The Economy Focused priorities through alignment of the budget with Rwanda s development strategies Budget theme: Ensuring food security and price stability whilst promoting sustainable growth No change to development priorities GDP growth has shown resilience but is expected to slow down in 2011 A reflection of the country s commitment Hon Minister John Rwangombwa, the Minister of Finance and Economic Planning, presented his Budget Speech to Parliament on 8 June, a few weeks after he presented the budgetary proposals and the Medium Term Expenditure Framework for the period 2011-2014. This year s budget is a reflection of the Government s continued commitment to driving economic and social development. It reflects ongoing development priorities, and focuses on narrowing the fiscal gap through accelerated domestic revenue mobilisation and expenditure prioritisation, while providing adequate liquidity to promote sustainable growth and reduce inflation. A slight reduction in the economic growth rate The country has consistently posted above average GDP growth rates compared to its sub-saharan counterparts. After experiencing a slight decline in GDP growth in 2009 during the global financial crisis, the economy grew by 7.5% in 2010. The recovery was mainly fuelled by export of agricultural crops and growth in the manufacturing, construction and services sectors (and in particular, the finance and insurance sub sectors). However, growth in 2011 is expected to slow to 7% due to increased food and fuel prices, and decreased crop production due to adverse weather conditions. As the agricultural sector contributes about 40% of GDP and 70% of export earnings, growth will be dependent on strong performance in the construction, communication, banking, insurance, hotel and tourism sectors. GDP growth rate (%) 6.1 GDP growth rate (%) 7.5 7.0 2009 2010 2011 1
Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Industrial and services sectors were the main contributors to GDP growth in 2010. Export earnings increased in 2010 due to the recovery in the world economy which increased exports of coffee, tea and minerals. Inflation rate of 0.2% in December 2010 and 4.98% in April 2011 still remain the lowest in the region. Performance of key sectors Agriculture is one of the main drivers of real GDP growth. However, the growth in the agriculture sector of 5% in 2010 was lower than the 7.7% achieved in 2009 mainly due to a decline in domestic food crop production. Real GDP growth in 2010 was largely led by growth in the industrial and services sectors. In the industrial sector, the growth was led by manufacturing sub sector especially food processing which registered a growth of 9% against 3% in 2009. The construction sector also performed well at 9% growth in 2010 against 3% in 2009, due to increased credit to the sector and the completion of public projects. The services sector grew at 9% compared to 5.9% in 2009, fuelled by improved performance by banking institutions, investments in communication and recovery in tourism and trade. Growth per Sector (%) Agriculture Services 7.7 5.9 1.4 9 8 7.9 7.2 5 4.9 2009 2010 2011 Industry Consumer price inflation food harvest, relatively stable exchange rate and low increase in money supply. However, inflation rose to 4.98% in April 2011 due to rising fuel and food prices. 6 4 5 3 0 12 Inflation rate (%) Monetary developments Monetary policy was targeted towards supporting the gradual recovery in economic activity after the slowdown experienced in 2009. Overall, broad money grew by 2% from 17% in 2010 to 15% in 2009 mainly due to net foreign assets. On average, the Rwanda franc depreciated by 4.1% against the US dollar in 2010. Growth in exports and imports Inflatio n rate (%) The recovery in the world economy had a positive impact on export earnings which amounted to US$ 297.3 million which is US$ 62.3 million higher than 2009 export earnings. This is attributed to increases in exports of coffee, tea and minerals. On the other hand, the total value of imports at US$ 1,083.9 million in 2010 was 8.5% higher than the 2009 imports largely due to increases in the volume of consumer, intermediate and energy goods imported. Inflation in Rwanda fell to 0.2% in December 2010 from 5.7% in December 2009. This decrease was driven by low global inflation resulting in low import prices, good domestic 2
