African Development Bank Group Domestic Resource Mobilization for Poverty Reduction in East Africa: Rwanda Case Study

iv Preface The African Development Bank (AfDB) has partnered with the African Tax Administration Forum (ATAF) and the East African Secretariat on a project aimed at sharing lessons of experience from Domestic Resource Mobilization (DRM) though case studies for the East African Community partner states (EAC), South Africa and South Korea. For the purposes of this work, DRM is defined to include only tax policy and administration and excludes other possible components of DRM such as domestic financial markets. The overall objective of this project is to make recommendations, for the participating countries of the EAC, on the priority reforms and ways to sequence and implement them, in order to significantly enhance DRM. As such, the primary beneficiaries of the project are both the Ministries of Finance and the Revenue Administrations of the EAC. This paper seeks to respond to the following question: What key factors have contributed to or inhibited DRM in Rwanda? This case study has been prepared following an extensive review of available literature, interviews with key informants in Rwanda, the collection of quantitative data, and the analysis of both primary and secondary data. Its development has also been informed by a methodological framework designed by the AfDB. The core principle of the methodological framework is to analyse tax performance as a result of tax systems, reforms and the political economy. The study adopts an explanatory case study approach to match patterns from our analysis of the literature and key informant interviews. The achievements and lessons of experience contained in this and other country papers will provide primary inputs for a policy note. The policy note will seek to address the following questions: What are the priority reforms for EAC countries and the EAC? How should reforms be sequenced and implemented? Chapter 1 of this case study paper begins with an examination of Rwanda's political economy and fiscal legacies. Thereafter, Chapters 2 and 3 explain and analyse the trends in the tax system and their impact on domestic revenue performance respectively. The final chapters highlight the challenges and issues currently faced by government (Chapter 4), and lessons of experience for consideration by the EAC member states (Chapter 5).