Recently, Commissioner Generals and Senior Revenue officials from 23 African countries’ Revenue Authorities , in partnership with the International Tax Dialogue (ITD) and development partners met in Kigali to discuss how best they can support the growth and development of micro and small business while ensuring compliance. Business Times’s BERNA NAMATA spoke to VICENT UZARAMA , the deputy commissioner in charge of Small and Medium Taxpayers at Rwanda Revenue Authority(RRA) about the way forward for SMEs’ in Rwanda.
What is your role as the tax administration department?
A country’s tax administration is one of the few public sector organizations which touches the lives of a country’s citizens and businesses on a daily basis and has the greatest impact on their livelihood.
Revenue collected from taxes along with customs collections represents the major funding source for governmental expenditures.
Why concentrate on Small and Medium Enterprises (SMEs)?
Micro and small businesses play a prominent role in our economy. They are not the main source of government revenue, but they are a vital driving force for job creation and innovation, and in turn, growth.
They also account for as much as 95 percent of the business population. They matter and their compliance matters.
What are the major areas of concern regarding SMEs?
Most Micro and small businesses operate outside the formal economy and this is a concern for us. On one hand, they also have limited access to development opportunities.
What are some of the challenges you face in taxing SMEs?
Effective administration of micro and small business taxation is an enormous challenge. Many businesses may start and shut down again in a very short space of time.
Basic record keeping is also challenging and some business operators are illiterate.
As tax administrators what are you doing to help SMEs?
We have invested in tax education and decentralising the tax system to make it easy for SMEs to comply .RRA has embarked on a block management system as a means of reaching all the eligible tax payers.
The most targeted will be small tax payers by demarcating the areas in which they conduct businesses into sizeable and manageable areas called blocks.
These small businesses are at times left out and we miss revenue, whatever they bring we do not mind because the tax yield will eventually increase.
Why is it necessary to protect the domestic tax base?
As a country, our vision is to be self reliant and eliminate dependency on foreign aid. The best way to end aid dependency is enhance internal resource mobilisation capacities.
The situation is even worse now because the financial crisis is making it almost impossible to get donor funding. Domestic revenue provides long term financial platform for sustainable development.
Tax compliance costs pose big challenges to businesses, what do they mean and how do they affect businesses?
These are costs incurred by taxpayers in meeting the requirements laid on them by the tax law and revenue authorities over and above the actual payment.
In other words costs which would disappear if the tax was abolished .Tax compliance costs add significantly to the cost of doing business.
This is why as tax administrators we are working extremely hard to reduce and eventually eliminate them.
Tax compliance is a big challenge for tax administrators, what are you doing to address this challenge?
To enforce compliance we have established a dialogue with tax payers in form of tax issues forum where tax issues are tabled with the aim of finding solutions jointly.
Experience has taught us that creating a close friendly relationship with the tax payers is the best way to enforce compliance.
RRA has developed strong cooperation with Private Sector Federation (PSF) and Local Governments (LG) through Tax Issues Forum (TIF) and Tax Advisory Councils (TAC).
We also have Tax clubs at the Universities. This has created a platform to exchange information and to discuss all tax related matters.
Through technical committee meetings the different groups RRA officers get an opportunity to understand better issues related to an industry since all business sectors are represented.
The business community has raised concerns about the tax system, saying that it is is bureaucratic and consumes a lot of time. How are you addressing this?
Experience has taught us that as tax administrators we need to reduce compliance costs because in most cases people do not comply because they are afraid of the incurring the costs related to fulfilling their obligation –to pay tax .
We are addressing all these issues , for instance by decentralising tax services through the new block management system that will move tax services from the headquarters of RRA to where most of these businesses are located.
We have also invested in tax education including involving students at the University to help people understand taxation.
What was the major outcome of the ITD conference?
As tax administrators we recognised the need to work together with small business associations to better reach both the informal and formal sectors.
Well targeted service delivery and education strategies enhance trust and partnership between tax administrations and the micro and small business community.