Impact of Rwanda’s nex tax measures on economic growth

Rwanda Revenue Authority's tax collections have surged by 12.3% in the 2023-2024 financial year, hitting 2.62 trillion Rwf, representing 99.3% of the set target of 2.64 trillion Rwf. These taxes now make up 51.2% of the total budget, marking a rise from 48.9% in the previous year. The tax contribution to the country's GDP has also reached 15.1% in the past financial year, with projections indicating a surge to 15.8% by 2025. To shed light on these achievements and the emerging challenges, Denis Mukama, the Interim Commissioner for Strategy and Risk Analysis at Rwanda Revenue Authority (RRA), shared insights in an exclusive interview with CNBC Africa. During the interview, Mukama acknowledged the progress made in digitalization and education but highlighted existing gaps that need addressing. Specifically, he emphasized the importance of not allowing digitalization to overshadow legal requirements and advocated for support for those who are not digitally literate in order to ensure inclusive tax compliance. Mukama stressed the challenge faced by tax administrators in incorporating feedback for service delivery improvement as they plan for the future. The conversation then shifted to the recent tax policy developments affecting sectors like cosmetics and alcoholic beverages. The interviewer raised concerns about the potential impact on economic growth and the need for balance to prevent undue pressure on manufacturers and consumers. Mukama underscored the importance of these policies in fostering self-reliance, citing an expected increase in revenue contribution to the GDP over the coming years. He highlighted the significance of ensuring that these tax reforms do not inadvertently hike prices or disrupt sectors like transportation through a trickle-down effect. Furthermore, Mukama delved into the strategic risks facing Rwanda's revenue collection entity, emphasizing the varying levels of tax compliance maturity among taxpayers. He elaborated on risks associated with introducing new taxes, such as the potential for price exploitation by retailers in response to VAT implementation on items like mobile handsets. Mukama outlined the measures being taken to mitigate these risks, including enhanced customs oversight and engagements with sector players to provide quick responses and support. In conclusion, Mukama's insights shed light on Rwanda's robust tax collection performance, the intricacies of balancing tax policies for economic growth, and the strategic risks being managed to sustain revenue collection goals. As Rwanda navigates through these challenges and opportunities, proactive measures and stakeholder engagement will be crucial in maintaining fiscal sustainability and supporting inclusive growth.