News Column

Will Consumers Benefit From Tax Cuts in the 2014/2015 Budget?

June 25, 2014

P. Tumwebaze

The government announced a wide range of tax exemptions and reductions in the 2014/15 financial year budget as one of the ways to ease access to goods as well as promote trade and production in the country.

Ideally, one would assume that with these exemptions and tax cuts, commodity prices for those goods that benefitted should go down marginally or otherwise. But this may not be the case as they are other factors that come into play like the cost of power and rent, among others. This is the reason why the civil society is calling for strong mechanisms to ensure that consumers benefit from these tax reviews.

They civil society activists argue that many times prices of exempted goods remain high, profiting only producers and business people.

The government reduced and removed taxes on some products including sugar, wheat flour, passenger vehicles, cement, road tractors, trailers and telecom equipment, among oters, in the 2014/14 financial year budget.

The Government waived off or reduced customs and excise duty on passenger vehicles carrying more than 25 people, wheat, sugar, rice, telecommunication equipment and cement.

The tax measures, according to Ministry of Finance are intended to drive growth and, especially help in the realisation of the second Economic Development and Poverty Reduction Strategy (EDPRS II) objectives.

However, civil society and the public are wary that the tax cuts and exemptions may not benefit the final consumers.

Anataria Karimba, the TradeMark East Africa private sector and civil society officer, said while the private sector should take advantage of the tax exemptions, they should not do so at the expense of the consumers.

"A strong mechanism should be instituted to ensure that it is not only the business community profiting from these exemptions, but all Rwandans including consumers. Therefore, these tax cuts should be reflected in commodity prices," Karimba said during a post-budget breakfast meeting in Kigali last week.

Obadiah Biraro, the Auditor General, said there is need to ensure public interests are considered in the budget.

"According to Article 184 of the constitution, whatever the government plans in the budget, it must promote public interest, and ensure equitable distribution of resources," he said.

His views were shared by many Rwandans, including Peter Mugema, the managing director of Star Dairy Products.

"The government should not only focus on production, but also look at ways on how to boost people's purchasing power because production without consumption is useless. Encouraging local production is more meaningful if it is supported by real consumption," he argued.

The budget vs EDPRS II:

While most economic experts agree that the 2014/2015 fiscal year budget is a clear indication that the government is committed to achieving its economic objectives, they are also calling for more measures to strengthen the country's monetary and fiscal policies, support for the regional integration process and more business reforms to attract investments into the country.

"There is no doubt Rwanda's budget is an indicator that government is trying to consolidate achievements made during EDPRS I and lay a foundation that will ensure EDPRS II becomes a success," David Baliraine, an associated tax director at EY Rwanda, said.

The initiatives will not only attract more investments into the country, but will also expand Rwanda's tax base and help drive economic growth projected to grow at 6 per cent this year and 6.7 per cent in 2015, according to Patronella Namubiru, the Deloitte taxation services manager.

Next financial year, the government will focus on infrastructure, growing the exports base, rural development and skills and regional integration to boost external trade and support the local business community.

Meanwhile, government is looking forward to focus more on infrastructure development to boost exports and has proposed to inject 14 per cent of the Rwf1.75 trillion in rural development and 25 per cent was allocated to economic transformation.

Productivity and youth employment will take 10 per cent, accountable governance 0.3 per cent, with other sectors consuming 48 per cent of the national budget.

"Rwanda, with other EAC partner states, are now undertaking common infrastructure investments to reduce non-tariff barriers and facilitate regional trade.

The initiative could spur growth across the region, especially for the landlocked countries like Rwanda," Baliraine said.

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Source: AllAfrica

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