Wednesday, 22 May 2013

How RRA uncovered Rwf5 billion tax fraud


Some businessmen clear goods on behalf of other companies, which leads to tax evasion.
Rwanda Revenue Authority (RRA)  has said it cracked down a notorious ring of tax evaders involved in untaxed transactions amounting to over Rwf5 billion within a period of 15 months.

The tax body  carried out investigations and in March, three tracks with 280 tonnes of sugar belonging to a ghost company created for the purpose of tax evasion were impounded by the tax body while on their way to Kigali from Kampala.

The development later took a twist when the supposed owners of the goods did not turn up to claim their impounded goods but instead, different people who were never recorded as tax payers showed up to claim the goods.

The situation, where a business is registered in different names instead of its legitimate owners, according to RRA, is a well-known way through which tax fraud is done by importers of goods particularly, sugar, cement and rice.
Three people, including prominent importers, Laurent ‘Butera’ Sindayigaya and Yves Mugiraneza were later arrested and prosecuted; however, they were released on bail, which gave them ample time to interfere with investigations, according to RRA.

After futile attempts to get hold of their goods and avoid the long arm of the law, the suspects allegedly claimed that they were physically tortured by the RRA commissioner general, Ben Kagarama himself.

Both Mugiraneza and Sindayigaya were not available for comment by press time.

But this is just the tip of the iceberg, according to the tax body, as more tax evaders are believed to be out there conducting business as usual, cheating the economy and making surmountable amounts of money through tax evasion.

In other cases last year, RRA statistics show that a tax fraud transaction involving Rwf65.2 million was carried out by a prominent hotel in town, which did not issue out receipts for its services for a period of 12 months. In another case, an importer who conducted transactions amounting to Rwf1.4 million in a period of four months without paying taxes was arrested by tax authorities.

In an interview with Commissioner General Kagarama, The New Times uncovered the challenges the tax body faces, the drama involved when unsuspecting fraudsters are caught red-handed, as well as the stealth methods they use to sell smuggled goods without the detection of tax authorities.
TNT: Please expound on the extent of tax fraud and how it manages to go undetected.

Kagarama: Tax fraud is historical. It has gone on for a long time and it is not a new phenomenon. At least for the time I have been in this organisation I have known about it. But again it is a very difficult practice to predict or identify.

The practice is such that you have individuals who design a process of tax evasion and open a special purpose company and buy vehicles for the purpose of tax fraud. Business registration in Rwanda is so easy. One can get a certificate of registration within hours,  which is a very good initiative that the country introduced. But then, some bad elements have taken advantage of this; they register and operate a company, and then upon believing that they have accumulated tax liability, they de-register or abandon that company before we can audit it.

The people who normally are behind this do not appear in the registration process; the registration is done by someone different from the real owners. The reason for this is that all companies at some stage have tax liabilities and are eligible for our audits. So what tax evaders do is; they register the company in different names so that we might not be able to trace them. They then run the business, but when it has accumulated taxable value on its bank account or on its TIN number in customs, they abandon it.

TNT: How challenging is it for RRA to detect this type of fraud?

Kagarama: What we did was to trace and find out who does it and how it is done. Our process went slow because the fraud process is very highly protected. We carried out slow and quiet investigations until on March 26 when we finally impounded three trucks carrying 280 tonnes of sugar. This practice thrives so easily in very fast moving products such as rice, sugar, cement. So on that date, acting on information we had gathered, we impounded three tracks coming from Kampala. By the time we had impounded them, they had finished payment of taxes at customs.

TNT: If they had paid taxes at customs, how then does it become tax fraud?

Kagarama:  There isn’t much taxes to pay at customs because the government decided to waive taxes on sugar to prevent its scarcity, so sugar is imported almost free of tax.

There is only a withholding tax of 5 per cent and VAT which is refundable. Even the withholding tax is paid by those tax payers that are considered to be noncompliant to tax payment. The ones whose profiles are well known to us are issued with a certificate of cleanliness and they never pay the withholding tax. So basically there is no payment of taxes on sugar at customs.

TNT: So what motivates traders to evade taxes even when subsidies like these exist?

Kagarama: These evasion practices aim at concealing taxes domestically, not customs. What happens in this ‘special purpose’ company for tax fraud is that for example, you and I can use it to pass in our products undetected.

