Rwanda Slaps Tax on Mobile Phones after Decade of Dishing Carrots

For nearly 15 years, Rwanda has exempted mobile phones from taxes to boost digital penetration but that feel-good factor is no more worth the government hiking taxes on cigarettes and fuel as well

Rwanda has announced a series of tax policy reforms in the middle of the fiscal year, signaling an urgent need to expand its revenue base amid growing financial pressures.

The changes, which introduce new taxes on cosmetics, mobile phones, and gambling, come at a time when the country is grappling with external economic shocks, including regional instability due to its involvement in the DR Congo conflict and the recent freeze on USAID funding by the United States.

According to the Ministry of Finance and Economic Planning, these reforms are part of a broader strategy to strengthen economic resilience and promote self-reliance.

An official, speaking on condition of anonymity, acknowledged that Rwanda’s financial landscape has shifted dramatically in recent months, necessitating swift adjustments.

Among the most significant changes is the reintroduction of VAT on mobile phones and ICT equipment, which had been exempted for years to encourage digital inclusion.

Mobile phones, which have been tax-free since 2010, will now be subject to VAT, a move that the government argues is necessary to raise revenue but could potentially slow the country’s ambitious digital transformation.

"Smartphone penetration has increased significantly over the years, and the time is right to realign tax policy with economic needs," the official said.

However, some industry players worry that the new tax could make digital access less affordable for low-income earners.

The tax changes also target the transport sector, with an increase in vehicle registration fees, including for electric cars.

Additionally, the fuel levy has been revised from a fixed fee of Frw 115 per liter to 15% of the Cost-Insurance-Freight (CIF) value, a shift that is expected to drive up fuel prices and transport costs.

The government justifies this move as a way to enhance road maintenance and infrastructure development, but some analysts warn it could contribute to inflationary pressures.

Taxes on gambling have been significantly raised, with the tax on Gross Gambling Revenue surging from 13% to 40%, while withholding tax on winnings will climb from 15% to 25%.

Authorities argue that this is intended to encourage responsible gambling while generating much-needed revenue.

"The government is sending a strong message that gambling should not be a primary economic activity," said an economist based in Kigali.

The hospitality sector has also been affected, with the introduction of a 3% tourism levy on hotel accommodation.

This comes as Rwanda continues to position itself as a premier travel destination, but with concerns that the added costs might deter budget travelers.

But there are lingering worries that this could put off budget travellers who will find the hike in accommodation and related hotel services costly.

One of the most debated changes is the introduction of excise duties on beauty and cosmetic products, with a 15% levy now imposed on make-up, body lotions, and hair products.

While pharmaceutical beauty products will be exempted, some industry players fear that the move could drive up prices for consumers, particularly women who rely on these products daily.

The revisions also touch on hybrid vehicles, which will now be taxed based on their age, with excise duties ranging from 5% to 15%.

While electric vehicles remain tax-free, the new policy is meant to encourage the importation of newer, more efficient hybrid cars.

The measure is a positive step for sustainability, but some buyers may struggle with the higher costs associated with newer hybrid models.

Excise taxes on cigarettes, beer, and airtime have also been raised, with cigarette prices increasing from Rwf130 to Rwf230 per pack, beer tax rising from 60% to 65% of the factory price, and airtime taxes gradually climbing from 10% to 12%, with a further increase planned.

These measures are expected to generate significant revenue but may also impact consumer spending.

These tax adjustments come at a time when Rwanda’s fiscal position is under strain. The country’s involvement in the ongoing conflict in DR Congo has added to government expenditures, requiring additional resources to sustain security operations.

Furthermore, the recent aid freeze by the United States under the Trump administration has exacerbated budgetary concerns.

USAID has been a key contributor to Rwanda’s development programmes, and the sudden halt in funding has forced the government to seek alternative revenue streams.

Economists believe these tax changes are a direct response to shifting financial realities.

However, as the country adjusts to these fiscal changes, the impact on consumers, businesses, and overall economic stability remains to be seen.