The government has exempted start-ups from paying trading licence fees for two years from when they start their business.

Previously, firms were expected to pay for a 12-month trading licence before starting their business.

The new tax reforms come into force next year for micro, small and medium enterprises in all sectors of the economy.

The tax break could see SMEs attract new investments to support job creation and give impetus to the

“Made in Rwanda,” an export substitution strategy that seeks to reduce the import-export gap, which is putting pressure on foreign exchange reserves.

“The tax break seeks to support SMEs to have a smooth entry into the business sector,” said Richard Tusabe Commissioner-General of the Rwanda Revenue Authority, while adding that the incentive seeks to drive job creation and industrialisation.

Experts say medium enterprises have huge potential to create more jobs, but they are constrained by compliance costs, which strain their resources and cash-flow, especially in the early stages of their business development and may act as a deterrent to formalisation.

Idle land

The new tax reforms also increase fees on residential buildings and idle land by 275 per cent from Rwf0- Rwf80 ($0.09) per square metre to Rwf0-Rwf300 ($0.34). In Rwanda, the appropriate size of land is 300 square metres.

The new rate seeks to address the challenge of most property-owners preferring to pay a land lease fee and leaving only two per cent to pay fixed asset tax.

However, analysts remain skeptical about the new rate saying it will pile pressure on household incomes and make office space in the country expensive.

“The law proposes taxing one per cent of the market value of a residential building, which may increase the cost of accommodation in the country and discourage investors,” said Angelo Musinguzi, senior manager at KPMG Rwanda.

“Even the 0.5 per cent tax of the market value of the building for commercial buildings may increase the cost of office rent,” added Mr Musinguzi.

According to International Growth Centre experts, the old land fees were regressive, with low-income property-owners often paying one three per cent of fixed asset values, and owners of more valuable properties typically paying less than 0.15 per cent.

The tax increase also seeks to improve the efficiency of land use and help uphold broad-based access to land in the city. Land that is not developed will be subject to a 100 per cent surcharget.

The reforms have also introduced a one per cent market value charge on residential buildings, which is to be applied progressively over a period of four years starting January in 2019.