Rwanda has officially started implementing the East African Community Customs Union, joining a 130 million market that includes Uganda, Tanzania, Burundi and Kenya, which commenced its operations within Kenya, Tanzania and Uganda on 1 January 2005.
Implementation of the Customs Union means that Rwanda will adopt a three band duty rate structure, which will impose an import duty of 25 percent on finished goods, intermediate products 10 percent and zero percent on raw materials and capital equipment, originating from the regional states.
An official statement released here Wednesday says that finished goods entering Rwanda have been attracting 30 percent, intermediate products 15 percent, raw materials five percent and zero percent for capital goods. The above taxes have been contributing above 30 percent of the total revenue collections.
Although policy makers point to a better picture in the long-run, economists in the country say the economy will experience serious shocks in the short-term but the shortfall may be recovered in the long-term.
“As we joined the East African Community (EAC), it has become a necessity to also join the Customs Union in the EAC that entails the elimination of tariffs and all levies and surcharges on imports from the EAC,” reads the statement by the Rwanda Revenue Authority (RRA) on the country’s accession to the EAC Customs Union.
Rwandan Finance Minister, James Musoni during the 2009/10 budget speech admitted that the treasury will incur a considerable financial loss of about $22.1 million as the government implements a lower common external tariff.
In addition to the above anticipated loss, exemptions on sensitive goods and computation of taxes based on Cost, Insurance and Freight (CIF) of the port of first entry into the community will increase Rwanda’s fiscal revenue loss. Considering both trade and trade-related activities, Rwanda Revenue Authority (RRA) says that the loss based on changing effective tariffs represents 12 percent.
However, the tax body says that it will mitigate this fiscal revenue loss by intensifying recruitment of tax payers since government will have to heavily rely on domestic taxes. Celestin Bumbakare, the Commissioner for Domestic Taxes told APA in an exclusive interview that RRA will use the Block Management System (BMS) to recruit more tax payers.
Source African Press Agency