The government has made significant progress in EDPRS implementation in all three clusters i.e. economic, social and governance. The medium term macro economic framework was developed through a consultative process and is aligned to the EDPRS Progress in EDPRS implementation The government has made key achievements in the implementation of key goals in the EDPRS 2008 2012. In the economic cluster the agriculture sector has shown progress despite facing significant challenges, and there has been increased production of crops that provide food security. In the financial sector, the law regulating Capital Markets was published. During the year the Rwanda Integrated Payments Processing System (RIPPS) was launched, facilitating interbank payments. Electricity generation capacity has increased from 45 MW in 2006 to 97.4 MW in 2010/2011, and voice penetration in the ICT sub sector has risen by 10%. The ambitious fibre optic implementation programme has progressed, though was delayed due to significant redesign. In the social cluster, significant achievements were achieved through increasing the percentage of women using contraceptive methods. The government has restructured the national health insurance scheme (Mutuelles de Santé) to increase coverage, with income-adjusted premiums being introduced and the government paying premiums for the poor. The percentage of children using long lasting insecticide treated nets (LLITN) increased from 60% in 2009 to 75% in 2010. In education, the primary school completion rate reached 76% overall and there was an improvement of 90% (against the target of 83%) in the transition from basic to upper secondary education. The Cabinet also adopted the national social protection strategy and progress was made in providing access to safe water and sanitation, amongst other achievements. In the governance cluster, the decentralisation implementation plan was developed to guide the third phase of decentralisation and the capacity of prisons was increased to reduce overcrowding. The Rwanda National Police also reported a decrease in the crime rate by 5%. In public financial management, 100% of public enterprises submitted fiscal reports; audit committees were established in government business enterprises and semi autonomous agencies. The government chart of accounts was also revised, aligned and used as a basis for 2011/2012 budget preparation. An upgraded IFMIS system has been rolled out to 94 budget agencies. Gender responsive budgeting was also rolled out to all sectors in the 2011/2012 budget and the capacity building and the strategic framework for public service reform 2010-2015 was completed. Medium Term Macro- Economic Framework The government projects real GDP to grow at 7.2% over the five year period 2011 to 2015. In 2011, GDP growth is expected to decline to about 7% from 7.5% achieved in 2010 due to rising fuel and food prices. The fiscal deficit is projected to decline from about 2.3% of GDP in 2011/2012 to 0.3% of GDP by 2014/2015. This is to be achieved through domestic revenue mobilisation and expenditure prioritisation. In the external sector, imports are projected to increase from US$ 1,400 million in 2011 to about US$ 1,515 by 2015 while exports are projected to increase from US$ 376 million in 2011 to US$ 497 million in 2015. Foreign direct investment is estimated at 0.8% of GDP in 2011 and projected to increase to 1.4% of GDP by 2015 in line with the private investment strategy. Monetary and exchange rate policies will be expected to support the country s economic growth by stimulating lending, with BNR continuing to enhance a flexible policy to allow the exchange rate to reflect market fundamentals. Outlook for 2011/2012 Total revenue and grants have been projected to rise by 15.5% (RWF 129.8 billion) from RWF 844.2 billion in the revised budget for 2010/2011 to RWF 974 billion in 2011/2012. Total expenditure and net lending is also projected to rise by 7.6% (RWF 74.7 billion) from RWF 988.1 billion in 2010/2011 to RWF 1,062.8 billion in 3
Total revenue and grants have increased by 15% while expenditure and net lending has increased by 7.6% in the 2011/2012 budget. The focus of the 2011/2012 budget is to increase resource allocation to strategic investment projects. 2011/2012. This will result in a decline in the overall cash deficit from RWF 155.1 billion in 2010/2011 to RWF 96.8 billion. Budgetary grants Budgetary grants are projected to increase from RWF 208.5 billion in 2010/2011 to RWF 271.2 billion in 2011/2012. The government projects that donor budgetary grants will decline from about 11.4% of GDP in 2011/2012 to about 8.5 % of GDP by 2014/2015 in line with the government s policy to reduce the country s dependence on donor aid inflows. It is important to note that a significant part of the increase in total revenue and total expenditure in the 2011/2012 budget is attributable to inclusion of grants from Global Fund (estimated at RWF 70.7 billion) for the health sector which were not included in prior years. What is the focus of the 2011/2012 budget? The 2011/2012 budget has not changed significantly from the 2010/2011 budget and the priorities are in line with Rwanda s development strategies as laid out in the EDPRS and Vision 2010. In line with the medium term budget policy, the 2011/2012 budget focuses on increasing resource allocation to investment projects that generate more impact on growth. Hence, the major focus of the budget is to raise resources for completion of strategic investment projects (including energy generation and distribution projects, road construction and rehabilitation and ICT development) that will stimulate growth of other sectors, promote the business environment and reduce the cost of doing business. The government s strategic investments include expansion of RwandAir, construction of the Kigali Convention