Abstract

This study uses time series data from Rwanda Revenue Authority (RRA) and the National Institute of Statistics of Rwanda spanning from 2006Q1–2021Q4. Gross Domestic Product (GDP) as a proxy for economic growth is the dependent variable, while Direct Tax (DT), Tax on Goods and Services (TGS), and Tax on International Trade (TIT), which are all independent variables. The unit root and co-integration tests found that all variables are cointegrated of order one which implying that there is a long-run  equilibrium relationship among variables. As a result, the Johnsen test was used, and the results demonstrate that DT, TGS, and TIT have a long-run impact on GDP, but there is no short-run causation between DT, TGS, and TIT on GDP. The adjusted R-squared is 0.994407, it reveals that 60% of the variability observed in the target variable is explained by the regression model. The other 0.6% cannot be explained by the model used. Keeping all other variables equal, the result reveals that one percent (1%) change in DT and TGS leads to increased economic growth (GDP) by 0.19% and 0.58%  respectively. This study concludes that direct tax and tax on goods and services variables have  positive and significant impacts on economic growth, while the tax on international trade variable has no significant impact on economic growth. This study recommends that policymakers focus on domestic taxes to have an impact on the economic growth of Rwanda more than customs tax.

Keywords: Tax Revenue, GDP, Direct Tax, Tax on Goods and Services, Tax on International Trade and Transactions, Rwanda