ABSTRACT
This chapter examines the effects of the 2002 increase in the Value added tax (VAT) rate on the consumption expenditure of Rwandan households. It determines the impact of this VAT rate reform on the government's tax revenues. VAT was introduced in the Rwandan tax system in January 2001 at a flat rate of 15 per cent. The 2002 VAT reform resulted in low tax inefficiency, as for 100 Rwandan francs of extra revenue that were collected, households only experienced an excess tax burden valued at about 3 Rwandan francs. The increase in the VAT rate in January 2002 slightly modified the consumption habits of Rwandan households. The effect of the VAT rate reform on relative prices and so on the structure of consumer bundles was less significant than its effect on households' real income. The overall utility loss resulting from the VAT rate reform was valued at about 2.878 Rwandan francs for 100 additional Rwandan francs collected as indirect taxes.
