EDPRS: Rwanda tax modernization reforms paying off

Rwanda Revenue Authority was set up in February 1997 as a major tax modernization initiative by the Government which had been shattered by the events of the 1994 Tutsi genocide. 

Rwanda Revenue Authority was set up in February 1997 as a major tax modernization initiative by the Government which had been shattered by the events of the 1994 Tutsi genocide. 

Rehabilitation of the national tax regime to conform to world class standards, therefore, is the background to the formation of the RRA by the Government.

Rwanda’s development plan Vision 2020 is predicated on the principles of building a capable state, characterized by good governance, the rule of law and efficient delivery of services to the citizens.

Therefore, the Government of Rwanda has undertaken an ambitious and comprehensive capacity development programmes to re-establish and strengthen tax modernization initiatives.
In the EDPRS framework the Government has embarked on serious reforms that have improved the business climate within the economy which directly feeds into the national taxation system.

Core objectives
Rwanda Revenue Authority’s core objectives stand as revenue maximization, reduction in the overall cost of collection and facilitation of business growth through efficient systems and simplified procedures.

In order to realize these broad objectives, emphasis will be put on further modernizing the tax laws while improving the country’s internal business procedures and information technology systems. In turn, it is expected that tax compliance should increase across board.

Provisional 2008 performance
While thinking about where Rwanda  would want to see the RRA moving to, this future programme is aligned to the general program that the Government of Rwanda has set for itself as a comprehensive development agenda that has been well elaborated in the EDPRS document.

The total revenue collection (fiscal and non fiscal) including TCC for January-December 2008 is Rwf 351.3 billion against the target of Rwf 281.4 billion. The overall target is exceeded by 24.8% or Rwf 69.9 billion.

Total revenue performance (excluding TCCs but including non fiscal) amounts to Rwf 336.8 billion against the target of Rwf 281.4 billion registering an achievement of 119.7%.

Fiscal revenue alone amounts to Rwf 343.7 billion (TCC inclusive) against the target of Rwf. 275.8 billion which is an achievement of 124.6%.

Non-fiscal revenue collection is Rwf 7.6 billion against the target of Rwf 5.6 billion, this translates into 135.7% achievement.

Factors that contributed to the performance
The main factors that influenced revenue performance in 2008 include:

• Realized growth rates of 11.2% for Real GDP and 30.6% for Nominal GDP. These influenced VAT, PIT, CIT and Excise performances;

• Taxpayers’ segmentation and increase in the number of taxpayers registered;

• Increase in the CIF value (25.8%) and in number of importers (75.6%). Also there was a substantial increase in the volume and value of goods originating from non-COMESA states that pay at full rate. This increase led to an increase in the revenues collected at Customs.

• Other tax rate changes such as increase of excise rates on cigarettes and spirits have improved trade taxes’ performance;

• Inflation rate that is estimated at 15.4% had an impact on VAT and imports value hence the duties emanating from this source has been rising;

•  Investment inflow that has had an impact on all tax heads directly or indirectly;

• Enforcement efforts: Had impact on most tax heads for example over Rwf.25 Billion collected in arrears within this period;

• Improved performances by certain sectors like tourism and agriculture had effects on indirect taxes like VAT and excise duties as well as influencing taxes on profits  because of increase in the disposable income among the citizens;

• Improved efficiency in RRA operations due to computerization leading to increase in turn around time resulted into increased collections;

• Some improvement in taxpayers’ compliance on tax matters.

Challenges encountered
In the process of accomplishing its duties and responsibilities, Rwanda Revenue Authority encounters challenges.

Among them include low compliance levels especially amongst small and   medium level taxpayers. Reduction in revenues from petroleum products due to increase in international oil prices leading to increased subsidy by the Government is another challenge.

Low level of record keeping and accounting skills amongst the business community and tax evasion is another set of challenges. Another is avoidance and the management of long taxpayers’ queues during the peak periods as a result of last day declaration and payment.

RAA is working around the clock to change taxpayers’ mindsets with the intent of instituting a turn around.

