Rwanda, Tanzania amend VAT laws as tax exemptions prove costly

East African countries are reviewing their taxation laws in a bid to reduce tax exemptions that have seen their economies lose out on revenue. TEA GRAPHIC | NATION MEDIA GROUP 

By ALLAN OLINGO, The EastAfrican

In Summary

• Tanzania is banking on the VAT Act 2014 to reduce tax exemptions, which will enable it to collect $500 million in additional revenue in the 2015/16 financial year.
• Rwanda has also reviewed its taxation regime, reducing various exemptions and reforming its VAT laws.
• Kenya also plans to remove most of the tax incentives that foreign firms who set up operations in the country have been enjoying in order to align the investment policies that county governments are formulating with those of the national government.

East African countries are reviewing their taxation laws in a bid to reduce tax exemptions that have seen their ............................... economies lose out on revenue.

In the past week, Rwanda and Tanzania have moved to effect new VAT Bills that deal with tax exemptions.

Last week, Tanzania’s Parliamentary Public Accounts Committee (PAC) asked the Minister for Finance to gazette the Vat Bill 2014 meant to reduce revenue leakage as a result of tax exemptions. This was after the Tanzania Revenue Authority (TRA) showed an increase in the country’s tax exemptions from $793 million for the 2012/2013 financial year to $964 million in 2013/2014.

According to TRA, exemptions for multinational companies engaged in exploration for natural gas and oil stood at $58.82 million while projects undertaken by state-owned firms enjoyed a waiver of up to $86.47 million.

The chairman of the PAC, Zitto Kabwe, said that the delay in enacting the VAT Act of 2014 would deny the government more revenues through the VAT-special reliefs in the current year.

TRA Commissioner-General Rished Bade said that in the 2013/14 financial year the VAT relief rose to $409.41 million from $335.90 million in 2012/2013.

“We have seen an increase in tax exemptions due to huge gas exploration projects and other donor-funded infrastructural projects. Projects that have enjoyed these exemptions include the construction of the pipeline to transport natural gas from Mtwara to Dar es Salaam and the construction of the Kigamboni Bridge,” said Mr Bade.

Tanzania is banking on the VAT Act 2014 to reduce tax exemptions, which will enable it to collect $500 million in additional revenue in the 2015/16 financial year.

The Act stipulates that the government, which previously had unrestricted powers to grant or amend exemptions, must seek approval from the National Assembly before it reviews, grants or abolishes a tax exemption. The Act also removes exemptions on imports for use in mining or oil and gas exploration.

Rwanda has also reviewed its taxation regime, reducing various exemptions and reforming its VAT laws. The Rwandan parliament last week passed a new draft law governing VAT, which awaits presidential assent.

READ: Rwanda tables new strategy to fast track investment

In the new law, VAT remains at 18 per cent of the value of goods or services sold. It also gives the line ministers powers to determine certain goods and services that may be exempted from VAT from time to time. The old law, which was enacted in 2012, was amended on the grounds that it did not provide for VAT exemption for certain goods and services that must be exempted.

“The IMF identified gaps in our tax system, including the issue of exemptions and incentives; they feel there is a lot of revenue leakage through the incentives, in particular legislative exemptions in terms of investment promotions,” Ben Kagarama, former commissioner-general of the Rwanda Revenue Authority told The EastAfrican last year.

Kenya also plans to remove most of the tax incentives that foreign firms who set up operations in the country have been enjoying in order to align the investment policies that county governments are formulating with those of the national government.

Kenya Investment Authority (KenInvest) chief executive officer Moses Ikiara said the plan is to remove the many tax incentives Kenya has been offering investors.