Rwanda will be compensated by the COMESA Compensation Fund, for the revenue loss to be incurred when it joins the East African Community (EAC) Customs Union next month.
Elias Baingana, the Director National Budget at the Ministry of Finance said that Rwanda has already applied for the funds amounting to the projected loss of Rwf 12.2 billion it anticipates to loose after joining the customs union.
“Rwanda qualifies for support. We have very clear regional integration programmes that are eligible for support,” Baingana said.
Baingana also added that Rwanda will be given an advance package of Rwf7.9 billion which is 65 percent of the whole fee at the beginning of July and the rest at the end of year.
“The payment will be effected after submitting the legal instrument committing to implementation of the EAC common external tariffs (CET),”he said.
The fund supports economic integration programmes of the East and Southern Africa region through consolidation of the COMESA Free Trade Area (FTA) and both COMESA and EAC Customs Union.
Support is given to mitigate loss of customs revenue and other tax revenues including Value Added Tax as a direct result of increasing the preferential tariff treatment of imports for other COMESA / EAC countries and reduce its general tariffs in line with recommended CET.
Rwanda also has a right to apply safe guard measures to minimise loss incurred in the process of implementation.
Robert Ssali, the Permanent Secretary in charge of EAC told Business Times in another interview that there was no need to worry about losses.
Ssali said that the process of implementation allows Rwanda to apply safe guard measures in case it realises that a country is incurring huge losses.
He Cited article 12,3o of the protocol on the establishment of the EAC Customs Union and article 14,3o of the Treaty for the establishment of the EAC that allows the council of ministers to review the CET structure and approve measures designed to mitigate adverse effects.
Ssali also mentioned that remission of import duty for trucks will reduce the cost of transport of goods as Rwanda is a land locked country.
While presenting the National budget last week, Finance Minister, James Musoni proposed a remission of import duty for trucks carying a capacity of over 20 tones from 25% to zero percent for rwanda Tanzania and Uganda.
There is also a proposal for the exemption of duty on equipment and inputs excluding motor vehicles imported by a licensed company for direct and exclusive use in oil, gas or geothermal exploration.
“This is to facilitate companies engaged in gas exploration and development in Rwanda,” Musoni said.
Under the CET, the customs tariff band will change from 4 tariff bands to 3 bands with the highest tariff rate of 25 percent for finished products, 10 percent for intermediate goods and 0 percent for raw materials and capital equipment.
This is in compared against the present tariff rates of 30percent for finished products, 15percent for intermediate goods, 5percent for raw materials and 0 percent for capital equipment.
While this shift will lead to revenue loss for the government in the short term, it will boost local trade as more goods will come into the country at affordable rates.
Consequently increased trade arising from lower tariff rates will compensate for the loss in customs duties.
According to Ssali, when Rwanda started implementing the COMESA Free Trade Area (FTA) it had anticipated revenue loss but “what actually happened was the reverse.”
“Revenue increased because the volume of imports increased and taxes on international trade increased.
The permanent secretary also revealed that the community has already reached consensus on tax policy measures as part of safeguarding community interests as it implements the Customs Union.
The tax policy measures were agreed upon during a meeting of the Community’s finance ministers, and as such the proposals accompanied their respective budget presentations for the next financial year last week on Thursday –EAC Budget day.