Rwanda Development Board (RDB) has unveiled a new investment code that elucidates potential investment opportunities in the country as well as the key areas the government is marketing to investors.
The new investment code, launched in Kigali, yesterday, to replace one enacted in 2005 that was limited in scope, is strategic and premised on the ideal that once investors are informed of, among others, what is in it for them, then they will be attracted to the ventures.
The new code aims bring in $1.12 billion worth of foreign direct investments (FDIs) by the end of the year.
Figures from RDB put the country’s actual FDIs at $257 million in 2013 and $521 million projected investments in 2014.
According to Francis Gatare, the RDB chief executive, the new investment code could see the dream of achieving FDIs targets become a reality.
In 2005, government enacted the investment code as the pioneer investment regulation that aimed at providing incentives and guarantees to attract, promote and protect investments and exports.
However, because of the irregularities, the code was revised to make it more strategic.
The latest code shifts from generic investment promotion to a more targeted approach and is aligned to national development goal strategies.
One of the major changes in the code is that, for the first time, domestic investors will enjoy equal opportunities with foreign investors. This aims to boost level of investments and exports across all sectors.
“The rational of this investment code was to have more targeted incentives that will not only aid investment promotion but also provide an opportunity for the emerging sectors to grow and thrive,” Gatare said.
The scrapping of minimum investment threshold in strategic sectors means more growth opportunities for emerging sectors such as business process outsourcing and financial services.
Yvette Umutoni, the division manager in charge of investment promotion and facilitation at RDB, said some of the old incentives that had been scrapped in the new law did not achieve their strategic goals.
The scrapped initiatives included tax discounts based on employment and exports and incentives that were abused, especially those in the construction sector.
Most of the incentives such as import duty exemptions never actually conformed to East African Community’s customs union rules, added Umutoni.
The government believes that the new code will help provide attractive financial incentives for large-scale investment projects.
Strategic objectives of the code
According to Umutoni, the code seeks to increase levels of investments by 20 per cent and the level of exports by 28 per cent, annually, as is prescribed in the second Economic Development and Poverty Reduction Strategy (EDPRS II).
While the old investment gave a corporate income tax discount varying between 2 per cent and 7 per cent – depending on number of employees and exports – the new code will see investors enjoy a preferential corporate income tax of 15 per cent, down from 30 per cent for priority sectors, including energy, transport, financial services and affordable housing and logistics project.
To attract strategic projects, those investing more than $50 million in energy, manufacturing, tourism, ICT or health sectors will enjoy a tax holiday of up to seven years.
The new code will also give Value Addition Tax (VAT) exemptions in accordance with the law and refund within 15 days from day of application.
RRA not worried
Despite concerns that tax incentives could negatively affect tax revenue, Rwanda Revenue Authority says such moves are worth it.
Aimable Kayigi Habiyambere, the deputy commissioner for large taxpayers at the Rwanda Revenue Authority, said incentivising investors would actually bring in more revenues in the long run.
“We are comfortable with the incentives because they will help spur sustained economic growth, which translates into more revenues for the country in the long run,” Habiyambere said.
“However, we will now have to establish strong monitoring mechanism so that the incentives are not abused.”
Private sector welcomes new code
While welcoming the new investment code, the Private Sector Federation (PSF) urged government to fast-track its implementation.
“It is obvious this investment code could further reduce the cost of doing business in the country. However, there is need to ensure it is implemented in the most appropriate way to achieve its objectives,” Antoine Manzi, the director of advocacy, communication and labour relations at PSF, told The New Times.
Registration timeline for investments has been reduced from 10 to only two days, while the provision relating to the free economic zone, including recognition and protection of intellectual property, have been removed.
The code also harmonises accelerated depreciation for both investors within Kigali at 50 per cent to extend the protection to capital, assets and investors’ intellectual property rights.
This means that investors now have the inviolable right to own property, except where national interests are concerned.