Main priorities ahead
RRA continues to reform its internal services in an effort to realize quick and sustainable gain and to achieve this the authority is committed to:

I. Enhance compliance levels among small and medium taxpayers.

II. Enhance trade facilitation initiatives without compromising government revenues and society protection.

III. Conduct more effective taxpayer recruitment and sensitization exercises in order to bring more potential taxpayers into the tax net. Block management system will be implemented.

IV. Effective planning audit and enforcement planning using risk based approach in order to maximize benefits of the IT systems.

V. Extend and improve utilization of IT systems in the regions to maximize benefit out of these systems.

VI. Achieve Rwf. 176 billion tax revenue targets for the first six months of 2009.  

Services to taxpayers

Trade facilitation is one of the key elements of RRA and a basis has been laid for the simplification and harmonization of her processes and procedures to enhance transparency and reduce the cost of doing business.

On customs side:
• There are a series of trade facilitation packages put in place by the tax administration, and one of them is “Traders’ compliance scheme” that is comprised of blue and super green channels as well as pre-clearance and pre-payment systems plus increase of hours of operation, which quickens clearance of goods unlike in the past where goods would take a couple of days/even months in warehouses.
• Exporters’ ceilings were decentralized to points of exit other than from customs headquarters only as it was before.
•  MAGERWA is no longer a monopoly in ware houses that any other person can make business in building warehouses like what SDV did.
• Cargo scanners will be available at the airport to facilitate goods verification in the quickest manner.
• In June 2009, RRA will start up authorized economic operator like e-scanners that is comprised of e-declaration and e-payment to     enable traders to make goods clearance from their homes/offices without going to customs.
• RRA will implement EAC external tariff by July 2009.
• Extension of working hours from 7:00am to 10:00pm and also working Saturdays from 8:00am to 1:00pm to remove backlog of cargoes.

Domestically RRA have also worked on
1) Appeals process was shortened to CG level whereby a taxpayer can pay or appeal to courts of law without going to the Minister of Finance;
2) All tax laws administered by RRA were compiled into a tax code for ease of reference;
3) Penalties in the draft tax law at parliamentary level were reduced from 100% to 50% emphasizing that if all taxpayers would adhere to the policy of self assessment system, there would not be penalties at all.
4) An agreement  was signed with Banque de Kigali, and soon taxpayers with accounts in this bank will be paying from that bank;
5) Harmonized payment of taxes emanating from motor vehicle industry;
6) Introduction of block management system pilot project started at Nyabugogo.
7) Non fiscal offices were opened in Nyabugogo, Kacyiru and Remera in additional to one  in the city centre;
8) Regular reminders in form of sms, e-mails and short messages on Radio and RTV are done asking taxpayers to pay early other than waiting to pay on the last minute;
9) Project of introducing e-filing and e-payment system is underway;
10) Regular dissemination of information in print media to inform taxpayers on issues facing tax payers.
11) Establishment of email address that will facilitate taxpayers to send in the written queries that get instant responses.

Implementation of EAC requirements

Rwanda as part of the larger EAC needs to institute from the taxation perspective new programs to tally with the new requirements of the community.

Steps taken:
• A draft list of sensitive products and raw materials has been developed by Rwanda Revenue Authority and forwarded to the Private Sector Federation for inputs;
• The EAC treaty, protocol, regulations, acts were translated into 3 languages (English, French & Kinyarwanda) to avoid language barrier.
• Sensitization of the general population about Rwanda’s reintegration in EAC was conducted country wide;
• RRA started the exercise of training customs and RPD officers on EAC Customs Management Act and the training will continue;
• Identification of mitigating factors to compensate the anticipated revenue loss was done and laws implementing the changes were drafted;
• Identified and drafted amendments to the Rwandan laws that are expected to be affected by entry into the customs union. These include the Income Tax Law, Consumption Tax Law and Law on Sugar Surcharge. 

The ultimate goal of the Rwnadan Government is that taxpayers be viewed as the only reliable and sustainable way to liberate the country economically.


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