Centre, increasing broadband access through the 2,300 km fibre-optic cable programme and increasing energy access from six per cent to 16 per cent by 2013. It also includes construction of the new airport at Bugesera, and rehabilitating and rebuilding regional railways linking Rwanda to Burundi and Tanzania. Similar to the previous year s budget, the 2011/2012 budget focuses on four main pillars of expenditure namely i.e. Infrastructure rollout; maintaining growth in productive sectors; development of human capital; and promotion of good governance. Under the productive sectors, the budget focuses on enhancing agricultural production through agriculture supply, promoting agribusiness, scaling up systematic land registration and promotion of value addition for experts. Irrigation and marshland development will also be scaled up including other initiatives for supporting small and medium enterprises and increasing access to water in rural and urban areas. The budget will also support human development through education and skills development and improving the health of the people. In recognition of the importance of fostering good governance practices, the budget will also support government initiatives in public service delivery, good governance, strengthening public financial management and maintaining national peace and security. Are government and private sector objectives aligned? Business leaders in Rwanda who participated in the recent PwC Global CEO survey reiterated their optimism about revenue growth prospects and the business environment in Rwanda, optimism which is not shared by many of their counterparts in Africa. 4
Revenue prospects: next 3 years capacities clusters which are critical to poverty reduction. 100% Government priorities CEOs in Rwanda are more optimistic about the business environment in Rwanda than CEOs both in Africa and globally. 50% 0% 87% 64% 51% Somewhat confident Very confident 100% 80% 60% 40% 20% 0% Rwanda Africa Global Most CEOs indicated that poverty reduction is the main priority area that the government should focus on. The CEOs interviewed in Rwanda also indicated that the largest threats to business are energy costs and inadequate infrastructure, two key priority areas in the EDPRS and the 2011/2012 budget. Another threat pointed out by CEOs is an increasing tax burden this is unlikely to change as the government needs to increase domestic resource mobilisation to finance recurrent and development expenditure, while reducing dependence on donor finance. 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Threats to business Rwanda Africa Global The CEOs also indicated that they committed to partnering with the government in bridging the skills gap, by supporting skills development and improving national competitiveness. Conclusion Similar to the previous year, the budget is aligned to Rwanda s development strategies as laid out in the EDPRS and Vision 2020, and also to priority areas identified by the private sector. The government continues to respond to the key threats to business and focuses on the important national agenda of poverty reduction. Poverty reduction is a priority Majority (87%) of the CEOs would want the government to focus on reducing poverty. This is well aligned to the government s priorities for the medium term where resources are allocated to EDPRS clusters such as infrastructure and productive 5
Efficiency key to improving tax revenue Reducing excise tax on fuel is the only proposed change in tax rate Fuel tax to be reduced by RWF100 per litre The Minister proposes to introduce electronic tax registers to enhance VAT collection and administration Overview The most significant proposal by the Minister is the reduction of tax on fuel by RWF 100 per litre for both petrol and gasoline. His other proposals are intended to improve the administration and collection of taxes, improve efficiency and minimise revenue leakage. These include the introduction of the Electronic Transaction Device, e-filing and e-payments. The administrative changes should mitigate the expected losses from excise tax, and the Minister targets an overall 10% increase in tax revenue to RWF 501.4 billion. Tax proposals Tax on fuel to be reduced In a move which will be well received by oil industry operators, regional transporters and consumers, the Minister proposes to reduce fuel taxes by RWF 100 per litre for both petrol and gasoil. This change will help to harmonise the fuel rates with those in the region, and also mitigates against the impact of high world fuel prices. The change will be implemented in two stages - a reduction of RWF 50 per litre in June December 2011 period and a further RWF 50 per litre will be effected in January 2012. The Government will announce the new pump prices by July 2011. Electronic Transaction Devices to be introduced Another notable change is the proposal to introduce Electronic Transaction Devices ( ETD ) to increase efficiency of VAT collections and minimise revenue leakage. VAT is expected to contribute about 50% of the tax revenue projection. Therefore, administrative measures to enhance its collection are critical to deliver on the expected revenue growth. ETD implementation is scheduled to start from 1 July 2011 and will be done through a phased approach beginning with about 2,500 large and medium sized retailers. This is a bold proposal from the Government. Experience from other countries such as Greece and Kenya confirms the effectiveness of ETDs in widening the tax net and enhancing the level of tax compliance. There are a number of issues that the Government should consider to facilitate smooth implementation. These include: How to mitigate the cost of the devices to business, e.g. by subsidising or fully refunding their cost; 6
