RRA seeks wider tax base to end aid dependence

President Paul Kagame is expected to be the chief guest  during Taxpayers’ Day at a function today at the Rwanda Revenue Authority (RRA) headquarters in Kimihurura, Kigali.

This year, the day will be held under the theme, “Promoting tax compliance, collective responsibility.”

The government has over the years devised ways to increase its tax base in order to enlarge the tax basket.

Without necessarily increasing the tax burden, RRA has strongly campaigned against tax evasion and avoidance practices, as well as awarded the most tax compliant companies and individuals. This is geared at encouraging compliance.

During today’s function, about 25 large, small, and medium taxpayers will be recognised for their contribution to national development.

Also to be recognised are RRA partners, who assist in collection of taxes and tax awareness campaigns. This category includes journalists and security agents involved in fighting smuggling.

This drive has significantly paid off, as reflected in the growing figures in tax collection.

Tax revenue mapping

Rwanda’s total revenue collection has increased by more than five times in the last ten years, from Rwf68.4 billion in 1998 to Rwf344 billion in 2008.

This figure has since doubled to Rwf665.8 billion collected between July 2012 and June 2013.

The revenue body announced in July that it had surpassed its target for the second year in a row, remitting to the national treasury Rwf675 billion during the 2012/2013 financial year. This is Rwf22 billion above the target set by the Ministry of Finance and Economic Planning.

About 60.2 per cent of the 2013/14 financial year Budget is being financed by locally-raised funds. This can be explained by the fact that although taxes increased, the National Budget also increased significantly from Rwf1.1 trillion in 2012 to Rwf1.5 trillion in 2013.

In past interactions, RRA Commissioner General Ben Kagarama has insisted that challenges to revenue collection cannot be addressed by increasing domestic taxes fees but rather, reaching out to the many incompliant but profitable companies, most of them micro, small-and medium-sized enterprises.

These make up 90 per cent of the businesses in Rwanda. As a result, Rwanda’s domestic tax regime has mostly remained unchanged–a commendable and brave stance taken by RRA.

Since 2005, corporate income tax and personal income tax have been fixed at a rate of 30 per cent, while intermediate business owners are charged a lump sum of four per cent on their annual turnover.

Other taxes such as Pay as You Earn (PAYE) stand at 15 percent and 30 percent for casual employees and employers respectively.

Value added tax (VAT) stands at 15 per cent of all taxable goods and services, while consumption tax on local excisable goods ranges between 10 per cent, such as on water products and 130 per cent on cigarettes.

Generally, what has been changing and evolving isn’t the tax rate but the tax infrastructure, which is now well modernised and automated to simplify tax procedures and attract more clients into the net.

Some notable innovations include the electronic billing equipment that is slowly but surely replacing tax auditors, especially in small and medium companies that earn less than Rwf50 million annually.

These machines introduced by RRA are installed at business premises to automatically calculate VAT owed by businesses to the tax authority.

They are supplemented by the Mobile Declaration platform, which was introduced this year to aid taxpayers in declaring and paying taxes using mobile phones.

Such innovations have significantly eliminated inefficiencies like the long paperwork procedures and long queues at tax offices. This has attracted many tax payers, whereby in June, 400 big tax-payers and 1,800 SMEs were using automated tax platforms.

Recognition

As a result, a World Bank report in September recognised Rwanda as the most tax compliant nation in East Africa. The Bank said Rwanda is the easiest country to pay taxes in the region with just 17 payments made annually. In comparison, Burundi makes 25 payments, Uganda 31, Kenya 41 and Tanzania 48.

The report also ranked Rwanda as the 25th most tax-compliant country in the world.

The role of investment promotion in expanding tax base is also crucial. The government has invested heavily in marketing Rwanda as an investment destination.

Kagarama said ahead of today’s event that the tax body will continue conducting awareness campaigns to educate the public, especially small-and-medium enterprises, on the importance of timely payment of taxes.

RRA seeks wider tax base to end aid dependence