By JAMES BUYINZA

•    500 Electronic Billing Machines Procured for first PhaseFinally, the Business People in Rwanda have the reason to smile, following the enactment of the new law on tax procedures that was passed on January 28, 2013 requiring all public (government) institutions to withhold VAT (Value Added Tax) on all public tenders, and strictly declare   and pay it (VAT) by 15th day of the following month or else the (public) institution faces severe penalties.

By all means, taxpayers are winners in this. Mr. Gerald Mukubu, the Chief Advocacy Officer (CAO) of Private Sector Federation (PSF) in an exclusive interview said: "It is a very exciting development for us as a Federation and the business community as a whole; for this will bring about respect of public tenders especially regards with terms of payment”. He is quite optimistic that this will go a long way in boosting private sector growth given the fact that Government is the biggest consumer of services and commodities; thus improved efficiency in procurement and payment is definitely good news for the business people.

He remarks: "In fact, it is a challenge to the private sector instead! Through the Private Public Dialogue (PPD), the Government listens to our calls and responds positively, but tax compliance on the part of private sector is still a problem. I therefore urge the business community to be more compliant”

The Genesis

Normally VAT is payable when a taxpayer has issued an invoice after delivering a service or making supplies. What had emerged of public tenders was that, much as the taxpayers were mandated to declare VAT every 15th day of the following month after issuing the invoice, payments of public tenders used to delay for months or even years! As a result taxpayers could take loans to pay VAT; which was subject to paying interest on those loans. Yet, when the government finally pays the taxpayers no compensation could be made to mitigate the loses already suffered by the taxpayer. Others could just ignore everything and faced severe penalties of non declaration of VAT.

Besides, delayed payment of public tenders greatly affected cash-flow of taxpayers. Through the established PPD framework—Tax Issues Forum (TIF), the Private Sector advocated for a sustainable solution.

Mr. Celestin P. Bumbakare, the RRA Commissioner of Domestic Taxes in an exclusive interview said that, first of all, a resolution was made; for all government institutions to issue public tenders only and only when activities have been planned and budget for. This did not sufficiently work, according Mr. Bumbakare.Government later on; decided to remove the burden of paying VAT on public tenders from taxpayers and instead shift the responsibility to itself—the Government institutions themselves. A directive from the Office of the Prime Minister (OPM) was recently passed for all public (government) institutions to comply, with immediate effect.

This development will enhance efficiency in public procurement process on the government’s side, although as argued by Simon Kwizera, an importer of stationery materials, it now takes away extra liquid from some dishonest-non-compliant taxpayers.

"Some non compliant taxpayers could collect VAT on public tenders and not declare it. Yes, it could boost their incomes but it is illegal. This is now no more”.

Mr. Bumbakare observes that considering the reactions by government procurement officers and directors of finance, "I already foresee a great positive impact in this direction”.On the other hand, delays to declare VAT brought about by internal funds transfers have to be backed by strong explanations approved by relevant authorities thereof.

At most occasions, there has been low absorption capacity of budgets by some public institutions…thus with this new law, it will push them (public institutions) to optimally absorb what they budget for.

VAT contributes above 30% of the total domestic tax revenues, which is equivalent to over rwf30billion. However, there exists bad business practices among traders in regards with VAT—they deliberately avoid charging VAT on buyers’ dubious request or falsely take it as a solution to being more competitive on the market in terms of price. Domestic Taxes Commissioner warns: "We are beefing up field our enforcement units, and are introducing Electronic Billing Machines as provided for by the law”

Introduction of Electronic Billing Machines

Taxpayers registered for Value Added Tax (VAT) are now obliged by law to issue tax receipts using electronic billing machines certified by RRA. The initiative is one of the new measures to assist taxpayers in proper book keeping and sales management.

The system comes with many advantages; it is intended to assist taxpayers in managing their stock as well as reducing time spent doing business.

These machines are designed in the way that data from the taxpayer will be captured in real time to RRA servers (database) and transactions through these machines will be used by RRA officers in assessing taxes; so, there will no longer be conflicts in sales and taxes figures between taxpayers and RRA at the time of auditing.

It is a $500,000 (Rwf316m) project. The Electronic Billing Machines are user-friendly as the gadget uses a simple SIM card and RRA has negotiated a reduced rate of monthly airtime subscription for every machine at Rwf1,000 to be paid by taxpayers.

At the beginning, 500 business people will get the machines installed and trained free of charge, but for the next phases, taxpayers will buy them.

The gadget costs between US$300-500 and is cost to be borne by the taxpayer. RRA plans to procure more machines in the near future as the project progresses. Government is considering all options available to subsidize on acquisition cost of the machines and will soon be made public information. A number of suppliers of the machines will also be licensed.

In the region, electronic billing machines are used in Kenya and Tanzania. And, in most developed countries of Europe and Asia. Thus, it is a good business practice that the business community should embrace.

As mentioned, the machine is driven by power. Reliability of power is sorted by the fact that the machine has capacity of storing (power) for 48hours. Moreover, Bumbakare observes that over 80% of the registered taxpayers in the country are located in trading centers connected to electricity.

"RRA is aware that some dishonest taxpayers may attempt to manipulate the system. Strong enforcement awaits dishonest taxpayers and the penalties are so severe”

Internally, the Domestic Taxes Department is handling this as a project with dedicated staff supported by expatriates. Rigorous trainings on new machines are ongoing—benefiting staff, supplier of the machines and selected taxpayers (totaling 500). There’s also a strong enforcement team that will ensure seamless execution of the project.

On her part, the Director of Taxpayer Services, Mrs. Drocelle Mukashyaka promises rigorous sensitization and awareness of the new law and specifically the Electronic Billing Machines. "It is one of the initiatives being rolled out by RRA to ensure improved trade facilitation to taxpayers. We believe this will save their (taxpayers) time and resources (money). It is a perfect system in handling VAT refund given the automatic declarations and reconciliations between RRA and Taxpayers,” she noted.

Taxpayer Service Department continues to educate taxpayers (in various categories) on the benefits of these tax payment facilitation initiatives. In the process, the department also generates feedback that helps in improving trade facilitation.