Government departments and agencies will act as withholding VAT agents New gaming taxes introduced Introduction of e- filing and payment to improve service delivery Providing tax relief on the importation or purchase of the devices; Quality assurance on installed devices to ensure that they comply with specifications; Whether implementation will be mandatory for all businesses; How to minimise disruptions to existing systems, and to address instances where a business s systems are not compatible with the devices. Identifying appropriate target groups for each stage in the phased rollout. Withholding VAT system The Minister intends to introduce a withholding VAT system whereby Government entities will be required to deduct VAT at source prior to making payment to VAT-registered suppliers. This will ease VAT collection for Rwanda Revenue Authority, minimise revenue leakage and ensure prompt payment of VAT by taxpayers. This system is already in use in Kenya and Nigeria where it has been hailed as a success, though in Kenya it resulted in several suppliers reporting a VAT refund position due to the fact that withholding agents included a wide range of private sector organisations. Introduction of gaming tax The Minister is proposing to introduce special gaming tax of 13% and a withholding tax of 15% on gaming activities. This will widen the tax base and is expected to contribute RWF 1.04 billion, though details of how the tax will apply in practice are yet to be provided. Tax administration measures The Minister has proposed the following tax administration reforms which are meant to widen the tax base and also reduce the cost of compliance especially for the small and medium enterprises: e-filing and payment In order to improve on the time spent by taxpayers and service delivery, the Minister is proposing the introduction of e-filing and payment in the fiscal year 2011/2012. This is commendable and will reap a number of benefits for the taxpayers if implemented well. RRAs current systems incorporate the basic elements of e-filing and e-payment systems but will need to be substantially redesigned to achieve this objective. Rwanda is the 3 rd country in East African to implement e-filing and payment system after Kenya and Uganda implemented the system in 2008 and 2009 respectively. Some of the challenges that would need to be addressed include: Bandwidth capacity and quality of network connectivity; Availability of experienced personnel to train taxpayers and respond to queries promptly; Flexibility of the on-line forms and processes so as to minimise filing delays and rejection of information; Appropriate IT platform at RRA; Interface between RRA and bank payments systems. Compliance risk assessment system The Government plans to improve compliance and increase collection by strengthening risk-based assessments and audits. Provided this is supported by appropriate capacity building within RRA team and taxpayer education, this initiative should achieve the intended goals. Other tax administration measures Other measures proposed by the Minister include: Conducting a study to identify potential areas to widen the tax base and estimate the tax gap; 7
Tax administration measures to improve efficiency levels Common External Tariff on a number of items maintained for another one year Conducting a customer satisfaction survey to identify new strategic priorities. Implementing an electronic single window system at customs that will allow parties involved in trade & transport to lodge standardized information & documents using a single point. Establishing a one-stop-border concept at Kagitumba and Rusumo border posts with 24 hours operations to facilitate cross border trade. Installing electronic cargo tracking equipment to ensure the protection of cargo from source to destination. Fully automating the collection of Caisse Sociale and RAMA contributions and bring those out of the PAYE net into the system. Changes to the East African s Common External Tariff (CET) The application of the Common External Tariff has been stayed for another period of one year on the following products. Product CET Rate Rice 30% Tractors 0% Trucks 10% Wheat grain 0% Wheat flour 35% Construction materials* 5% Aluminium conductors 10% *This applies to construction materials for investors with projects of at least US$ 1.8million. The normal CET on rice is 75%, wheat grain is 35% while that of wheat flour is 60%. Therefore the