Don't tip government, just pay your taxes

The 2016/2017 budget unveiled on Wednesday by Finance and Planning Minister Amb. Claver Gatete told tax payers what they can’t afford but will nonetheless not stop them from buying it; a billion here, a billion there, the budget will ultimately have to add-up to real money. Like elsewhere in the region, when Minister Gatete appeared before Parliament to remove the kimono off the traditional budget briefcase, it was to reveal a typical budget of any developing economy; imbalanced with expenditure far outweighing the projected revenue. Government intends to spend Rwf1949.4 billion between July 2016 and June 2017, Rwf 140.6 billion higher than RWF 1808.8 billion for 2015/16 fiscal year; however, that expenditure plan is short by Rwf733 billion, equivalent to 37.6 percent of total budget. The cold harsh reality is that the good Minister must balance the budget. The proposed plan which Parliament has agreed to, in principle, will see home financing of the budget account for 62.4 per cent, amounting to RWF 1216.4 billion; it is Rwf 40.9 billion higher than Rwf1175.5 billion targeted in 2015/16 fiscal year. The balance, Rwf733billion, will be mobilised externally. As the minister addressed legislators, someone at the back (most likely a journalist), too far to be heard, joked thus; ‘if you want creativity, take a zero off your budget and if you want sustainability, take off two zeros.’ But such advice would literally mean cutting budget allocations on almost every sector, including defense and other foundational areas, something that would likely see ministries overspending their budget allocations before the end of a financial year. I once asked a former minister why ministries often overspend their allocations and he joked thus, “we don’t actually overspend our budget; the allocations simply fall short of our expenditure.” Most Africans want their countries to be truly independent from ‘strings attached donor aid’ but such desires will only actualise if economies are in a position to fully fund their respective national budgets without seeking budgetary support. Regarded as one of the most patriotic on the continent, the 2016/2017 budget, like the previous ones, is going to be a major patriotism test for Rwandan tax payers. Compliance to lawful tax obligations and consuming Made-in-Rwanda commodities to help the Franc stabilise against the dollar, are two things that Rwanda will need in the next twelve months to support the budget execution. Of the total projected budget for the fiscal year 2016/2017, government expects direct taxes to contribute 55 per cent supported by 5.7 per cent from no-tax revenues; grants and loans will generate for 18.7 per cent and 18.9 per cent, respectively. They say he who loves their country violates no law, but negative attitude to paying taxes among local business community has in previous years affected Rwanda Revenue Authority’s efforts to meet its targets which in the end would hamper successful execution of the budget. A positive trend has however started to emerge lately thanks to RRA’s extensive investment in public awareness campaigns and capacity building in tax administration and technology. For instance, total domestic revenue collections for the first half of the fiscal year (July- December 2015) were projected at Rwf491.8 billion with tax revenue of Rwf 443.1 billion and non- tax revenue of Rwf48.7 billion. However, at the end of December 2015, total collections amounted to Rwf 528.1 billion, in excess by Rwf36.3 billion with both tax and non-tax revenue collections contributing to the surplus. The tax body will need to sustain such performance. But that will largely depend on the level of economic activity in the country and internationally, especially considering that prospects for international business are not as bright. A day before the budget reading, the World Bank released an outlook report that downgraded the 2016 global growth forecast to 2.4 per cent from the 2.9 per cent pace projected in January. The downgrade was attributed to the sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows. If the World Bank’s off-putting analysis holds, Rwanda’s revenue cash cows that helped RRA to register surplus collections in the first half of the fiscal year ending could be badly hurt. For instance, PAYE collections, (withholding tax on income payments to employees) performed well and exceeded the target, while excise duties and VAT collections also contributed to the good performance. In the case of excise duties, higher domestic consumption of excisable products including beer and soft drinks was responsible for the surplus performance while VAT collections increased on account of electronic billing machines. The performance of these ‘tax revenue cash cows’ helped fill the gap in other sectors such as mining where royalties from the mining firms declined significantly due to the sharp decline in mineral prices on the international market. But even as tax collections in the first half of the last fiscal year generated surplus revenue, there are still significant cases of traders who are fond of dodging their tax obligations especially VAT. Their argument perhaps being, ‘no need to pay taxes, let’s just tip the government 15 percent if it does a good job.’ Unfortunately, to do a good job, the government needs your taxes first. So don’t tip the government. Just pay your taxes, well and in time. Use the Electronic Billing Machines and if you repeatedly fail, get fined 20 times the value of VAT evaded.

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Don't tip government, just pay your taxes