World
A financial catalyst for the future
By Ge Lijun  ·  2022-02-23  ·   Source: ChinAfrica

 

China and Rwanda sign the DTAA in Kigali, Rwanda, on December 7, 2021 (XINHUA)

China and Rwanda signed the Agreement on the Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and its affiliated protocol on December 7, 2021 in Kigali, Rwanda’s capital. The goal of this agreement is to make it easier for investors to invest in the two nations by lowering the barriers to entry, while also strengthening commercial ties. According to Rao Hongwei, Chinese Ambassador to Rwanda, tax cooperation is critical for the healthy and steady growth of bilateral economic and commercial relations.

A potential connection

Since the establishment of diplomatic ties between China and Rwanda in 1971, bilateral relations have grown rapidly in the economic and commerce sectors. China has become one of Rwanda’s most important trading partners.

According to the General Administration of Customs of China, the volume of trade between the two countries grew by 12.1 percent year on year in the first eleven months of 2021 to $330.78 million. While it occupies an important place in the East African country’s foreign trade, however, the total volume is not significant, said Liu Qinghai, Director of the Center for African Economic Studies at Zhejiang Normal University. “Since Rwanda’s imports from China are relatively large, the agreement on preventing tax evasion and fraud will facilitate the growth of tariff and value-added tax revenue for Rwanda. In contrast, China’s imports from Rwanda are small. On top of that, 97 percent of Rwandan products have duty-free access, so the effect is less obvious for China,” Liu told ChinAfrica.

In Rwanda, more than 30 Chinese enterprises are currently active. According to the Rwanda Development Board (RDB), 24 new Chinese firms entered the country last year, with an accumulated investment of $300 million. According to the Xinhua News Agency, the construction and real estate, mining, ICT, manufacturing, and hotel sectors account for the majority of Chinese investment in Rwanda. The RDB, on the other hand, is supporting more diverse investments in areas like pandemic and medical equipment manufacturing and agricultural sector. “Overall, Chinese investment in Rwanda is minimal, but growing,” Liu remarked. According to China’s Ministry of Commerce, China’s investment stock in Rwanda was $170.8 million by the end of 2020.

For Rwanda, the agreement with China represents “an essential step” toward the country’s goal of becoming a financial hub. Rwanda is expanding its DTAA (double taxation avoidance agreement) partner network in order to attract investment and promote Rwanda’s investments in the region and beyond. The government has signed 12 DTAAs with countries such as Morocco, Mauritius, Turkey, Qatar, the United Arab Emirates and Singapore, with many more under negotiation. According to a statement from Rwandan authorities, existing agreements of this sort have had a substantial impact in terms of increasing investment flows and trade with partners.

Uzziel Ndagijimana, Rwanda’s Minister of Finance and Economic Planning, said the pact would consolidate Rwanda’s position as an ideal investment destination for Chinese companies. However, in Liu’s view, more agreements are needed to achieve this goal, which would include currency swap, free trade zone cooperation and financial cooperation, etc.

 

A Chinese company executive talks to the Rwandan press about theconstruction of a road in Kigali, Rwanda (EMBASSY OF CHINA IN RWANDA)

Sustainable support

According to Rao, the outcomes of the Eighth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) held in Dakar, Senegal in late 2021 will enable China to deepen practical cooperation with Rwanda - at all levels - in the framework of the Belt and Road Initiative (BRI). The Dakar Action Plan (2022-24), one of the four official documents of the conference, states that China and Africa will work to negotiate, conclude and implement double taxation avoidance agreements, as well as resolve cross-border tax disputes to create a favorable tax environment for investment, and economic and trade exchanges between the two sides.

The signing of the DTAA between China and Rwanda is in line with the FOCAC conference, said Liu. In this context, the two countries can further strengthen their cooperation in digital economy, information technology and e-commerce, in order to play an exemplary role in China-Africa cooperation.

China has signed DTAAs with 107 nations, including 18 African countries such as Algeria, Nigeria, Angola, Kenya and Uganda. This adjustment in tax rules is part of the Chinese Government’s proposed measures to assist local firms investing abroad. Tax breaks are critical to lowering the cost of doing business and stimulating innovation and growth, according to Wang Wenqin, former vice head of the International Taxation Department of the State Taxation Administration. According to him, these arrangements are beneficial to the implementation of the BRI projects, especially for small and medium-sized enterprises.

According to Liu, the DTAA will have a very good influence on Chinese enterprises investing in Rwanda, such as C&H Garment, which makes clothes for the European and the U.S. markets, and some construction equipment components factories, which have invested around $10 million in the country. As these firms pay taxes locally, they will not have to pay them again when they remit earnings to China as a result of the deal.

Rwanda’s institutions of governance, justice, openness in government decision-making, and corruption prevention are robust, and their efficacy is among the best in the Sub-Sahara region, if not the continent. “The signing of the agreement is a good start for future cooperation between the two countries in various tax areas, such as capacity building in tax administration, and improving the system of prevention of tax evasion,” said Rao.

Comments to glj@chinafrica.cn

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