Tax buoyancy dynamics in sub-Saharan African nations: The case study of Rwanda

Abstract

Tax buoyancy exhibits unique behaviour in nations facing specific challenges. This phenomenon is particularly pronounced in sub-Saharan countries which often implement tax exemptions to boost investment and facilitate trade. This study investigates tax buoyancy in Rwanda. It uses government administrative data and rigorous statistical techniques. The Engle-Granger test for co-integration and Ordinary Least Squares regression techniques were used to assess long-term relationships and models. The study findings revealed that the Gross Domestic Product (GDP) was co-integrated with Direct Taxes while the Total Consumption correlates with Taxes on Goods and Services. The study revealed that there was no sustained correlation between s and international trade taxes in Rwanda. This was attributed to the increasing use of customs tax exemptions for trade facilitation and investment promotion. The GDP emerged as a reliable predictor for international trade taxes. The findings revealed the dynamic tax system in Rwanda was characterized by substantial buoyancy rates. Crucially, the study recommends not relying on import volumes for forecasting international trade taxes, not only in Rwanda but also in other countries adopting similar tax policies. The lessons drawn from Rwanda’s experience offer valuable insight for policymakers confronting similar challenges.