A new report commissioned by the Private Sector Federation (PSF) has cited high taxes, particularly stemming from multiple taxation, as the major constraints to doing business in Rwanda.
The fourth Business and Investment Climate Survey 2019-2021 report indicates that more than three-fourths of the respondents appealed for a review of the current tax regime in order to make locally produced goods more competitive.
While releasing the report for stakeholders yesterday, Stephen Ruzibiza, the Chief Executive Officer of PSF, said that it will help the umbrella organisation of private sector operators to carry out advocacy that is evidence-based.
PSF’s Ruzibiza speaks during the presentation of the fourth ‘Business and Investment Climate Survey 2019-2021’ report yesterday.
The report states that as the country is gradually transitioning from completely no tax to tax regime, tax is likely to remain a key challenge for businesses ahead.
“During focused group discussions, businesses revealed various local fees such as cleaning fees, security fees, parking fees levied at the local level were burdensome for their businesses on top of corporate taxes and VAT. Further, the issue of multiple taxation was highlighted by many respondents as a key challenge,” said Robinson Mugisha, PSF’s Head of Research and Development.
Multiple taxation has not helped in improving the comparative advantage of locally produced goods, she added.
“For instance, the producers of wooden furniture are required to pay multiple taxes through the manufacturing process until it reaches the end buyer. From permission fee to cut trees, timber tax, tax for industrial park, sales tax.”
As the domestic wood industry cannot be sustained fully on Rwandan timber, she underscored, Rwandan wood processors have to pay high import tax.
As such, the report states, the burden of multiple taxes has made the price of wood furniture manufactured in Rwanda expensive compared to what is imported, and thus this has made local manufacturers businesses uncompetitive both locally and at regional levels especially within the EAC.
“Likewise, during FGDs, most businesses revealed paying multiple security fees as they need to pay for their own security arrangements and additional local security fees, moreover respondents seemed dissatisfied with the quality of security services,” the report reads in part.
Businesses also highlighted the burden of additional cleaning fee similar to the security fees. They complained about flat fee for cleaning regardless of scale of business.
Mugisha said: “Businesses operating from core city areas complained about irrational parking fees. Further, most of the businesses were unhappy that many tax regulations are introduced or charged without any consultation with the business community.”
Rwanda is credited by international organisations such as the World Bank for pursuing bold business reforms, which has facilitated investment.
While the business community does not disapprove the global rankings, some of them believe that a lot more can be done to improve things locally in a win-win manner, especially if responsible agencies carefully listen to concerns of the private sector.
Call for proper dialogue
As part of their recommendations on the perception of tax hitches, PSF has called for the development of a mechanism to resolve and expedite tax disputes in in order to preserve the integrity and fairness of the tax system.
It is important, they say, that in order to address issues related to taxes, there is a need to understand, evaluate and assess the local tax system - understanding the different local taxes that are imposed at the local level.
In addition, the report calls for proper dialogue, discussions and dissemination of tax regulations to be carried out to ensure awareness and understanding among the stakeholders.
Among others, it is recommended that a joint committee be formed comprising of RRA, PSF and concerned at MINCOFIN to ensure that tax issues are discussed and resolved in short and medium term.
“This initiative will be focused on dialogues aimed at improving tax administration and enhancing the cordial relationship between the RRA, Private Sector and its other stakeholders,” Mugisha said.
Reacting to issues regarding tax and his institution’s administrative services, Denis Mukama, Deputy Commissioner for Research and Planning, acknowledged that some of the feedback in the perception survey could contain actual challenges.
Nonetheless, he noted that perception surveys tend to give a lot of feedback but there is need to “take a deeper look” and understand what is beneath the feedback or the perceptions.
In general, he reasoned, not so many people will be happy about tax and as such, public sensitization is a crucial element.
Mukama said: “The biggest output for me is; at what level are we sensitizing people on tax for them to comply rather than us addressing the penalty issue. There is a genuine issue, that of addressing [tax] compliance of our people.”
Once issues revolving around tax compliance – making tax payments and producing and submitting information to the tax authorities on time and in the required formats – are tackled, he said, perceptions raised in the survey will be a thing of the past.
“The biggest take for me [from the survey] is, yes, there are some challenges. There are issues that have got a lot to do with sensitizing people.”
Andrew Kanyonya, the Managing Director of New Kigali Designs, noted that it is very important that what they have recommended be duly considered and put in place.
He said: “If you look at the country’s regular doing business improvements in global rankings, it is because we do often look at evaluations done and work to improve on areas that need improvement.
Kanyonya urged participants to avoid a situation in which one party blames another for something bad or unfortunate rather than attempting to seek solutions together. He had observed that questions on tax issues were being put to the RRA official in a manner that was, perhaps, not serving the common good – finding solutions – other than a blame game.
“This survey is pertinent and has details. Let’s not take it lightly. The business and government people concerned should meet as soon as yesterday and work to resolve things.”