Minister s move to negotiate with other member states to maintain a lower tax rate on these imported foodstuffs is a positive step and it is line with his budget theme: Ensuring food security and price stability whilst maintaining sustainable growth Conclusion The Minister s main focus was on efforts aimed at improving tax administration measures and collection efforts. The initiatives outlined are expected to realise benefits for the Government and ease tax collection efforts by RRA. The Minister in his speech indicated that the Government will conduct a study to identify potential areas to widen the tax base. The current tax law provides for a voluntary tax disclosure process where taxpayers who take advantage of this provision would be required to pay the principal tax and some penalties but would benefit from automatic waiver of understatement penalties. This should be encouraged and RRA should put more efforts in enhancing awareness of this opportunity. The Government could also consider introducing a form of tax amnesty. This is usually a limited time opportunity for taxpayers to pay previously undeclared taxes, in most cases without interest or fear of prosecution. Although there pros and cons of tax amnesties, most tend to achieve the longer term goals of widening of the tax base and increasing tax revenues. Overall, the tax changes proposed by the Minister, once fully implemented, will ease the regulator s administrative burden. Taxpayers will be relieved by the reduction in queues at RRA, but the extent of benefits to taxpayers will depend on the implementation modalities for ETDs. 8
East Africa economies at a glance 5.6% growth in the Kenyan economy driven by agriculture and construction. Priorities are infrastructure, private sector growth and poverty reduction Kenya The Kenyan economy grew by 5.6% in 2010 compared to 2.6% growth in 2009. This growth was across all the sectors of the economy with a major boost from the agriculture and forestry sector which grew by 6.3 % in the year. The country has also continued to experience significant growth in the building and construction sector driven by both the private sector investments and the increased investments by the government in physical infrastructure in 2010. The economy is projected to grow by 5.7%, 6.3% and 6.5% in the next 3 years respectively. The priority areas highlighted in the 2011/2012 budget include the following: Facilitation of private sector for growth and development; Cushioning of the economy and the people against high commodity prices; Ensuring equity and fairness in tax system; and Enhancing fairness in tax administration. To achieve the above goals, there are plans to grow the investment in infrastructure to Shs 221 billion from Shs 166 billion in 2010/2011 by scaling up of road construction to facilitate trade and commerce, investing more in the geothermal development and rural electrification programme and upgrading of the railway system in the country through construction of the standard gauge railway and upgrade of commuter rail for faster and affordable transport. In addition, several financial sector reforms have been initiated with an objective of enhancing the access, efficiency and stability of the sector. The reforms include increased support and licensing of the microfinance institutions, agency banking and review and improvement of legal and regulatory frameworks. The government has also expressed its commitment to the implementation of the provisions of the Common Market Protocol by supporting the ongoing negotiations of the East African Monetary Union Protocol. It is however noteworthy that unlike in Uganda there was no mention of the ratification of the East Africa Double Tax Treaty. It might therefore be a while before the treaty takes effect in the region. 1
7% growth in Tanzania attributed to agricultural sector 6.3% growth in Uganda fuelled by construction and trade activities 7.5% growth in Rwanda linked to agriculture, manufacturing and services Tanzania The 2011/2012 budget takes into account the key areas as the country gears up towards achieving the National Development Vision 2025. The budget comes at a time when the country is experiencing a rise in the cost of living. Among the measures taken is the exemption of taxes on agricultural inputs in order to boost the sector. In addition, the government has put in more resources to boost the country s infrastructure and energy sectors The economy grew by 7% in the year compared to 6% in the previous year. Uganda The GDP of Uganda grew by 6.3% in 2010/2011 up from 5.5% in 2009/2010. This was fuelled by construction and trade activities. Despite the increase of 80 basis points, Uganda s economy faces significant challenges such as inadequate infrastructure, high unemployment and inflationary pressures With the 2011/2012 budget theme, Promoting Economic growth, Job Creation and Improving Service Delivery, the Government seeks to promote rapid, broad based and sustainable growth consistent with transforming the country to a middle income status. The 2011/2012 budget priorities include: Infrastructure