Every year Rwanda foregoes about a quarter of its potential tax revenue through tax incentives and exemptions given to businesses to attract private sector investment. Is this money well spent?
This policy brief looks at the issue of providing tax incentives and exemptions for investors:
- Are they too generous for a country like Rwanda that is struggling to raise money to fund its development strategy?
- Are they targeted at the right groups?
- Are they achieving the government’s objectives for them? Would the money be better spent on other policy priorities like education or health?
- Why are the amounts foregone not made publically available?
- Why is there no monitoring and evaluation of their effectiveness and why has there been no cost benefit analysis of tax incentives for attract investment?
- Should the amount foregone be considered as part of the Government’s budget so that it becomes transparent expenditure?
Whether tax incentives and exemptions work or not, there is a need for transparency, public scrutiny and dialogue; equity and bargaining are essential to building a culture of tax compliance. Accountability of government to citizens is essential, and taxation encourages citizens to make claims on governments and hold them accountable for public expenditure.