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TAX ANALYSIS (CASE OF RWANDA).pptx

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Peking University
School Of Government
Master of Public Policy
Course of Economics of Public Policy
Prepared By: Sadamu Francois (Dù Fán)
2301213884
Approved By: Prof. WANG Di
Presentation Outcomes
 Brief Background of Rwanda
 Taxation system in Rwandan context
 The reason and purpose of tax correction
 Contribution of tax on economic development of Rwanda
 Views of Public policy analysts on Tax revenue during Public Policy
formulation and implementation process
Brief background of Rwanda
 Rwanda is a landlocked country located in East African Region with
13.2 Million people (National Institute of Statistic of Rwanda, 2022).
 Historically, Rwanda faced the tragedy, in 1994 genocide against Tutsi,
where more than one million of people were killed (Donatien, N. 2014)
 Aftermath, different consequences altered by Genocide, continued to
affect different aspects of social-economic life of the country. This is
because, during Genocide, different infrastructures were destructed by
rebels like schools, hospitals, administrative offices etc (Hodler, R.
2019).
 It required the strong strategies with stable institutional arrangement to
transform history into lessons for humanity that are relevant to the
Rwanda societies today (King, R. & Sakamoto, I. 2015).
Cont’d
 However, even though the country had been struggling to rebuild again
as well as making a resilience, there was no any natural resources
Petroleum site, no diamond, gold and any kind of mining site to be
considered as enough despite of it’s Public policy to reinvest in
themselves.
 After the genocide, the new Government of Rwanda led by His
exllency Paul KAGAME implemented different mechanisms of
rebuilding the country and Tax revenues is one of the main strategy
established in order to support the country’s economy.
What is Tax
 The study of McLure, Jr. (2015) Explains Tax as a compulsory financial
charge imposed on a taxpayer (an individual or legal entity) by
a governmental in order to collectively, fund government spending and
public expenditures.
 Tax policy is one of the core activities of government. It determines how
much revenue the government has to finance its activities. It also
determines which groups in society contribute how much to this
revenue, which means that it redistributes income and wealth
(Alesina, A. and Ardagna, S. 2010).
 Tax can encourage or discourage certain economic activities and the
choice of their geographical location and, thus, regulate and cause
distortions to economic activities (example: When prices and production
are higher or lower than levels that would usually exist in a competitive
market). it is conducted on the basis of economic as well as
considerations of social-political motivations.
The Purpose of Tax
 In Rwanda, the data released by world bank (2022) reveals that Rwanda
Tax corrected contributed 15.8% of the GDP.
 Basically, the above data has the relevance with the compliance of global
tax performance where, each country needs at least not less than of 15% of
the tax to contribute to its GDP ( IMF,2022) cited in (Wang, M. et al,
2022).
 According to the World Bank, tax revenues must be above 15% of a
country’s gross domestic product (GDP) as a key ingredient for
economic growth and, ultimately, poverty reduction (Kagan, J. 2021)
 Like Rwanda after 1994 Genocide against Tutsi, Many countries are still
struggling to collect sufficient revenues to finance their own development.
Countries collecting less than 15% of GDP in taxes must increase their
revenue collection in order to meet basic needs of citizens and businesses

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TAX ANALYSIS (CASE OF RWANDA).pptx

  • 1. Peking University School Of Government Master of Public Policy Course of Economics of Public Policy Prepared By: Sadamu Francois (Dù Fán) 2301213884 Approved By: Prof. WANG Di
  • 2. Presentation Outcomes  Brief Background of Rwanda  Taxation system in Rwandan context  The reason and purpose of tax correction  Contribution of tax on economic development of Rwanda  Views of Public policy analysts on Tax revenue during Public Policy formulation and implementation process
  • 3. Brief background of Rwanda  Rwanda is a landlocked country located in East African Region with 13.2 Million people (National Institute of Statistic of Rwanda, 2022).  Historically, Rwanda faced the tragedy, in 1994 genocide against Tutsi, where more than one million of people were killed (Donatien, N. 2014)  Aftermath, different consequences altered by Genocide, continued to affect different aspects of social-economic life of the country. This is because, during Genocide, different infrastructures were destructed by rebels like schools, hospitals, administrative offices etc (Hodler, R. 2019).  It required the strong strategies with stable institutional arrangement to transform history into lessons for humanity that are relevant to the Rwanda societies today (King, R. & Sakamoto, I. 2015).
