It is business as usual at Car Wash bar and restaurant in Kimihurura, a Kigali suburb, when The New Times drops by. Unknown to the proprietors, their business is one of those on Rwanda Revenue Authority’s (RRA) list of over 1,000 defaulters who owe the tax body over Rwf55 billion in arrears.

Francis Wahome, the proprietor, insists he meets his tax obligation and in time. To prove his case, he points out that the TIN number indicated against his franchise does not belong to him.

According to RRA, Car Wash is registered under TIN number 101463701, but Wahome insists his TIN number is 102766623 and he says he runs a "clean account.”

RRA’s Drocella Mukashyaka, the head of taxpayer services, said the TIN number is what the tax body has in its data bank. On registration with RRA, every taxpayer gets a TIN number, a numeric figure that identifies each taxpayer.

So what happened?

Two years ago, Car Wash, under a different management, reportedly closed due to financial difficulties. It is then that Wahome took over the place and placed it under new management but kept its brand name unchanged.

However, it appears the takeover was done informally and technical details such as notifying RRA of the change of management was not done.

And, according to Wahome, RRA could be reflecting old debts left unpaid by the previous manager.

Richard Tusabe, the RRA Commissioner-General, said informal closure of businesses without notifying the authorities is a widespread practice.

The common scenario is that when a taxpayer realises they have accumulated huge tax arrears, they close the business and open a new company under new names and register as new taxpayers.

"This is widespread and wrong,” Tusabe said, adding that they are working closely with the company registrar’s office to weed out the issue.

The process of registering a business in the country is easy and takes only about six hours, but when it comes to closing, small entrepreneurs just sneak out without notifying relevant authorities such as the revenue body which continues keeping details of ‘defunct’ businesses.

War against defaulters

RRA says there are more than 1,000 defaulters on its list and it has now launched a campaign to find them and recover at least Rwf55 billion that they owe the tax body. Many of these are categorised as medium tax payers.

The tax body has already started publishing details of defaulters in the press as a way of getting them to settle their accounts.

It’s not clear how many of those listed on the defaulters’ list could be sharing Wahome’s experience. But, according to Tusabe, the only way to sort out the matter is for all affected taxpayers to go to RRA and seek clarification on a way forward.

"We are a friendly institution and ready to help those who respond to our call but we shall do everything that there’s under law to recover arrears from those that don’t respond,” Tusabe told The New Times yesterday.

Asked why RRA thinks many businesses are defaulting on their tax obligations, Tusabe said many allege that they are not making profits, but dismissed the excuse as a weak one.

"Our laws are clear; a business can file for insolvency and close officially or in case of weak sales or other burdens, a tax payer can still come to us and work out a flexible way of meeting their obligations,” he said, adding that in some cases, government can pardon or waive tax arrears on taxpayers who prove their incapacity to pay.

After publishing the first list of defaulters in the media last week, RRA said the response has since been good, with many of the alleged defaulters coming forward to negotiate for a flexible repayment schedule.

Tough consequences

But for those that refuse to respond to RRA’s call, Tusabe says the tax body will use the law to force them into compliance.

"The law allows us to attach their assets and finally auction them to recover what they owe the State and if they fail to respond to our call, those will be the only alternatives remaining,” warns Tusabe.

Most of the defaulting tax payers are businesses categorized as medium size; many of these, according to Tusabe, have graduated from small to medium size and, therefore, have experience in tax administration.

Rwanda’s economy is mainly composed of small and medium size enterprises (SMEs). RRA defines medium sized firms as all VAT registered businesses but making an annual turn-over of less than one billion francs.

RRA has invested heavily in infrastructure that improves tax compliance through platforms such as e-filing and payment, electronic billing machines and mobile tax payment, where small tax payers can pay through mobile money.

However, many of these efforts are yet to pay off as desired.

In the 2014/2015 fiscal year, RRA is expected to collect Rwf906.6 billion to support a National Budget of Rwf1,753.2 trillion after government reduced the contribution of donors in order to reduce external over-dependency.

Every year, at least 4 per cent of the total tax revenues collected is from tax arrears.

But compared to neigbouring countries in the region, Rwanda has a better tax compliance record which is ranked 22nd in the 2014 World Bank Doing Business report on the indicator of paying taxes compared to Uganda (98th), Tanzania (140th) and Kenya ranked 166th, globally.

"That’s why we have to address the rising default rate while it’s still early,” Tusabe said.