“We could instantly end our reliance on aid by merely sorting out our tax system so we all pay our share.”
The Rwanda Revenue Authority (RRA) recently showed its tough side by sacking 19 staff over a wide range of misdemeanours ranging from fraud, soliciting bribes and bad customer service.
This is a stringent measure considering the shortage of taxation officers but one that had to be done considering the severity of the offences. There is no bigger issue facing any government than its taxation system; indeed it is a contract betweencitizen and State as well as the lifeblood of government.
We could instantly end our reliance on aid by merely sorting out our tax system so we all pay our share. The biggest problem with African economies is that up to 90 percent of most economic activity is in the “Black Economy” meaning outside government supervision and taxation. Look around any of our cities and think how many traders, artisans, professionals and businessmen pay actual taxes?
Most people are not contributing yet use government services such as roads, schools, clinics and the like. Looking at economic data for Rwanda we have an economy worth $8.4 billion (ranked 141st) in GDP when measured in Purchasing Power Parity (PPP) giving us $898 per capita.
Even when one takes the nominal GDP which is not adjusted for price changes it is still $3.4 billion or $355 per capita. This said, there is no way to truly measure the black economy, it could be $10 billion or more.
Tapping into this taxation base is not easy and requires a concerted effort in sensitising citizens, civil and local government and implementing the technology systems needed to account for every franc. Looking at two of our neighbours it can show you the benefits and pitfalls of tax policy.
In Kenya the revenue authority collects 95 percent of government revenues and did not rely on aid with only 5 percent coming from outside, until the recent electoral crisis they were a model of a self-sufficient African nation on their way to becoming a middle-class nation, this meant they were immune to foreign political pressure.
Whereas Uganda after 23 years of aid is still heavily dependant on aid. This is because their taxation system is ill-suited to meet Uganda’s needs.Rwanda currently finances up to 60 percent of its government budget by taxation and plans to increase it further by expanding the tax system.
In urban areas it is making steady inroads into the black economy by registering and auditing businesses but in rural areas it is hard to implement taxation in local economies that often trade without money often by bartering and trading for favours. Yet taxation is needed to boost these local economies through what are known as the 4 R’s.
Revenue: this is the way for government to pay for its projects.
Redistribution: money tends to stagnate in the hands of a few however it is imperative that money transfers from the rich to the poor and circulates effectively. Re-pricing: value addition should be priced into the sale price; one of the reasons Rwanda saw a slight increase in prices last year was partly due to the fact that taxes were being collected effectively and shop-owners priced this into their costs.
The final reason is Representation: the American war of independence had a motto of “No taxation without representation.”
The covenant between the State and the People requires citizens to pay taxes as price for good governance.