Tax compliance will mitigate financial crisis

Rwanda Revenue Authority yesterday released a generally impressive performance in its first quarter surpassing its targets by 108.8 % . While this reflects good economic performance, it should be noted that enormous challenges remain for the country, as the effects of the global financial crisis continue to unfold. RRA’s under performance on tax collection in its first quarter results, sends a signal that the financial crisis is not only taking a harsh toll on the world ’s advanced economies, but also emerging economies like Rwanda.

Rwanda Revenue Authority yesterday released a generally impressive performance in its first quarter surpassing its targets by 108.8 % .

While this reflects good economic performance, it should be noted that enormous challenges remain for the country, as the effects of the global financial crisis continue to unfold. 

RRA’s under performance on tax collection in its first quarter results, sends a signal that the financial crisis is not only taking a harsh toll on the world ’s advanced economies, but also emerging economies like Rwanda.

This can be explained by the global nature of the shocks, that have hit both the financial sector and the real economy, in addition to strong regional and global trade links.

The recently released 2009 edition of the African Economic Outlook (AEO) report, also finds the region gravely affected by the global economic downturn.

The average growth rate for East Africa is projected at 7.3 per cent in 2008, down from 8.8 per cent in 2007.

The region’s performance is expected to post a 5.5 percent slow down in 2009 and remain about the same in 2010, according to projections.

While policymakers have already taken unprecedented action in response to the deepening financial and economic crisis, maintaining the tax base is also essential to sustainable development, particularly during the current financial crisis.  

This means tax compliance must be emphasised particularly for Micro and Small and Medium (SMEs) enterprises who are the majority in the economy but operate predominantly in the informal sector.

As they are more likely to engage in tax evasion or operate completely outside the tax net or hide part of their business transactions.

However this does not mean, we should forget the large taxpayers.

 Improvement in service delivery for the majority of citizens is therefore also a necessary condition to improve tax compliance for the country to survive, or minimize the effects of the economic downturn.

Ends

 

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