Domestic tax revenue likely to increase as Rwanda joins EAC Customs Union

Domestic tax revenue is likely to increase as Rwanda seeks solutions to mitigate a likely loss resulting from joining the EAC’s Customs Union this July, an official of the tax body has said. In its 2009/10 draft budget paper, government estimated to lose Rwf12.4 billion in implementation of EAC Customs Union, a key step in realisation of a common market for the trading bloc of some 120 million people.
A transit goods truck crosses to Rwanda through Gatuna border.
A transit goods truck crosses to Rwanda through Gatuna border.

Domestic tax revenue is likely to increase as Rwanda seeks solutions to mitigate a likely loss resulting from joining the EAC’s Customs Union this July, an official of the tax body has said.

In its 2009/10 draft budget paper, government estimated to lose Rwf12.4 billion in implementation of EAC Customs Union, a key step in realisation of a common market for the trading bloc of some 120 million people.

Joining the EAC customs union will require harmonisation of common external tariffs for regional imports and intra-regional trade with other EAC states, hence cutting off a significant portion of the country’s tax base.

As a solution, Rwanda Revenue Authority (RRA) will intensify recruitment of more tax payers to widen the tax base that will consequently increase VAT and excise duties collections, according to Celestin Bumbakare, a Commissioner for domestic taxes in RRA.

Bumbakare said a customs union will make products from other countries more available on the Rwandan market and at relatively cheaper prices.

“People should not worry about economic integration. We are going to get a bigger market for our goods,” Bumbakare told The Business Times in an interview.

VAT and excise duty currently account for more than 30 percent of the total tax revenue collections.

“Income tax will also increase because traders will be selling more,” he said. He said the tax revenue loss is likely to be less than anticipated, owing to increased intra-EAC trade.

Products attract a common external tariff for third country sourced products which ranges between zero percent and 25 percent and 50 percent and 60 percent for sensitive products.

For intra regional trade, the import duty (internal tariff rate) ranges between zero percent and 25 percent with a gradual phase down to zero percent by 2011.

The commissioner said survival of the country’s small industrial base will be an uphill task as competition stiffens. He suggested that the business community should consider joint ventures as a means of boosting their capacity.

“This should create a training ground on which Rwanda’s manufacturing sector can develop competitiveness and improve the quality of their goods.” he said.

The EAC Customs Union management Act   launched in 2004 provides for a transitional administrative structure of the union, whose implementation commenced in 2005 with the original partner states of the Community.  

It is envisaged that all EAC member states will enter into a fully fledged Customs Union in 2011.

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