In line with the government’s objective of reducing aid dependency and financing the national budget entirely with its own resources, Rwanda Revenue Authority (RRA), established in 1997, has made continuous efforts to widen the tax base and improve tax compliance and revenue collection.
The official figures for the first half of the 2016/17 fiscal year that were released in January show that RRA indeed is succeeding in steadily increasing tax revenue. During the first half of this fiscal year that ended in December, RRA managed to further collect more taxes thanks to the registration of new taxpayers, improved use of e-tax facilities and increased compliance.
Commenting on the figures, RRA Commissioner General Richard Tusabe pointed out that the new measures taken have helped improve total revenue collection that excluding local government taxes and fees increased to Rwf 514 billion in the first semester of the current fiscal year compared to Rwf 470.6 billion in the same period last year.
At 99.7%, the figure fell just slightly short of the target of Rwf 516.5 billion. He also stated that this (0.3%) deficit was to be integrated into the second half of the fiscal year target as a way to emphasis commitment to achieve annual target with continued innovation in service delivery.
Local government taxes and fees (trading license, property tax, rental income tax and fees) for July-December 2016 amounted to Rwf 16.7 billion against a target of Rwf 17.8 billion, which is an achievement of 93.6%.
Tusabe explained that RRA managed to widen the tax base by registering new commercial houses for Value Added Tax (VAT) on rental income, and professional associations such as architects, engineers, bailiffs and property valuers for corporate, personal (CIT/ PIT) and VAT taxes.
“As a result, the total number of taxpayers increased by 7,840 (+5%) in the six months from July to December 2016,” he noted. Regarding the use of Electronic Billing Machines (EBMs), Tusabe said they increased the sensitisation and usage of EBMs which led to an increase of users from 11,436 to 12,805 (+12%).
In addition, online e-tax facilities continued to simplify the process of filing and paying taxes. Alongside monitoring taxpayers’ compliance and enforcement of tax arrear payments, Tusabe said RRA conducted strong sensitization and education campaigns towards various sectors and the general public to improve their understanding of tax matters and improve taxpayers’ compliance.
All these measures are in accordance with the tax compliance improvement plan launched by RRA last year to boost revenue collection in the current financial year. At the time, Tusabe said the plan will help achieve the collection targets for 2016/17 of over Rwf 1.08 trillion, which represents 55.6% of the country’s national budget.
“RRA is going to carry out more awareness initiatives on tax compliance especially towards businesses in the construction and hotel industry across large, medium and small taxpayers,” Tusabe explained.
Recent research and risk analysis carried out by RRA shows that some sectors such as construction and hotels are more likely to be non-compliant in the four categories of taxpayers’ compliance which are registration risk, filing risk, payment risk and underreporting risk.
“The construction sector is high-risk for all key compliance categories. In particular, Pay As You Earn (PAYE) is underperforming. This is due to the prevailing culture of informal employment. Additionally, there is high likelihood of large companies using complex schemes to evade taxes,” Tusabe observed.
He said the strategy for improvement is to organize compliance resources around individual construction projects. Furthermore, new requirements will be introduced for online verification of workers. “During the year, we will target successful referrals for criminal prosecution,” he said.
Facilitating compliance (service)
RRA will conduct construction site visits to provide on-post registration, introduce online validation of self-employment status, introduce SMS messaging to remind of filing and payment obligation, encourage reporting of tax fraud and evasion through a hotline, develop information explaining tax obligations, advertise educational material in construction magazines in Rwanda and coordinate with the Rwanda Institution of Engineers to communicate with construction companies, better understand non-compliance and assist with registration.
Dealing with non-compliance (enforcement)
Tusabe noted that RRA will target successful referrals for criminal prosecution, conduct random site visits to validate registration of workers, ensure 100% examination of imports of newly registered taxpayers, target audits towards new registration with high VAT credit balance, acquire new data from immigration on work permit and visas, acquire data on construction applications and permits, as warranted revoke tax agent licenses and tax arrears identified to be recovered.
Tusabe noted that while the hotel sector accounts for a small percentage of the tax base, lack of tax compliance is common in the sector.
“In particular, losses and informal employment in the hotel sector are a serious risk to tax revenue. These issues will be addressed by increasing the number of on-site visits, coordination with industry associations and improvement in internal capabilities. During the year, RRA will target successful referrals for criminal prosecution,” he said.
Measures for facilitating compliance
Regarding hotels, the commissioner said RRA will capture and update registration details during site visits, conduct a seminar for the hotel sector on tax requirements, conduct a seminar for self-employed staff on tax requirements, develop information explaining requirements, coordinate with the Rwanda Hotel Association, develop media to communicate revenue services available to hotels and contact late and stop filers to secure returns.
Measures for dealing with non-compliance
He also stressed out that RRA will target at successful referral for criminal prosecution, develop media to publish instances of serious noncompliance, conduct random site visits to validate registration of employees, conduct scheduled site visits to validate investment projects and acquire data on construction applications and permits.
Key priorities for second semester 2016/17 (January-June)
Tusabe said the tax revenue target for the second semester of the 2016/17 fiscal year is Rwf 588.1 billion, comprised of Central Government Tax Revenue equivalent to Rwf 571.7 billion and the Local Government Tax of Rwf 16.4 billion. In addition, the non-tax revenue target for the period is Rwf 21.0 billion.
• Since January this year, RRA embarked on a VAT input validations system that will enable it to increase VAT collection and automatically eliminates fictitious VAT declarations and the corresponding claims of VAT refund.
• RRA will continue enforcing the use of EBMs by monitoring the VAT-registered taxpayers and sensitize consumers to always request EBM receipts from traders.
• Tusabe said they will continue to use the Electronic Cargo Tracking System in order to reduce fraud and enhance trade facilitation along the northern and central corridors.
• RRA shall continue to monitor infrastructures put in place to ensure good service delivery and be able to identify improvement opportunities.
• Maintain and adopt partnerships that ease tax collection utilizing ICT infrastructures
• There will also be a taxpayer registry clean-up that will enable them to widen the tax base by reaching more people who are still involved informal business.
• RRA will continue enforcement measures to collect tax arrears and sensitization and education campaigns reminding taxpayers to fulfil their tax obligations and to use online facilities available for them.
Read this article and more in issue n° 76 of Hope Magazine.