Government may have to reduce import taxes to spur informal cross-border trade, which is increasingly becoming an important source of the country’s foreign exchange revenue.
According to a report by International Alert, an independent peace building organisation, although there are virtually no informal taxes paid in the country compared to Burundi and the Democratic Republic of Congo, Rwanda’s taxes still remain the highest in the region.
The report titled “Walking in the Dark” assesses the state of informal cross border trade in the Great Lakes Region and states that while the formal taxation in the country averages at $2.37, the informal taxes are set at $1.89 at Cyangugu border, compared to taxes at Bugarama that go for $1.47 and $0.83 for formal taxes and informal taxes, respectively.
“Most taxes paid in Bugarama are not export taxes but rather market taxes and to a lesser extent municipal taxes which are a bit higher in the region,” Pacifique Borauzima Buluhukiro, Regional Head of Project at International Alert said yesterday at the launch of the report in Kigali.
Besides, the percentage of formal taxation is higher in Cibitoke, on the Burundian side of the border while at Bukavu in the DR. Congo, taxation is considered to be lower but with considerably higher number of taxes that is still a challenge to most traders.
Buluhukiro said that most of the cross border traders especially women are unaware of the tax regimes applied across borders in the region.
“The main problem then is not that traders refuse outright to pay their taxes, but that across the region, they are not aware of the taxation rates being applied,” he said.
The report aims at strengthening the business environment for women working as small traders in order to improve their chances of economic survival.
It cites cross border traders as saying that Burundi and Congo borders pose a big threat to their businesses through charging of many informal taxes, harassment and confiscation of merchandise.
The report, for instance, shows that informal taxation is widespread in Burundi with informal taxes higher than formal taxes at the Gatumba border while the value of informal taxes is higher at the neighbouring country’s Cibitoke and Gatumba border posts.
“ We are making losses through these taxes and confiscation of our goods by border authorities and even when we pay taxes, they (authorities) don’t give you a receipt, which makes you pay many times,” lamented Leonia Nsekerabarndya, a Burundian female trader.
The report further indicates that despite taxation, cross-border traders mainly women lack access to finance, coupled with improper infrastructure, low levels of education, among other things.
“The lack of capital is a significant challenge for women and men, their inability to access micro credit schemes act as a significant hindrance to the development of their trade,” the report reads.
Moreover, tensions between nations pose a big threat to cross border trade which is characterised by arbitrary arrests and confiscation of property by officials at the border against their non-citizens.
Nonetheless, the report recommends the improvement in cross border interaction between traders, establishment of credit schemes; strengthening of the capacities of existing traders’ association, as well as trade information offices.
Indeed, some countries have moved in to eliminate barriers to cross border trade with Rwanda through the recently established national cross border strategy and data collection on informal cross border trade.
“The aim of the strategy is to contribute to the creation of dynamic and diversified trade with neighbouring countries, creating jobs and income in both the formal and informal sectors,” disclosed Kaliza Karuretwa, the Director General in charge of Investment Climate at Rwanda’s Ministry of Trade and Industry.
She further disclosed that the strategy will help to address the cost of trade by improving customs, border administration, creation of stronger market links in the informal formal sector and access to finance, mainly targeting women.