Rwanda plans to review tax policy

In a bid to stimulate economic growth and encourage tax compliance, President Paul Kagame of Rwanda has directed the government to undertake a comprehensive review of the current tax policy, with a focus on reducing certain types of taxes. Many taxpayers in Rwanda have long voiced their concerns about the high tax burden in the country, calling for a reform of the tax system. CNBC Africa had the opportunity to speak with Angelo Musinguzi, Senior Tax Manager at KPMG Rwanda, to delve deeper into the implications of this potential tax policy overhaul. Musinguzi highlighted several key areas within the tax policy that are in need of reform, citing the high tax rates and cumbersome administrative processes as major pain points for taxpayers. He emphasized the need for a more efficient tax refund mechanism, a reduction in excessively high tax rates, and a review of the penalty regime to strike a balance between compliance and fairness. According to Musinguzi, Rwanda's tax-to-GDP ratio in 2020 was higher than the average of 31 other countries, indicating the need for a closer look at the overall tax framework in the region. While Rwanda's tax rates may align with those of neighboring countries like Kenya, Uganda, and Tanzania, Musinguzi stressed that the focus should be on improving the administration and implementation of the tax system rather than solely on the tax rates themselves. Echoing the sentiments of many taxpayers, Musinguzi called for a prioritization of tax refunds and a reduction in punitive tax penalties to create a more taxpayer-friendly environment. The delay in processing tax refunds was identified as a key issue, with Musinguzi suggesting an increase in the percentage of revenue allocated for refunds to expedite the process. He also emphasized the need to strike a balance between enforcing compliance through penalties and ensuring that the penalties themselves are reasonable and proportional to the tax owed. Drawing a comparison with Kenya's tax system, Musinguzi pointed out areas where Rwanda could learn and potentially improve its tax policies. For instance, he highlighted the difference in VAT rates on imported services between Rwanda and Kenya, suggesting that Rwanda could benefit from aligning its tax policies with regional standards to attract investment and reduce the cost of doing business. Looking ahead to 2023, Musinguzi predicted significant changes in Rwanda's tax environment, including a more taxpayer-friendly tax regime, streamlined refund processes, and potential adjustments to customs duties on raw materials. Overall, the proposed tax policy review in Rwanda signals a proactive step towards creating a more conducive environment for economic growth and investment.