Dear readers, hope you are familiar with our educative articles on matters related to taxes and duties. This article however, intends to clarify some of the issues that were raised in the article published by The New Times of April 8th 2009 under the title ‘RRA weighed on Tax Administration’.
Indeed for long enough business people have been complaining about the tax administration in Rwanda. Has anyone ever thought of the reasons why this has been so?
Perhaps yes perhaps no! The reasons to this could be due to a number of factors and one of which may be problems in taxpayer compliance to tax and custom laws.
After the RRA establishment, the management worked tirelessly to lay a strategic foundation that would enable Rwanda to generate sufficient financial resources to a point where it will achieve it’s lasting goal of being economically independent.
The RRA can confess that what has been achieved so far is attributed to the Rwandan taxpaying community that has stood with the entire Rwandan population to comply and fulfill their tax obligations.
Responding to the said article, we need to understand that a lot of efforts have been put in place to lay a conducive environment that favors both local and foreign investors. This has enabled the tax body to achieve and also surpass the annual set revenue targets which the report suggests are set by the RRA. Let us first of all clarify how the targets are set.
Policy makers consider a number of factors, which include but not limited to:
• performance of the economy for the previous financial year and projected growth rates for the years ahead;
• Projected developments of inflation in the years ahead;
• Envisaged tax policy changes in the subsequent financial years that may either have a positive or a negative impact on government revenues. An example is a rise or reduction or removal of a tax type;
• An estimate of efficiency gains that could be achieved through improvements in tax administration such as streamlining cargo clearance procedures.
These are then applied to previous year’s revenues after excluding one-off revenues that are not likely to be repeated in subsequent financial years such as sale of Government vehicles that occurred once some time back and was not repeated in the subsequent years.
How and why targets are surpassed also depends on a number of factors which factors do not involve “arm twisting”, as it is was reported. To clarify this, taxes and duties are administered in accordance with set laws!
No tax or duties can be corrected without basing on the law! The RRA does not administer taxes on a discretional basis and can not therefore “arm twist” taxpayers to achieve targets.
Even when targets are set, there is always a review of performance to ensure consistency of estimates and this is not done by RRA alone! It is done in consultation with the Ministry of Finance and Economic Planning, the Central Bank and other Development partners.
It should be made clear that the RRA does not levy tax where it’s not due. For instance if a company or a person makes a profit from his/her business, he/she is required by law, to remitter profit tax from the profits realized by the business.
If no profit is made, no profit tax is paid. If a loss is made, the law allows the taxpayer to carry it forward for five years.
The same applies to other taxes like Value Added Tax (VAT) which is paid by the final consumer.
A taxpayer collects VAT on behalf of the tax administration and therefore has the obligation of submitting the collected tax on the due date, i.e. before end of 15th of the following month, in which VAT was collected.
These are just some examples to understanding our rights and obligations as taxpayers. Turning to surpassing revenue targets, a number of factors could lead to over performance and these may include; good performance of the economy, increased productivity or efficiency of tax administration, un projected positive change in global economy that may have an impact on international trade; minimizing levels of smuggling or adopting customs and tax administrative measures that increase the turn around of trade or any other government policy change that facilitates the flow of goods and services.
It is for the same reason that the RRA in consultation with other government agencies such as former RIEPA (now RBD) and the private sector, have been pushing for the implementation of pre arrival declaration of goods into customs, extending working hours at customs services and introducing super green and blue channels for compliant taxpayers.
Since October 2007, these approaches have enabled compliant traders to clear their goods through customs faster and to date 65% of customs transactions go through the same regimes.
In addition, 30% of customs entries processed since working hours were extended on 1st September 2008 to date were done beyond the traditional working hours. All these systems benefited all Rwandan compliant taxpayers irrespective of their size or category!
It is also important to clarify that the decision to extend working hours was taken in consultation with all stakeholders involved in the customs processes including Magerwa!
Important to note also is that Magerwa is a public customs bonded warehouse and is therefore bound by the customs law to operate as long as customs offices are open! Besides, Magerwa does not manage the operation of Border posts! Its role is to handle and manage goods that are still under customs control.
Does the appeal process and VAT refunds take more time than expected?
‘There are lots of business inconveniences that go unchecked but reports like BICS shall perhaps help top management of RRA to know which plugs to fix. For instance appeals take ages to get resolved; it takes so long for a taxpayer to get VAT returns.’ This is part of the statement from the article that is being responded to.
The Appeals process is provided for by law No. 25/2005 of 04/12/2005, on tax procedure. The law requires the Tax Administration to respond to tax appeals within 30 days, which may be extended for more other 30 days.
When RRA does not deliver its position on the disputed tax, within the specified period, the claim is said to have a basis, thus may lead to waiver of taxes levied.
While the days required by law could appear long, finalization of objections to tax assessments depend on how fasters clarifications required are responded to!
And the RRA does not in any way want to delay response to appeals or objections! Intentional delays are handled in accordance with staff code of conduct.
It is also the reason why the RRA and the Private Sector through the tax issues forum, in consultation with the Ministry of Finance and Economic Planning have proposed a law, now in parliament to minimize levels of appeal.
As regard the VAT refunds, a taxpayer is required by law to do a self assessment. In the assessment, the status of refund is determined. Where refunds are clearly justifiable, they are refunded immediately. In some cases, refunds are automatic.
In fact these have been raised to Rwf 2 millions for large taxpayers; not more than Rwf 1 million for medium taxpayers and not more than Rwf 500,000 for small taxpayers. Besides, VAT retained by Treasury is immediately refunded irrespective of the amount and the category of the taxpayers.
Does the RRA think easing paying taxes is important?
The RRA welcome reports such as the BICS and is flexible to take forward recommendations therein.
It is the sole reason the RRA regularly commissions internal and external service audits to ensure that any gaps in easing the way taxes are paid are fixed.
Besides, the RRA in consultation with the Private Sector Federation has established a TAX ISSUES FORUM (TIF) to address any challenges faced by the private sector. To date, a number of issues have been resolved through this forum and it is through this partnership and dialogue that we believe we can build a sustainable and good environment for doing business in Rwanda.
In addition, the RRA has partnered with the Private Sector Federation in using the Business Development Services (BDS) as a vehicle for supporting small and medium enterprises.
It is proposed that through this co-operation every BDS will have a resident accountant who will be supporting SMEs in their locality in preparing books of accounts including filing of tax returns.
Furthermore, the RRA has established a BLOCK management system. This system zones taxpayers and establishes an RRA office in their vicinity. The system is designed for small taxpayers and its focus will be primarily taxpayer education and recruitment.
Besides the above, the RRA in negotiating with Banks in Rwanda to allow collection of taxes and duties for their clients so that they do not have to pay to one bank as has previously been. This will make it easier for the business community to comply with the tax law at low cost.
The above and many more initiatives to come are aimed at making it easy and convenient to business. To this effect, the RRA is an active member of Doing Business Reform Task Force and remains committed to provide efficient and equitable services to its clients.
The RRA believes that it is through consultative dialogue and partnership that we can build a sustainable and conducive business environment for economic growth of our nation.
Let us be compliant taxpayers, fight economic dependence and build our Nation.