  • 4. Cont’d  However, even though the country had been struggling to rebuild again as well as making a resilience, there was no any natural resources Petroleum site, no diamond, gold and any kind of mining site to be considered as enough despite of it’s Public policy to reinvest in themselves.  After the genocide, the new Government of Rwanda led by His exllency Paul KAGAME implemented different mechanisms of rebuilding the country and Tax revenues is one of the main strategy established in order to support the country’s economy.
  • 5. What is Tax  The study of McLure, Jr. (2015) Explains Tax as a compulsory financial charge imposed on a taxpayer (an individual or legal entity) by a governmental in order to collectively, fund government spending and public expenditures.  Tax policy is one of the core activities of government. It determines how much revenue the government has to finance its activities. It also determines which groups in society contribute how much to this revenue, which means that it redistributes income and wealth (Alesina, A. and Ardagna, S. 2010).  Tax can encourage or discourage certain economic activities and the choice of their geographical location and, thus, regulate and cause distortions to economic activities (example: When prices and production are higher or lower than levels that would usually exist in a competitive market). it is conducted on the basis of economic as well as considerations of social-political motivations.
  • 6. The Purpose of Tax  In Rwanda, the data released by world bank (2022) reveals that Rwanda Tax corrected contributed 15.8% of the GDP.  Basically, the above data has the relevance with the compliance of global tax performance where, each country needs at least not less than of 15% of the tax to contribute to its GDP ( IMF,2022) cited in (Wang, M. et al, 2022).  According to the World Bank, tax revenues must be above 15% of a country’s gross domestic product (GDP) as a key ingredient for economic growth and, ultimately, poverty reduction (Kagan, J. 2021)  Like Rwanda after 1994 Genocide against Tutsi, Many countries are still struggling to collect sufficient revenues to finance their own development. Countries collecting less than 15% of GDP in taxes must increase their revenue collection in order to meet basic needs of citizens and businesses
  • 7. Types of tax by The study by Avneet (2023), discuss the main two types of Tax in Rwanda  DIRECT TAX: is levied directly on individuals or businesses or other entities by the government. It is based on their income, profits, or assets. One example of a direct tax in Rwanda is the income tax that individuals pay on their earnings from salary, business, or investments. The tax amount is calculated based on the income slab rates set by the government (Avneet, K. 2023) .  INDIRECT TAX: This kind of tax, is not directly imposed but is passed on to them through the goods and services they purchase. It is included in the price of the products or services. One example of an indirect tax in Rwanda is the Goods and Services Tax (GST). When you buy goods or services, GST is added to the price you pay, and the seller collects it on behalf of the government.
  • 8. Other sub-types of tax 1. Excise taxes: Excise tax is imposed on the manufacturing or importation of certain commodities, mainly soft drinks, bottled water, cigarettes, alcohol, fuels, and lubricants Note: Evidence from the World health organization (2021), shows that significantly increasing tobacco, sugar, alcohol excise taxes and prices is the single most effective and cost-effective measure for reducing tobacco use. After realizing a adverse effects caused by different commodities on health of the people, government uses to raise the tax to the concerned commodities for being more consumed. 2. Income tax: it is a tax levied to a higher percentage of tax revenues are collected from high-income individuals or corporations than from low-income individual earners.