development in roads, rail and energy Enhancing agricultural production the performance of the agriculture sector generally declined in 2010/2011. In 2011/2012, the government has therefore committed more resources in the agriculture sector, namely, wheat, cotton, coffee & tea processing, farm machinery & equipment, milk processing and warehouse construction and storage; Employment creation including creation of a Youth Entrepreneurship Venture Capital Fund; Human resource development; and Improving public service delivery this includes 50% cut on ministerial advertising costs, cut of 30% of the budget for allowances and freezing government vehicle purchases The macroeconomic objectives of the 2011/2012 budget are to attain the following in the next one year: 7% economic growth; Inflation rate of 5% down from the high inflation rate of 16.1% per annum in May 2011 ; Stable, competitive exchange rate; and Prioritizing investments and employment creation. Other highlights affecting the economic outlook of the country in the 2011/2012 FY include: Private sector development simplifying licensing procedures and elimination of redundant procedures; Oil sector management legislation intended to ensure efficient utilisation of the oil resource, estimated at 2.5 billion barrels is being finalised for parliament presentation; Access to Affordable financial services government to fully implement the National ID card to ensure identification of borrowers Rwanda The Real GDP recorded a modest growth of 7.5% from 6.1 recorded in 2009. The recovery was mainly fuelled by export of agricultural crops, growth in the manufacturing and construction industries and growth in services, and in particular, the finance and insurance sector. 2
A budget focused on the four pillars of expenditure. Overall, total revenue and grants have been projected to rise by 15.5% (RWF 129.8 billion) from RWF 844.2 billion in the revised budget for 2010/2011 to RWF 974 billion in 2011/2012. Total expenditure and net lending is also projected to rise by 7.6% (RWF 74.7 billion) from RWF 988.1 billion in 2010/2011 to RWF 1,062.8 billion in 2011/2012. One is left to ask how the Minister intends to raise the deficit. As in last years budget, the budget for 2011/2012 focuses on four pillars of expenditure namely - Infrastructure rollout; maintaining growth in productive sectors; development of human capital; and promotion of good governance. The Rwanda budget has had no significant change and are in line with Rwanda s development strategies as laid out in the Economic Development and Poverty Reduction Strategy (EDPRS). The major focus of the budget is to raise resources for completion of strategic investment projects that will stimulate growth of other sectors, promote the business environment and reduce the cost of doing business. The focus is on energy generation and distribution projects, road construction and rehabilitation and ICT development. 3
Key highlights from the Kenya, Tanzania, Uganda and Rwanda Key indicators of the performance of the East Africa economies are set out below. Where applicable, prior year comparatives have been included in brackets. Kenya Tanzania Uganda Rwanda Real GDP growth 5.6% (2.6%) 7% (6.0%) 6.3% (5.5%) 7.5% (6.0%) Overall inflation 5.96% (3.9%) 5.5% (12.1%) 16% (9.4%) 4.7% (5.7%) Positive macroeconomic indicators across the region 91 day TB rates 8.7% (3.9%) 3.77% (2.2%) 9.1% (8.4%) 6.85% (8.43%) Ksh Tsh Ush RwF Exchange rate to the dollar (Local currency = US$1) 87.70 (79.97) 1,533.2 (1,320) 2,388 (2,259) 600 (583) Budgeted spend (billions) 1,155 (996.8) 13,526 (11,610) 9,325.7 (7,377) 1,062 (988.1) Recurring Development 756.4 (675.6) 398.6(321.2) 8,601 (7,791) 4,925 (3,819) 5,855.6 (3,566) 3,470.1(2,807) 557.9 (514.9) 503.3 (473.2) 4
A general decrease in duty on foods and raw materials across the region Customs and Excise East African Community (EAC) Goods imported into the EAC are subject to Common External Tariffs (CET). The proposals made by the member states in respect of these tariffs in 2011/2012 are as follows: Remission of import duty on aseptic plastic bags used for storage of fruit extracts from CET rate of 25% to 10%; Reduction of import duty on food supplements from 25% to 10%; Reduction of import duty on premixes used in the manufacture of animal and poultry feeds from 10% to 0%; Reduction of import duty on heads used in the manufacture of sprays from 25% to 10%; Zero rating of import duty on white oil; Zero rating of import duty on motorcycle ambulances; Increase in the import duty on galvanized wire from 0% to 10% Import duty remission on inputs used for the production of solar panels; Other products whose import duty has been exempted are: Battery operated vehicles; Apron buses used at airside; Security equipment such as metal detectors and CCTV cameras; Vehicles and equipment imported by Kenya police; and Tsetse fly traps. The changes that are unique to the respective East Africa Community countries are as follows: Kenya Remission of import duty on wheat grains imported by gazetted millers reducing the rate from 10% to 0% for one year; Remission