The Private Sector Federation (PSF) has applauded the 2009/2010 budget saying it is pro-growth and development since it addresses issues raised by the federation’s stakeholders.
Key issues addressed from the Federation’s position paper include; harmonisation of tax policy to the East African Community (EAC) common external tariff and the removal of Value Added Tax (VAT) reverse charge on foreign transporters.
Emmanuel Hategeka, the PSF CEO in an interview with The Business Times on Friday, appreciated government’s efforts to support the private sector’s growth by trying to incorporate some of their needs and concerns in the budget.
Hategeka observed that the various tax exemptions and reductions in various areas, will enhance industrial development and competitiveness of the private sector in the region.
“The removal of VAT reverse charge is an important milestone towards improving doing business climate in Rwanda. It will definitely reduce the cost of transport significantly,” he said.
Rwanda will adopt the East African three tax band effective July 1. In the new tax band, the import duty on finished goods will be lowered to 25 percent, intermediate products 10 percent and zero percent on raw materials and capital equipment.
Currently finished goods into Rwanda attract an import duty of 30 percent, intermediate products 15 percent, raw materials five percent and zero percent for capital goods.
According to Hategeka, the decrease in the tax burden will spur industrial growth and investments.
“The fact that Rwanda joins EAC Customs Union has played in favour of the private sector,” he underscored.
In the new budget, four wheel drive vehicles designed for tourism purposes where granted import duty exemption. Government also announced import duty exemption on industrial spare parts and heat insulated milk tanks for dairy industry while the import duty rate for yarn was scrapped off to promote textile industries.
The PSF also lauded the remission of import duty for trucks carrying capacity of five tonnes and above for one year from 25 percent to 10 percent. Remission was also granted for trucks carrying capacity of over 20 tonnes from 25 percent to zero for one year.
“This will reduce the cost of transport of goods,”
The federation said it is impressed by increased government spending on infrastructure development specifically on energy and roads.
In the 2009/2010 budget, government plans to spend Rwf190.5 billion on infrastructure development. The budget, which was recently endorsed by Parliament, allocated Rwf62.9 billion in the sectors of transport and communication while water and sanitation received 19.1 billion.
Government will spend Rwf48 billion on fuel and energy, land housing and community amenities.
“A number of roads will be rehabilitated and this will definitely encourage internal trade as well as improve market access especially in rural areas ,” Hategeka said, underscoring that rural areas are home to a great number of struggling medium and small enterprises whose major problem is insufficient access to markets.
He singled out the rehabilitation of the Ngororero-Mukamira road that will link the Southern, Western and Northern provinces.
However, some issues tabled by the private sector in their position paper were not addressed in the new budget.
Notably the government did not consider a tax waiver on heavy fuel oils which are used as raw materials but continue to attract import duty and tax.
Heavy fuel oil attracts five percent import duty and an additional four percent which is paid for storage plus the 18 per cent Value Added Tax (VAT).
Hategeka said that while government pledged to keep the fuel pump prices stable and affordable, it only focused on transport sector fuel, leaving out industrial fuel used in boilers and for energy generation.
“This is despite the insufficient supply of energy in the country. If an exemption is granted this kind of incentive would boost productivity taking into account the fact that increased world’s fuel prices is becoming a hindrance to industrial productivity,” he explained.
He also pointed that VAT on insurance premiums increases the cost of insurance coverage for customers, with the risk of having many people not taking mandatory insurances because of high prices. Yet in other East African countries, insurance premiums are VAT exempted.
“Insurance companies require this for the sake of competitiveness and harmonisation with East African countries. Insurance premiums (compulsory insurances and optional insurances) should be VAT exempted,” he asserted.
The CEO also underscored the issue of import substitution, saying that the private sector believes “efforts should be put towards reducing imports to match falling exports. “Rwandans internally should be encouraged to consume domestically available substitute products to imports,” he argued.
The private sector also wants incentives to be put in place to encourage investments and re-investments in import substitution production.
“This, we believe will tame the falling export levels and promote investments.” Hategeka said.