Over the last several years, Rwanda has initiated a number of leading administrative reforms to ease the payment of taxes.
In Paying Taxes 2012, a unique study from the World Bank/IFC and PwC, Rwanda was ranked 33 among 183 economies worldwide and recognised for making paying taxes much easier through a number of positive initiatives such as introducing the quarterly filing of VAT returns for small companies.
The cost and burden of complying with tax laws is a function of the time required for companies to prepare and file tax returns, the simplicity and clarity of the law, the number of tax payments and the total tax cost that businesses bear. Businesses expect that tax compliance should be manageable; they do not want to spend most of their staff and management time trying to comply with tax. Research shows that where tax management imposes heavy burdens of cost and time, it can create a disincentive to investment and encourage non-compliance. Governments like Rwanda are working hard to introduce a variety of administrative reforms to ease the payment of taxes as they have realized that this is a major factor in enhancing the level of compliance.
It is therefore no surprise to see that Rwanda’s ranking in the Paying Taxes report has improved tremendously over the years since the year 2006 when the study was first introduced or that Rwanda is ranked highest within the East Africa region. The report measures the ease of paying taxes across 183 economies, by assessing the time required for companies to prepare and file returns and pay taxes and also a company’s total tax liability as a percentage of commercial profits. The study is based on a typical domestic , small to medium sized business. The results of the study are intended to provide a platform for government and business to engage in constructive discussions on tax reforms.
During last year’s budget, Rwanda’s Minister of Finance introduced further administrative reforms that are expected to ease tax collection, improve efficiency, minimise tax leakage and widen the tax base. The reforms involved plans to introduce an electronic filing system and the electronic tax register.
The e-filing system has now become a reality. Businesses that have used the system since it came into operation indicate that the process has made a major difference to their business by significantly reducing the time required to file tax returns. So far, the convenience and efficiency of the e-filing system is a great relief in comparison to the manual system of filing tax returns.
Through the e-filing system, a taxpayer is able to file their tax returns and pay taxes without having to visit Rwanda Revenue Authority (“RRA”) offices. The system also includes inbuilt checks on the accuracy of the figures included in the return.
Currently, the e-filing is only used for monthly taxes (VAT, withholding tax and PAYE).
The Government has also introduced other administrative reforms that are expected to ease the payment of taxes. These include the establishment of a block management system for small taxpayers (which groups taxpayers together under a tax district for ease of administration), improving the ease of tax registration at the time of registering a business , expansion of RRA offices throughout the country to service new taxpayers and introducing call centres to address taxpayers’ queries in a timely and professional manner.
Other factors need to be addressed to ensure that all stakeholders enjoy the benefits of these simplified procedures. Taxpayers must improve the quality of financial reporting and develop a better understanding
of the tax law and tax management to avoid filing returns that are later found to be inaccurate or incomplete.
RRA should also streamline the taxpayers audit process which currently takes a long time to conclude and consumes significant management time. Mechanisms for finalizing tax audits more efficiently will go a long way to ease payment of taxes and enhance compliance agenda.
Nelson Ogara is a Senior tax manager at PricewaterhouseCoopers Rwanda Limited