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Rwanda extends tax breaks to manufacturing, construction

Starting January, the Government will roll out tax incentives, for two years, to help stimulate investments in the manufacturing and the construction sectors as well as speed up business recovery from the Covid-19 effects.

Collins Mwai with The New Times Rwanda

The relief is under an initiative known as ‘Manufacture and Build to Recover Programme’, which was approved by cabinet this week.

The programme is designed to significantly reduce the cost of setting up industries of select products as well as existing firms who would like to expand their current operations. The incentives are seeking to increase the production of construction materials, agro-processing, as well as hygiene and sanitation products.

Companies setting up industries or expanding operations in the above sectors will be exempted from import duty for materials and equipment bought for purposes of setting up the production plants.

In the event that the materials are bought locally, the firms will be exempted from Value Added Tax which is at 18 per cent. The programme will run for two years with beneficiaries expected to have completed setting up their industries.

The incentives will also see large construction projects in the country exempted from paying Value Added Tax on materials sourced locally such as steel and cement for a 3-year period.

Zephanie Niyonkuru, the Deputy Chief Executive of Rwanda Development Board, explained that the programme is part of the economic recovery plan aimed at boosting economic activity and consequently create more jobs.

Niyonkuru told The New Times that the incentives were tailored with an intention to create fiscal policies that entice investments at a time when there is hesitance and reluctance to invest.

“The task was to create a fiscal policy which entices people to invest now instead of waiting. That is the way we can create jobs, boost local production capacities, improve productivity,” he said,

The incentives exempting VAT and import duty for companies setting up industries, he said, could see an increase in the number of local producers and consequently lead to the recapturing of the domestic market.

The element of providing VAT exemption for locally sourced construction materials to construction projects, he said will increase consumption of locally produced goods and recapture the domestic market in the process and consequently reduction of trade deficit.

To ensure that the programme is relevant for local manufacturers, Niyonkuru said that they have been holding countrywide consultations to access challenges and pain points.

In the process, they were able to, for instance, understand why some firms produce below their installed capacity and interventions required.

“We have been visiting some of these companies, we wanted to have a programme that complements existing ones, and we want to support new companies and existing firms. We found that some existing companies were producing under capacity for various reasons. We accessed the support that they needed,” he said.

These could see an increase in the number of production plants for agri-processing which includes maize flour, wheat flour, edible oil, milk products among others.

hygiene and sanitization which includes light manufacturing of products such as hygienic products, sanitizers, soaps, detergents, sanitary pads and others could also be a major beneficiary.

Producers of construction materials who include cement producers, steel, tiles among others are also key beneficiaries.

Others include packaging materials which will be working with the above firms.

Trade and Industry Minister Soraya Hakuziyaremye said that from the programme, the government expects an increase in the number of industries in the country as well as better performance for existing ones.

Benjamin Gasamagera, a local businessman involved in manufacturing welcomed any incentives, noting that it will increase the number of players, competition and ultimately the quality of products.

By easing the entry of new firms into the sector, Gasamagera said that local products are likely to be more competitive in quality and prices and eventually ready for exports.

Commenting about the programme, on Social Media, National Industrial Research and Development Agency Director General Christian Sekomo noted that it will improve the productivity of locally made products both in quality and quantity.

Rwanda’s manufacturing sector is dominated by agro-processing as well as light manufacturing such as soaps and detergents, pesticides, garments, wood and pharmaceuticals.

The industry is also driven by construction materials (cement and tiles, plastics, paints, and metals), and other cross-cutting enablers like paper and plastic packaging, as well as glass bottles and containers.

However, the country continues to experience a supply deficit of these products with imports dominant.

Among the key challenges that have been previously cited in Rwanda’s manufacturing sector include lack of skilled labour, high cost of raw materials, inadequate supply of raw materials and access to working capital.

The Covid-19 pandemic had a toll on industry, with estimates showing that the sector contracted at the rate of 19 per cent in the first half of the year.

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