The impact of tax laws and tax incentives on foreign direct investment in Rwanda (2010 – 2015)

Abstract

This research on “The Impact of Tax Laws on Direct Foreign Investment (2010-2015)” was proposed due to a sudden drop in the number of DFI‟s in 2010 as soon as Rwanda adapted tax policy of the EAC to which it had become a member. The question is; how far is Rwanda coping within this scenario? The researcher wished to know: Do tax policy and tax incentives in Rwanda attract FDI in the country? Must we have a favorable tax policy and tax incentives, first, in order to attract FDI? What is the impact of FDI on economic self-reliance in Rwanda? Using a purposive sample size of 80 respondents, the researcher conducted the study using structured interviews, questionnaires, and secondary data. The tax Administration Body (RRA) and Foreign Private Companies were conducted in this research. The researcher found that: Rwanda investment code is phenomenal-attracts foreign investors. There is considerable measure of tax compliance among foreign investors in Rwanda. Rwanda tax structure contributes considerably in reduction of tax aversions among investors. Exemption is the most tax incentive method to be emphasized. The indirect impact on revenues can be favorable, since the new investments, materialized through tax incentives, create new jobs and are related to effects generating tax revenues. Moreover, FDI in Rwanda would also be attracted by other factors. The researcher recommends the Rwandan stakeholders on tax regulation saying: while there is no doubt that tax policy can influence economic choices, it is by no means obvious; on an ex ante basis that tax rate cuts ultimately leads to a larger economy. They should press on further.