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- 2011 is already proving to be a difficult year for our economy–Rwangombwa
By Robert Mugabe
The total revenue that Rwanda projects as loss from the fuel tax reduction of RWF100 per litter in fiscal year 2011/2012 will amount to RWF14.1 billion of RWF 1.116 Billion entire Budget. Apparently, the biggest Budget in Rwanda history.
The loss in the June-December period, will amount to RWF4.7 billion whilst the additional loss in the January –June 2012 period is estimated at RWF9.4 billion. The revelation was announced today by Finance minister, John Rwangobwa in the parliament adding that 41% of the budget will come from Donors others from loan and domestic income.
“We intend to adopt a two front approach to deal with this situation namely implement policies to safeguard food supplies and ensure food security on one hand and adopting measures to contain inflation and maintain price stability on the other hand.”
The Budget which has been presented before upper and lower chamber of the house, under the theme; “Ensuring Food Security and Price Stability whilst Maintaining Sustainable Growth.” sparked a little debate from parliament as food security and fuel tax cut defines the Budget.
Government to strategy to reduce the impact of the loss on the budget due to the fuel tax cut, have proposed the following revenue measures; -Introduction of Electronic Transaction Devices to increase efficiency of VAT collections, and also -Introduction of gaming tax.
On the basis of 2010 VAT declarations, which have been adjusted by the projected nominal GDP growth for 2011/2012, gov’t expect an additional VAT collections of RWF 4.2 billion in fiscal year 2011/2012.
(b) Introduction of gaming tax on the basis of activities performed in 2010, government expect collections in 2011/2012 of RWF186.3 million and RWF 859.9 million in gaming special tax and withholding tax respectively.
“We have since the beginning of this year seen an increase in both region wide and domestic inflation. In the region supply side pressures on account of poor weather and fuel price increases are the main cause of the rising inflation,” Rwangombwa added.
On the domestic scene, gov’t are already seeing a rebound in demand-pull inflation reflecting mainly the first round pass-through of the rising fuel and food prices. Accordingly, inflation reached about 5% at end April compared to 0.2% at end December 2010 as I have stated earlier.
The budget also outlines the issue of food security; according to Minister Rwangombwa, this year 2011 is already proving to be a difficult year for Rwanda’s economy. Recently Government showed concern about the rising domestic food prices especially in the urban areas.
It therefore commissioned a team to conduct an in depth analysis into the causes of these rising prices and to provide recommendations to reduce any future price pressures and also to ensure food security in the country.
The team identified two major causes for the rising trend in food prices namely supply side effects- adequacy of supplies (domestic production and imports) and high commodity prices driven by rising world market prices for food and fuel. In the case of the fuel this translates into the high pump prices in Rwanda.
Agriculture: registered increased agricultural productivity through the scaling up of irrigation of hillsides and soil erosion control through the key government project of Land Husbandry, Water-Harvesting and Hillside Irrigation (LWH) where yields for Irish Potatoes have gone from around 4 tonnes per hectare to around 25 tonnes per hectare. This has resulted in large income gains to the farmers mainly in Karongi district of Western Province.
Livestock development: has been enhanced through GIRINKA Program and about 5,000 cows were distributed in the 2010/11 financial year through Government budget. This has been accompanied with increased veterinary services to ensure sustainability of this program. Additionally, 1,900 cows were mobilized from well wishers and the local people in achieving the objective of lifting the poor from poverty.
Infrastructure: These interventions increased access to electricity to 50,000 households in 2010/11 financial year increasing the cumulative number of households connected to electricity to 204,056.
Growth in the services: sector which reached 9% compared to about 5.9% in 2009, reflects the ongoing recovery in many sub sectors including financial services resulting in increase in profitability (finance and insurance) and the on-going investments in communication as well as the recovery in tourism and trade.
Industrial sector: the growth was led by manufacturing sub sector especially food processing which registered a growth of 9% as against 3% in 2009. Electricity, gas and water as well as construction performed well with growths of 15% and 9% respectively reflecting good recovery from 14.4% and 1.4% respectively in 2009
ICT: Increased funding for the National Backbone project with a view to acquire affordable and reliable connectivity. The laying of Optic Fibber was completed throughout the country connecting all Districts, Nine main Boarder posts and several other public and private Institutions such as schools and health centres.
The total domestic revenue collections for fiscal year 2011/2012 have been projected at RWF 529.4 billion as against total collections of RWF471.7 billion in 2010/2011. This shows a 49.8 percent contribution to our total expenditure and net lending expenditure for fiscal year 2011/2012 compared to 47.7 percent in fiscal year 2010/2011.
Tax revenues will be expected to contribute RWF 501.4 billion whilst non tax revenue collections have been estimated at RWF 28 billion.
“The government has accepted the fact that we must start harmonizing our fuel tax rates with those in the region and at the same time reduce the inflationary pressure emanating from world fuel and food price increases…
We are therefore proposing a total reduction in fuel taxes by RWF100 per litter for both petrol and gasoil for fiscal year 2011/2012.” Rwangobwa told the house, blaming the fuel hike to be the cause of food insecurity.
This reduction is to be carried out in two stages. In the June-December period of 2011, we are proposing a reduction in fuel taxes by RWF50 per litter for both super and gasoil, while the second reduction of RWF50 per litter is to be carried out on 1st January 2012.
As a result of these tax reductions the average pump prices for both super and gasoil should come down. The Ministry of Commerce and Industry will announce the appropriate pump prices for petroleum products at the beginning of July 2011. . We expect that the pump prices that will be announced by 1st January 2012 will also reflect the further reduction in taxes by the additional RWF 50 per litter for both products.
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