and zero rating of import duty on Maize grain imported by gazetted millers for a period of 6 months compared to a CET rate of 50%.; Extension of a stay of CET application to have all types of rice imported at a rate of 35% instead if 75% for one year; Removal of excise duty on kerosene; Harmonisation of the excise duty on cigarettes at Ksh. 1,200 per mille or 35% of retail selling price (RSP); and Increase in the excise rates for beer to Ksh. 70 per litre or 40% of RSP and the rates for wines to Ksh. 80 per litre or 40% of RSP. Tanzania Reduction of excise duty on Heavy Fuel Oil (HFO) from Tsh. 80 to Tsh. 40. Excise duty on plastic bags of more than 30 microns of polymers has been reduced from 120 percent to 50 percent. Rise of excise duty by 10 percent for Carbonated soft drinks, Beer, Wine with more than 25percent imported grapes, Wines with domestic grapes exceeding 75 percent and Spirits. The excise duty on cigarettes has been revised as follows: i) Cigarettes without filter tip and containing domestic tobacco more than 75 percent rise from Tsh. 6,209 to Tsh. 6,830 per mill; ii) Cigarettes with filter tip and containing domestic tobacco more than 75 percent rise from Tsh. 14,649 to Tsh. 16,114 per mill; 5
In crease in excise duty on alcoholic drinks and cigarettes. Zero rating of Kerosene in Uganda iii) Cigarettes other than the ones mention above; rise from Tsh. 26,604 to Tsh. 29,264; iv) Cut rag and cut filter rise from Tsh. 13,436 per Kg to Tsh 14,780 per Kg; v) Duty of Cigars remains at 30%. Uganda Duty remission on Uganda s raw materials and industrial inputs has been extended for one year; Import duty remission on road trucks & semi-trailers of carrying capacity of over 20 tonnes has been extended for one year; Import taxes on components and inputs for assembly of refrigerators and freezers have been remitted from 25% to 10%; To encourage use of affordable technology, taxes have been waived on motor cycle ambulances; Import duty on hoes was remitted from 10% to 0 to encourage food security; Sugar excise duty reduced by 50%; Kerosene like Kenya, excise has been reduced to zero to cushion the vulnerable members of society against the high cost of living; Hides & skins the levy on exports and outward processing of raw hides and skins has been revised upwards from USD 0.4 per kilo to USD 0.8 per kilo; and Investment trader regulations these regulations have been terminated in order to streamline and improve tax administration. Rice: CET of 30%; Tractors: CET of 0%; Trucks carrying capacity exceeding tonnes but not exceeding 20 tonnes: CET of 10%; Wheat grain: CET of 0%; Wheat flour: CET 35%; Construction materials for investors with projects of at least US$ 1.8 million: CET 5%; and Aluminium conductors and cables: CET 10%; and Rwanda Regarding the application of the Common External Tariff (CET), it was agreed to stay application for Rwanda for a period of one year on the following products: 6
Kenya abolishes filing of returns by employees who have no other income Refining of VAT regulations in Tanzania Direct and indirect taxes Kenya Personal and withholding tax Increase in withholding tax in respect of payments made to professionals from 5% to 10% Employees will only qualify for one personal relief Abolishment of filing of returns by employees who have no other income other than employment income and their PAYE is paid by their employers. Value Added Tax (VAT) A draft VAT legislation bill has been produced for public comments. A revised version of the bill is scheduled to be submitted for a stakeholders workshop by end of August 2011. Thereafter, a final draft will be submitted to the cabinet for consideration. Tanzania Personal and withholding taxes Allowances payable to employees of the Government and institutions that receive government aid to run their operations will be exempt of tax The withholding tax on foreign freight costs incurred in transporting fish has been scrapped. Value Added Tax Introduction of a VAT refund system for retail exports purchased in the country by non residents. The new system becomes effective from 1 January 2012. In addition, there has been an introduction of a special VAT relief to Non Governmental Organisations (NGOs) that provide food supplies to Children and Orphanage care centres and schools. VAT on the following products has been exempted: spares parts for threshers, rice dryers, and mills, planters, trailers and power tillers used in organised farming such as registered groups and cooperative unions; NASCOR pellet feed used for poultry; raw materials used in making fishing nets; and spare parts for sprayers, harrows, and grain conveyors. VAT exemption on the sale and lease of residential buildings by the National Housing Corporation has been scrapped. The special relief on charitable organisations and other NGOs has been scrapped. This measure does not apply to religious organisations. Uganda Income Tax Royalty payments made for internet broadcasting will now suffer WHT at 5% as they are now included in the definition of royalty Transfer Pricing Regulations these have now been finalised. These