount to Frw27.1b, down from Frw36.4b for the financial year 2007.
The recurrent budget, according to estimates, is Frw365.3b up from Frw330.2b for the current fiscal year.
Projected development budget is Frw227.0b compared with Frw139.4b coming from external financing.
Musoni’s budgetary proposals show that net lending for the development budget during 2008 will drop to Frw8.2b down from Frw10.9b for the fiscal year 2007, while arrears will remain at Frw7.0b.
The 2008 budgetary proposals assume that the country will register a real GDP growth of 7.1 percent “owing largely to the various initiatives being pursued in the agriculture sector as well as the service sector.”
It also projects annual average inflation rate during next year at 7.5 percent, and estimates the exchange rate of a US dollar to average at Frw545.
The minister also projects gross domestic investment of 19.6% of which 9.8% will come from the private sector.
The budgetary proposals are part of the 2008-2010 Budget Framework Paper, which is due to be discussed by Members of Parliament.
The 2008 budget is particularly tailored to the Economic Development and Poverty Reduction Strategy (EDPRS).
Musoni has not proposed any tax changes although consultations are ongoing on the widening of the tax base, and the economic implications of the country’s entry into the East African Community (EAC).
“No change in the taxation system for now pending recommendations from the ongoing study on widening the tax base in Rwanda and the fiscal implications of Rwanda joining the EAC as well as the requests from the Rwanda Private Sector Federation,” an explanatory note to the new draft budget indicates.
Further, net domestic borrowing for the 2008 budget is limited to a maximum amount equivalent to Frw10.5b of which Frw5 billion will come from the sell of treasury bills and another Frw5.5b from drawdown on government deposit account.
The budgetary proposals have been presented earlier than before, and there are plans to harmonise the fiscal years with the three original members of the EAC next year.
Uganda, Kenya and Tanzania read their budgets on the same day in June, the same time when their new financial years begin. Rwanda’s fiscal years runs from January to December.
In his budget speech to Members of the Chamber of Deputies, Minister Musoni will be requesting the lawmakers to examine the proposals and adopt the draft 2008 State finance law.
“It (draft budget) has been formulated with the objective of promoting sustainable growth whilst maintaining macro-economic stability,” reads part of Finance ministry’s budget document.
Musoni will also give a budget execution report for the first six months of 2007 to the legislators.
The key features of the report, according to a document seen by The New Times, are as follows.
(a) Domestic revenue collected was Frw124.6 billion against Frw109.3 billion revised target. Domestic Revenues exceeded the target by Frw15.4b;
(b) Budget Support disbursement was Frw90.5 billion against the revised target of Frw93.0 billion. Their registered a shortfall of USD 8.6 mainly due to non-disbursement by Sweden. The externally financed capital disbursed was Frw38.0 billion against Frw25.6 billion targeted, which is Frw12.4 billion higher.
(c) Total revenue and grants realized was Frw253.1 billion against Frw227.9b of the revised target. Total Revenue and Grants exceed programmed by Frw25.2b;
(d) The Government of Rwanda increased its deposits to Frw56.8b instead of Frw26.7b projected mainly because of more than projected domestic revenues realised;
(e) Frw1.7bn of domestic debt was retired.
(a) Government spending accelerated induced mainly by performance contracts;
(b) But total expenditure exceeded the target by only Frw0.3b;
(c) Domestic Fiscal Deficit was lower than projected at Frw30.7b instead of Frw56.7b because of more than projected domestic revenues realized while keeping domestic expenditures within target limits;
(d) But there were some sharp overspending and underspending on certain programs. Specifically, Health and Education sectors overspent on salaries and wages by 19.8% and 2% respectively while Education Sector underspent on goods and services by 36% especially on books and other school materials as well as construction of schools.
• As of September 2007, spending on the underspent programmes mainly schools construction is catching up on one hand, and domestic revenue performance continue to perform well on the other;
• Total revenue collections are estimated at Rwf 242.0b instead of Rwf 226.6 initial forecast in the revised budget;
• Until now, there are no grants to finance the contingency expenditure of Frw15.8 billion, which were provided in the 2007 budget.
• The Government of Rwanda intends to spend the extra Frw15.4b on some key priority programmes that have short falls as follows:
a) Wages and Salaries: allocate Frw3.3b especially for Health sector, Education Sector and the Judiciary;
b) Goods and Services: allocate Frw8.0 billion to cover all priority programmes in contingent especially the Frw4 billion for road fund as well as energy saving devices;
c) Domestic Capital: allocate Frw3.6 billion for the procurement of agricultural inputs especially fertilizers and seeds.