Rwanda: Is Rwanda Giving Too Much in Tax Incentives?

A section of civil society organisations has called on the Government to reconsider tax incentive policies and only extend them to multinationals in key priority areas and with multiplier effect.

The civil society groups say this will lead to inclusive development and curb unfair competition among businesses.

James Butare, the head of programmes and policy at ActionAid Rwanda, told The New Times that there should also be transparency in the negotiations of the incentives and offers to allow for public engagement and monitoring.

“We are not saying that all tax incentives are harmful but, rather, the Government should be able to provide reasonable incentives and in priority areas which have multiplier effects and leading to inclusive development,” Butare said.

He said, from a research commissioned by the organisation, they established that no clear monitoring mechanisms to hold accountable multinationals to the terms under which the incentives were offered.

This, Butare said, can be addressed by extending the incentives and exemptions on condition that they transfer skills to locals.

“From my own perspective, I would even be happy if the Government conditioned the multi-national companies who want to invest in the country to work with national companies – like it is in the Arab Emirates region – so that they transfer skills to the locals, especially those working in construction, manufacturing and vocational training,” Butare said.

In the study commissioned by ActionAid and conducted by Institute of Policy Analysis and Research last year, it emerged that Rwanda’s self-reliance ambitions can only be funded through strategic tax policies.

The report recommended the reassessment of incentives and exemptions on the basis of impact on employment and widening the tax base.

“The majority of the beneficiaries from tax exemptions have generally been foreign multinationals, leaving out local industries which have sometimes lamented the unfair competition.

“The sectors of agro-processing, ICT and tourism especially those owned by domestic investors, need to be incentivised in order to promote a level playing field between domestic and foreign investors,” the report reads in part.

International civil society organisations have also called on governments to re-evaluate and reconsider their tax policies based on their impact to livelihoods and contribution to the tax base.

There have been concerns that African countries are losing out on revenue through unwarranted incentives.

As the competition for foreign investment gets stiffer, governments across the world have offered a raft of incentives that include tax holidays and exemptions to gain competitive edge.

However, some studies have shown that the same foreign investments would still have materialised without the incentives.

Last year, Rwanda revised the investment code that, among others, saw investors enjoy preferential corporate income tax of 15 per cent, for sectors such as energy, transport, financial services, affordable housing, and logistics.

These are among the priority areas earmarked to spur and sustain economic growth.

The code also allows up to seven-year tax holidays to projects investing more than $50 million in energy, manufacturing, tourism, ICT or health sectors.

While the revised code boosts Rwanda’s competitiveness, its implementation will have to be closely monitored not to affect revenue collection targets or the bigger goal of self-reliance, analysts say.

Efforts to reach the Ministry of Finance and Economic Planning for comments were futile by press time, while officials at Rwanda Development Board, under whose docket investment promotion lies, declined to comment on the matter.

Comments are closed.