Government eases payment of VAT in public procurement

Bureaucratic civil  servants and those who have not yet implemented new financial policies will face it rough under the new public tendering law.
Men at work. Contractors can now focus on work as the burden of ensuring VAT on the jobs they get is now the responsibility of government bodies, according to the new public procurement tax law. The New Times / File photo
Men at work. Contractors can now focus on work as the burden of ensuring VAT on the jobs they get is now the responsibility of government bodies, according to the new public procurement tax law. The New Times / File photo

Bureaucratic civil  servants and those who have not yet implemented new financial policies will face it rough under the new public tendering law.

Vincent Munyeshyaka, the Ministry of Local Government permanent secretary, said the new law calls for quick service delivery and reduces delays, especially in the payment of value added tax (VAT) in public tendering.

“The law is challenging for bureaucratic institutions, but it is good as it enables public institutions to strengthen and streamline financial management,” he said.

The new law came into force last month.

Previously, VAT was paid when a contractor had issued an invoice after delivering a service or supplies. Firms were also mandated to declare VAT every fiftieth day after issuing the invoice. however, they would wait for months or even years to be paid by public institutions, according to the privte sector federation.

As a result, contractors took loans to pay VAT. Yet, the government did not compensate them to mitigate losses accruing from the loans. Others could default and face severe penalties for not declaring VAT returns, contractors said. Delayed payment of public tenders greatly affected cash-flow of companies.

But through the Public Private Dialogue (PPD) framework and Tax Issues Forum (TIF), the private sector advocated for a sustainable solution to ease business operations of contractors.

Celestin Bumbakare, the Rwanda Revenue Authority (RRA) commissioner for domestic taxes, said although all government institutions were at first urged to give public tenders for only activities that had been planned and budgeted for, this did not solve the challenge.

That is why the government later shifted the burden of paying VAT on public tenders from the contractors to the public institutions.

Bumbakare said this has eased pressure on contractors, but challenges government bodies to ensure the past problems do not recur.

VAT contributes above 30 per cent of the total domestic tax revenues, which is equivalent to over Rwf30b.

 

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