  • 9. Cont’d 3. Payroll tax: A percentage withheld from an employee’s pay by an employer, who pays it to the government on the employee’s behalf to fund Medicare and Social Security programs. 4. Corporate tax: A percentage of corporate profits taken as tax by the government to local programs 5. Sales tax: Taxes levied on certain goods and services; varies by jurisdiction 6. Property tax: Based on the value of land and property assets 7.Tariff: Taxes on imported goods; imposed with the aim of strengthening domestic businesses
  • 10. Role of the Government for Tax correction  Government of Rwanda has set different tax laws as well as rules and regulations to ensure that the tax system is fair and equitable.  Governments need to balance goals such as increased revenue mobilization, sustainable growth, and reduced compliance costs to let people be sure that the tax system is fair and equitable to everyone.  Fairness considerations include the relative taxation of the poor and the rich; corporate and individual taxpayers; cities and rural areas; formal and informal sectors, labor and investment income; and the older and the younger generations.
  • 11. Cont’d  In order to meet Rwanda’s ambitious health, education and infrastructure needs, drastic tax changes has been done (MINICOFIN, 2021).  By 2050, Rwanda aims to have a world-class tax system that is equitable and efficient, business-friendly with low tax rates and a broad base, encourages Rwandan citizens to invest domestically and facilitates broad and deep capital markets.
  • 12. Roles of Tax on economy of Rwanda  Contributing in public inflastructures such as Hospitals  Education
  • 13. Cont’d  Social Development : this is where vulnerable people are supported to initiate their own businesses through BDF (Business development fund).  Social security  Home grown solutions  Local capacity building TAX
  • 14. Roles of Tax on economy of Rwanda  Economy of country like roads, Hotels etc.
  • 15. Economic of Taxation Principles  Benefit principle: this principle is concerned on the idea that taxes should be paid in proportion to the number of benefits someone receives irrespective of their income.  However, The difficulty with this principle is that benefits are often quite tricky to measure. EXAMPLE Why should someone who doesn't even have a car pay this tax while someone who uses the car daily, pollutes the environment? Reasonably, An individual may not benefit directly from the tax by using a car to the road. However, the roads built and maintained from the tax revenue raised from this tax, are used to transport essential goods you consume.
  • 16. Cont’d  Ability to pay tax: it reveals that regardless of the benefits received, taxes should be paid in proportion to the income level. This means that that high-income earners pay more tax than low- income earners Example  With a brief and justified explanation, the ability to-pay principle, complements the benefits principle well, as the benefits consumed from government expenditure are difficult to quantify. In addition, it supports a reasonable assumption that higher-income people can pay their fair share without suffering as much as a low-income family would.
  • 17. Cont’d  Some of the tax incidence
  • 18. Cont’d  From the figure above, Imagine that a producer needs to pay a higher tax and decides to pass down the costs to the consumer in the form of higher prices. The extent to which the producer can pass on the tax burden to the consumer depends on the consumer's price elasticity of demand. Let's consider a case where consumer demand is relatively price elastic.  As seen in Figure 2 above, the tax imposed on a producer increases their production costs. This shifts the supply curve from S to S by the amount of tax charged. Initial equilibrium was at price P and quantity Q . 
  • 19. Tax Incidence  Taxation generally, reduces economic inequality, even when the tax revenue is not redistributed from higher-income individuals to lower- income individuals (OECD, 2012). However, in a highly specific condition, taxation increases economic inequality when lower-income individuals consume goods and services produced by higher-income individuals, who in turn consume only from other higher-income individual (Tax Policy center, 2021).  Tax causes income effects which reduce purschasing power of Taxpayers as well as a substitution effect when taxation causes a substitution between taxed goods and untaxed goods. Refer on figure below;
  • 21. Explanation  From the figure above, Data from study of Romer, C. & Romer, D. (2010) explains clearly how The income effect shows the variation of Y good quantity given by the change of real income. Again, from the above figure, the substitution effect shows the variation of Y good determined by relative prices' variation. This kind of taxation (that causes the substitution effect) can be considered distortionary. However, as the demand for this product is price inelastic, an increase in price causes the quantity demanded to drop by very little from Q to Q .  The new market equilibrium is at price P and quantity Q . Consumer burden is the purple highlighted area, whereas producer burden is the yellow highlighted area. It can be seen that in the case of more price inelastic demand, the consumer bears more incidence of the tax.
