The government will continue to widen tax base to mobilise domestic revenue and reduce dependence on foreign aid to fund the 2016/17 Budget.
This emerged during the Budget Presentation by the Minister for Finance and Economic Planning, Amb. Claver Gatete, before a joint session of Deputies and Senators at Parliament Building yesterday.
The Rwf1,949.4 billion Budget will be largely funded domestically.
The Government will finance 62 per cent of the Budget through domestic avenues, amounting to Rwf1.216 billlion, an increase of Rwf40.9 billion compared to the previous Budget.
The remainder of the Budget will be funded by external resources, worth Rwf733 billion.
Of the external funding, loans will contribute about Rwf367.7 billion from about Rwf235.7 billion in the previous year, while foreign aid will contribute Rwf365.3 billion.
The increase in domestic revenues, Minister Gatete, said reflects economic growth.
Gatete said the more than Rwf40 billion increase in domestic revenue in the 2016/17 Budget will be sourced from expansion of the tax base.
The trend to increase domestic revenue in the National Budget has been consistent in recent years, with 2013/14 Budget having about 60.2 per cent funding generated locally.
The trend to increase self-reliance and less donor dependence in funding the budget has been lauded by economic analysts who say it is positive stride towards sustainable economic development.
Allan Gichuhi, the Ernst and Young managing partner for Rwanda, told The New Times that the trend has multiple positive impacts, including avoiding conditions that some of the grants and donations come with.
“This will eventually see the country less and less dependent on aid, which at times comes with a lot of conditions and heavy borrowing to fund the Budget,” Gichuhi said.
He explained that widening the tax bracket was a good move and that Rwanda was already doing well in increasing compliance.
Gichuhi said expanding the tax bracket should not cause fear among taxpayers as it will not see an increase in the rates but an increase in tax payers.
“In expanding the tax bracket there should be no fear by the taxpayers. It does not mean an increase in the tax rates but rather bring in more people into the taxpaying group. This will bring in people like the informal sector who are largely responsible for some of the economic development in the African continent,” he said.
The Government’s move, coupled with efficient ways of tax collection by embracing digital technologies to ease taxpaying, would see targets met, he added.
The 2016/17 Budget will be sourced and implementation under the theme, “Fostering growth while increasing exports and boosting Made-in-Rwanda goods and services.”
With this, the government aims at tackling diminishing commodity prices and rising import bill that have adversely affected export earnings and put pressure on foreign exchange reserves.
Minister Gatete said as medium term policy adjustments, the government has requested for financing from the International Monetary Fund’s Standby Credit Facility, amounting to $203 million to help keep external reserves above the critical level of three months’ worth of imports during this adjustment period.