Tax Cuts? We Should Follow Free-Market Rwanda

Friday, 10 Dec 2010 11:57 AM

By Deroy Murdock

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 It must puzzle Rwandans to watch the loud squabbling between and within America's political parties over keeping old tax cuts for just two more years.

President Barack Obama on Tuesday defended his tax-cut deal with Republican lawmakers by calling them "hostage takers." Obama's fellow Democrat, New York Congressman Anthony Weiner, complained that the president "seems to go from zero to compromise in 3.5 seconds."

The Washington Wrestling Federation is a world away in style and substance from today's Rwanda.

During a four-day visit here, the enthusiastic consensus for pursuing the free-market path from poverty resembled an Amish barn-raising. Rather than practicing the class warfare that cripples America, Rwandans pull together to become prosperous.

"What Rwanda has to offer is a vision for the private sector," says Jean-Philippe Kayobotsi, private-sector adviser to President Paul Kagame.

Rwanda was ranked the No. 1 reformer in the world last year and No. 2 this year, in the World Bank's Doing Business index. The University of Chicago Business School graduate adds, "We intend to . . . deepen the reform process so that, ultimately, we can become the Singapore of Africa."

In the World Bank's 2011 report, Rwanda is tied with America as the earth's ninth-easiest country in which to start a business. In 2008, Rwanda was ranked No. 71.

Overall, Rwanda has moved from the 150th best place to do business in 2008 to 58th for 2011. Only Georgia (the nation) has scaled that ladder more quickly.

Through the Rwanda Development Board, "we are able to have the business-registration process finished in 24 hours," rather than two to three months, explains Robert Bayigamba, chairman of the Private Sector Federation. "It's now one single window where all the authorizations are given."

At this writing, Americans still have no clue what tax structure will apply on New Year's Day. Rwanda's leaders play no such games with the people's finances.

"We are focused on making it simpler for businesses to get into the tax system and be compliant," says Emmanuel Hategeka, the Ministry of Commerce's permanent secretary. "A number of options are on the table, including a 15 percent flat-tax rate."

Rwanda has ditched its capital-gains tax, dropped its 6 percent "arrival tax" on investment capital, dumped export taxes, decreased dividend-withholding taxes from 15 percent to 5 percent, and accelerated depreciation on purchased assets.

Ranging from 20 to 28 percent, Rwanda's corporate taxes easily trounce America's 35 percent business levy.

America's housing market suffers, at least partially, because sliced and diced mortgage-backed securities have muddied the titles on many homes.

In contrast, Rwanda opened the National Land Center in 2008. It will "address some of the major land issues we have including identifying, measuring, and titling all of the land parcels in the country, and clearly attaching a parcel to an owner," Hategeka notes. "These titles can be used as collateral to get loans, and so on and so forth."

The Bush and Obama administrations greeted the 2008 economic crisis and its aftermath by nationalizing AIG, Chrysler, Fannie Mae, Freddie Mac, GM, and other organizations. Obama subsequently led Democrats in a federal heist of the healthcare industry.

Meanwhile, Rwanda identified 72 state-owned companies for privatization and has sold off all but 10, including hotels, banks, and the national telephone company.

For all of their celebrated progress, Rwandans still worry. They reel under 18-to-24 percent interest rates. Credit cards are rarely accepted, and Rwandan francs elicit cold stares among currency-exchange clerks at Nairobi's and Amsterdam's airports. Monetary reform would be a wise addition to Rwanda's national to-do list.

Rwanda remains poor and has miles to climb before reaching even Kenya's level of per-capita GDP ($494 versus $794). But it has transcended its recent genocidal past and is on the move. Rwanda improves steadily and does so with infectious self-confidence. These days, alas, it's hard to say that about America.

Murdock recently visited Rwanda, thanks to a grant from the S.E.VEN Fund of Cambridge, Mass. The views expressed here are his own and do not necessarily reflect those of the S.E.VEN Fund.

Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University. E-mail him at deroy.Murdock@gmail.com

© Scripps Howard News Service

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