  • 22. Different views what Supporters of Taxation suggest?  According to most political philosophies, taxes are justified as to help government to finance activities that are necessary and beneficial to the entire society. Additionally, taxation can be used to reduce economic inequality in a society  the above view is also supported by the study of UNSECAP,(2002), that taxation in modern nation-states benefit the majority of the population and social development. various statements by Oliver Wendell Holmes Jr. state that "Taxes are the price of civilization” (Eugene C. 1998).  However, in his book wealth of Nations, Adam smith (1776) states that “Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty”
  • 23. What opponents suggest  Because payment of tax is compulsory and enforced by the legal system, rather than voluntary , some political philosophers view taxation as theft, and slavery, as a violation of property rights, or tyranny, accusing the government of imposing taxes via force and coercive means (Thomson, S. 2015).  Karl Marx assumed that taxation would be unnecessary after the advent of communism and looked forward to the "withering away of the state” (Linder, M. (1995). . In socialist economies such as that of China, taxation played a minor role, since most government income was derived from the ownership of enterprises, and it was argued by some that monetary taxation was not necessary
  • 24. Cont’d For Karl Marx, cited in Surin, K. (1990), the “withering away of the state”, means that a communist society shall no longer require coercion to induce individuals to behave in a way that benefits the entire society by benefiting from tax correction.
  • 25. Views of Public Policy makers  Suppose that you are a leader of local institution who plan to ask for help at central government, while you did not perform effectively during tax correction period. However, during Public policy formulation proccess, you are requesting Policy makers to prioritize your territory. At this stage, you are considered as incapable leader.  In Rwanda, Taxes were decentralized at local, so that each district should correct their own Taxes and if there is any policy issues, they must request authorization at central level to implement the above issue using the tax corrected (Bird, R. M. 2003).
  • 26. Public Policy issues on Tax Report done by Rwandan ministry of Local Government on National fiscal decentralization Policy (2021) demonstrated the following issues on Tax at each district level.  Due to the limited economic base for maximizing Local Government own Tax potentialities, most districts have a narrow economic base, which cannot be explored to generate and collect sufficient local revenue and satisfy their priorities.  Decentralized tax revenue sources are limited for some regions of different district due to the lack of enough economic activities to be taxed (i.e., rental tax, trading license and property tax).
  • 27. References  Nikuze, D. (2014). The Genocide against the Tutsi in Rwanda: Origins, causes,implementation, consequences, and the post-genocide era. International Journal of Development and Sustainability, 3(5), 1086- 1098.  Romer, C. D., & Romer, D. H. (2010). The macroeconomic effects of tax changes: estimates based on a new measure of fiscal shocks. American Economic Review, 100(3), 763-801.  Alesina, A., & Ardagna, S. (2010). Large changes in fiscal policy: taxes versus spending. Tax policy and the economy, 24(1), 35-68.  De Soyres, C., Kawai, R., & Wang, M. (2022). Public Debt and Real GDP: Revisiting the Impact. International Monetary Fund.  Thomson, S. (2015). Rwanda. In Africa Yearbook Volume 11 (pp. 323-334). Brill.  Linder, M. (1995). Eisenhower-Era Marxist-Confiscatory Taxation: Requiem for the Rhetoric of Rate Reduction for the Rich. Tul. L. Rev., 70, 905.  Surin, K. (1990). Marxism (s) and" The Withering Away of the State". Social Text, (27), 35-54.
  • 28. Cont’d  McLure Jr (2015) "Taxation; Britannica  Tax Policy center (2021)"How do taxes affect income inequality?" (https://www.taxpolicycenter.org/briefing-book/how-do-taxes-affect- income-inequality).  OECD (2012) Economic Policy Reforms : Going for Growth for economic-policy-reforms  United Nations Social and Economic Commission for Asia and the Pacific (2002); Population and Social Integration Section  Eugene C. Gerhart (1998). Quote it Completely!: World Reference Guide to More Than 5,500 Memorable Quotations from Law and Literature  For an overview of the classical liberal perspective on taxation see; http://www.irefeurope.org/en/content/tax-and-justice) 5 December 2009 at the Wayback Machine.