Scrap VAT on service exports to spur growth

Rwanda is looking to increase its service export revenues in the short to medium-term. However experts and stakeholders say the industry faces many challenges, which could affect efforts to achieving this goal.

Rwanda is looking to increase its service export revenues in the short to medium-term. However experts and stakeholders say the industry faces many challenges, which could affect efforts to achieving this goal. David Primack, the executive director of the International Laywers and Economists Against Poverty (ILEAP), who was in the country during the recent service investment forum says the services sector has made tremendous gains, but warns that if the government does not address the challenge of value added tax (VAT) on service exports it could suffer setbacks. Primack talked to Business Times’ Peterson Tumwebaze on why it is necessary to scrap VAT on service export, mong other issues:

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David Primack says VAT affects growth of the service industry. (Timothy Kisambira)

What is your assessment of Rwanda’s service industry?

The service sector is the foundation of any modern economy. You cannot talk about development, poverty reduction and equality without talking about the service industry.

The sector underpins a modern economy because it has a lot do with better infrastructure, reliable energy, strong financial institutions, information and communication technology (ICT) and distribution services.

So, Rwanda’s service sector is important to ensure sustainable economic growth as it contributes up to 47 per cent of GDP or $359 million and employs over 17 per cent of the total population.

How can Rwanda strengthen its service industry?

Having skilled people is the most important aspect that determines whether a country can export services.

In fact, government should ensure that all sectors, be it infrastructure, ICT, financial services and institutions have adequate skilled personnel to support investments in the economy.

That’s why it is important to train more Rwandans in some of the specialised skills, especially where there are gaps so that investors can source labour locally.

There is also need to ensure that trade and investment policies support labour mobility because this promotes skills transfer into the country.

Sector players have been complaining about VAT on export services, how should government address this issue?

In my view, VAT is the biggest constraint to service exports. Also, the value added tax system in Rwanda discriminates against certain service exports.

If you are based here in Kigali and you design a garment, say a shirt, and you send to a company in Kenya, Rwanda Revenue Authority regards it as a service export and therefore taxable.

This must be changed… I know the Ministry of Trade and Rwanda Development Board are aware of the problem and should therefore address it to support the exports sector. Otherwise, it will continue to inhibit growth of the sector, meaning that the country loses in the long run.

How can the service industry be integrated with other sectors in the economy?

There is need to understand that those services are also embedded in trade and transport. Therefore, if these services are expensive, the cost burden will be transferred to other sectors.

I also believe there is need to review the national trade policy so that it does not conflict with the national export strategy.

It is also essential to make sure that investors have easy access to market information as well as finance to fund their projects.

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