Rwanda Revenue Authority (RRA) is planning to shift from the ad-valorem tax system on fuel to specific tax in order to align with other East African Community (EAC) member states.
The move will however reduce government’s tax subsidies on fuel.
Mary Baine, the Commissioner General, RRA said in an interview on Monday that the ad-valorem system means that fuel is taxed based on the market value whereas the specific system puts a fee in place.
“So everybody brings in fuel knowing that a litre of petrol or diesel will go for a certain fee. One is mainly about value while the other really specifies what we expect in terms of amount,”
“Government is planning to make it effective, the private sector and some other members thought it was a more predictable way of doing business. Everybody will know how much they expect from fuel both of the private sector in terms of profits and by government in terms of the revenue to come in.”
Baine also revealed that though the exact time frame had not yet been set for the new policy to be effective, her institution is redesigning the operating systems to accommodate the changes.
“We have realised that due to the volatile nature of the industry, it is important that people first look at it and agree to take it on,” she said, underscoring that implementing the new system will require approval by parliament to turn into a new law.
The Ministry of Finance and Economic Planning projects that in general international tax collections will drop by as much as Rwf28.8 billion in the 2009/10 financial year partly due to changes in fuel tax collections.
The 2009/10 -2011/12 medium-term budget Framework Paper also indicates that the amount of fuel tax collections will dramatically change due to the desire to align towards EAC practices and for the government to reduce this subsidy on fuel.
Government says that the new tax method guarantees revenue per litre sold which is independent of the price of international oil.
As a result, it is projected that the revenues from fuel will remain stable as the increase in taxation (reduction in implicit subsidy) will offset the effect of lower international prices.