regulations are aimed at ensuring that prices charged between multinational associated entities for goods, services and intangible property are in line with the arms length principle. The regulations, which take effect on 1 July 2011, are expected to be in line with the OECD guidelines and will be similar to those adopted in Kenya in 2006. Value Added Tax Imported services Reverse VAT to be accounted for at the rate of 18% by the recipient of the service he is a taxable person This amendment would favour VAT registered persons who would be able to claim back VAT incurred. However, partially exempt taxable persons will lose out as they can only claim a portion of the VAT incurred on imported services. Supply of solar energy together with the supply of solar panels is now exempted from tax 7
Solar panels exempted from tax Supply of ambulances VAT on supply of ambulances has been removed. Stamp duty There is now no stamp duty on securities given for procurement of small loans not exceeding Ush. 2 million (approximately USD 820). Rwanda Fuel levy A total reduction in fuel taxes by RWF100 per litter for both petrol and gasoil for fiscal year 2011/2012 is to be carried out in two stages. RWF 50 per litre in the June-December 2011 and another RWF50 per litre on 1st January 2012. New petrol pump prices are to be announced. Total revenue loss expected of RWF 14.1 Billion in the year 2011/2012 from these measures. Value Added Tax Introduction of Electronic Transaction Devices to increase efficiency of VAT collections gradually from 1st July 2011. The first phase targets Large and Medium sized retailers. Expected increase of RWF 4.2 Billion from these measures. Increase in VAT efficiency and the introduction of the gaming taxes provide an additional revenue of RWF 5.2 billion which reduces the fuel tax adjustment loss from RWF14.2 billion to about RWF9 billion. It is proposed that VAT be deducted at source before payments of invoices by Government entities thereby ensuring prompt payment by tax payers and reduced cost of collection for the revenue authority. Others Introduction of gaming tax through the proposed passing of the Gaming law by parliament to levy a gaming special tax of 13% and a withholding tax of 15%. Expected collections of RWF186.3 million and RWF 859.9 respectively from the two taxes. 8
Commissioners have the power to register tax payers Miscellaneous Kenya Tax administration The government to enter into tax information exchange agreements with other tax jurisdictions to facilitate exchange of information aimed at reducing tax evasion. Kenya Revenue Authority commissioners have the power to register taxpayers who refuse to apply for Personal Identification Number (PIN). Others Real Estate Investment Trusts will be exempt from corporate tax. The investors who receive dividend from these trusts will also be exempt from payment of withholding tax. Pension schemes that invest all their funds in guaranteed funds will no longer be required to appoint fund managers. Tanzania Other taxes and levies Exempt stamp duty on the transfer of ownership of assets to the Special Purpose Vehicles (SPV) for purposes of issuing asset backed securities. Exemption of fuel levy charged on fuel for vessels, rigs and other equipment used in oil and gas exploration. Imposition of a fee of Tsh. 50,000 by Town authorities for businesses operating in the area with the exception of those that deal in hard drink. Imposition of a fee of Tsh. 30,000 by District Councils for businesses operating in the area. Imposition of a fee of Tsh. 10,000 by Village councils on businesses operating in the area. The traffic notification fee has been increased from Tsh. 20,000 to Tsh. 300,000 Uganda Stamp duty There is now no stamp duty on securities given for procurement of small loans not exceeding Ush. 2 million (approximately USD 820). Others The government is in the process of reviewing the Excise Law, stamp duty law, lotteries and gaming and pool betting laws. This is a welcome move considering that some of these laws date to the colonial era and have been unsuitable for the contemporary business environment. In addition, the government has drafted a Tax Procedure Code to be introduced in Parliament in 2011/12. Rwanda Tax Administration Commissioning of a study to identify potential areas to widen the tax base and estimate the tax gap Introduction of e-filing and payment to improve on time spent, reduce burden to taxpayers and service delivery Conducting of customer satisfaction survey to inform next areas of focus for strategic planning purposes Implement electronic single window system at customs that will allow parties involved in trade & transport to lodge standardized information & documents using a single point Establishment of a One-Stop-Border concept on Kagitumba and Rusumo border posts with 24 hours operations to facilitate cross border trade Operation of an electronic cargo tracking equipment to ensure the protection of cargo from source to destination Full automation of collection of pension funds and RAMA contributions and bringing those out of the PAYE net into the system 9