Then the owner of the ghost company, after paying those token taxes like VAT, will clear the goods on our behalf, take them out and give them back to the rightful owners.

So if you and I own large stores in town, we stock them with these merchandise that were not registered in our names, and once it is stoked without appearing on our records, the commissioner cannot audit what was never received in the store.

So immediately, every time you sell, there is no VAT declared and finally at the end of the fiscal year, there is no income tax registered, because tax officials cannot trace these products on this person. This is what motivates them.

As some of you already know, there are shops where clients are not issued with an invoice upon purchase. The biggest motivation here is that, once an invoice is issued, then it is a record that you actually have goods in store, yet in reality they were never recorded.

So the tax administration has no right to audit you on things for which you have no records. And then at the end of every month on the 15th, you declare any amount that you like and at every year, you declare any amount of income tax that you like.

TNT: Are there specific situations you can share with us?

Kagarama: There is one prominent company that is being investigated right now. For a period of 15 months up to 2012, it had accumulated transactions of Rwf5 billion without paying taxes.

The real owner of the company from our calculations could have accumulated a profit of over Rwf1 billion after sales without declaring taxes for 15 months.

Although we managed to impound three tracks with 280 tones of sugar, the consignment from Kampala was actually six tracks. When we impounded them, the other three tracks had already reached Kabale in western Uganda, but they were alerted and did not continue with the journey.

They packed in fear of being arrested like the other three. So we told our Uganda counterparts to push the vehicles out since they belonged to Rwanda and had already violated transit regulations which require them to use a specified route.

Uganda tracked them down and told us that the owners of the business had begun a process to rename the business and the consignee- a trick usually used to avert being impounded.

We first resisted the move but on second thought, we allowed Uganda to go on with the process on condition that they give us the original and the new documents of registration. So they were granted the permission to change from one company to another. After which, the other three vehicles were immediately escorted to our own side and handed over to police.

TNT: Were the first three impounded trucks still registered in the newly formed company?

Kagarama. Yes they were. The interesting thing is the first three vehicles we impounded were registered in a company called Star Dynamics, which is owned by one Yves Mugiraneza, as we discovered, while the other three were registered under a new company called Imigisha.

Mugiraneza came to claim his goods and was wondering why his goods should be impounded when he paid the VAT. When we asked him for evidence whether the goods were his, he had none. He neither had a sales contract nor evidence of remitted payment. The goods were not even registered in his names. As it ought to be, he was later arrested and prosecuted in court. We discovered that he actually owns Star Dynamics, runs it and signs the cheques for payments but registration is in the wife’s names, a teacher in Kanombe, plus another partner.

Later another gentleman, Laurent ‘Butera’ Sindayigaya turned up to claim the goods in the names of another company, Imigisha- as it turned out, this is a ring of tax fraudsters who work together. The issue has turned ugly and has been personalised. 

TNT: How did the development affect the importing sector?

Kagarama: When some importers in these products came to know of this, they panicked because we had learned of their habit. And some of them confessed to us, that they have been conducting business in an informal way. We urged them to come clean and many of them did. As a matter of fact, some of them actually have been giving us information about how this illegal activity is conducted.

However, the culprits used every method to convince the markets that we were persecuting them; Sindayigaya went as far as to even accuse me personally of having physically molested him. This is just a trick to derail the investigations but this is the work I am supposed to do.

TNT: How much has RRA lost in such activities over the past years?

Kagarama: To be frank with you, we don’t know how many of such have gone on. I know there are a couple of such companies; I don’t know how many people have used them or the value they have accumulated through this system- we are yet to investigate.

But through computerisation, we are able to extract data. There is no way a domestic tax system can locate anybody who is not registered in customs, who has no registered stock. The system will not catch them, but if they were registered in customs, then our domestic tax system will be able to pull them from customs and it would be difficult for them to evade.

But some businessmen like Sindayigaya have chosen to take the risk by clearing goods on behalf of other companies.

But we do have a responsibility to this nation and we will work hard without giving favour to anyone in the business sector. We have the capacity and investigations are still ongoing to ensure that we rid the economy of this vice.


Post a Comment

Twitter Delicious Facebook Digg Stumbleupon Favorites More

Design by Free WordPress Themes | Bloggerized by Lasantha - Premium Blogger Themes | Walgreens Printable Coupons