The government has approved a draft law that seeks to impose a new levy on goods imported from outside the East African Community (EAC) in order to collect funds needed for regional infrastructure projects.

The draft law establishing the Infrastructure Development Levy on imported goods was approved by last week’s Cabinet meeting. According to the proposed law, all imported goods (from outside EAC), except those exempted under the law, are subject to a levy of 1.5 per cent on the customs value of imported goods. The government says the levy “is intended to mobilise funds for regional infrastructure projects that will assist in improving the infrastructure and reduce the cost of transport and the cost of doing business in the region.”

The regional infrastructure projects to be funded include the railway and energy networking infrastructure such as electricity grids and oil pipelines, which are being pursued under the Northern Corridor Integration Projects initiative. “To run these big projects, countries need huge financing. With the view to overcome this problem, EAC Heads of State introduced the idea to establish a levy on imports from outside the bloc to finance the projects,” a Cabinet paper, a copy of which The New Times has seen, reads in part.

The draft law approved by the Cabinet says the levy on goods imported will be collected at Customs points by Rwanda Revenue Authority in accordance with the customs legislation and deposited into a sub account of the Treasury. Although the draft law is yet to be tabled in Parliament, the plan to impose the levy is already being touted by government officials as a sure source of funds to finance ambitious infrastructure projects.

‘A good source of funds’

The State Minister for Transport, Dr Alexis Nzahabwanimana, told The New Times that the levy will be a good source of funds to build the Rwandan side of the railway of the Northern Corridor whose feasibility study is set to be completed in July. “We are mobilising funds from different sources, including the infrastructure development levy,” he said.

If passed by Parliament in its current form, goods to be exempted under the new law would include those imported while they were made or tax exempted from within the EAC, fertilisers and seeds, live animals, medicine and pharmaceutical products. Goods such as medical equipment, mosquito nets, industrial machinery and equipment for energy and water sectors, as well as for investment projects with investment certificates are also exempted from the levy.

The 1.5 per cent infrastructure development levy on goods imported outside EAC was agreed on by EAC ministers of finance during consultations last year. If Rwanda starts imposing the levy, it would be following the example of Kenya and Uganda, who are already implementing the policy, while Burundi and Tanzania are still consulting before they start imposing the levy.

Experts root for the levy

Experts say the levy on imported goods from outside the EAC will help government to both get the money it needs for infrastructure in the short-term, while also easing the cost of doing business in the long-term. “In the short-term people may immediately feel the pinch from paying the levy but the long term benefit is to reduce the cost of transport and of doing business,” said Frobisher Mugambwa, a Kigali-based senior tax manager at PricewaterhouseCoopers, a global services advisory firm.

Angello Musinguzi, a tax manager at KPMG, a global network of professional firms providing audit and advisory in tax services, agrees that imposing the levy may provide government with the money needed to build infrastructure, which the private entrepreneurs need to ease their business. “Importers will transfer the cost of the levy to the end-consumers but it’s definitely going to help government get funds to invest in the (infrastructure) projects,” Musinguzi said.