Is RRA failing on VAT refund? Banks

A bank is not a charitable organisation. The Treasury is holding up our capital. Therefore we may stop finacing leasing. These were sentiments of some top officials in commercial banks.

A bank is not a charitable organisation. The Treasury is holding up our capital. Therefore we may stop finacing leasing. These were sentiments of some top officials in commercial banks.

They were complaining that Rwanda Revenue Authority (RRA) has not processed their VAT refund for last year. To encourage leasing business in the country, government and banks reached a boardroom agreement.

The banks that help Rwandans acquire assets through leasing are supposed to be refunded VAT on assets. And through this programme, many businesses, small and large got equipment financing.

Fina and Rwanda Commercial Banks that funded the programme complain that RRA, the country’s tax body is defying government directives. They have not been refunded this money yet. Thus holding up their working capital.

David Kuwana, Rwanda Commercial Bank general manager believes some  officials in RRA are frustrating  banks and the leasing programme in the country. He said government knew leasing would spur economic devolvement as many Rwandans without collateral could access bank funding.

“Some small officers are sabotaging the leasing business in the country,” Kuwana said. RRA however denies sabotaging.

“In-fact we support leasing. We want it to grow,” Celestine Bumbakare, commissioner domestic taxes said. To him, banks have to be audited  before they get the VAT refund.

“The tax laws stipulate that before any taxpayer claims VAT refund of Frw500,000 and above, they have to be audited,” Bumbakare said.

He hastened to say that the country does not have appropriate  laws to support banks get their VAT refund. Meaning banks involved in leasing will have to wait for months before they get the depositors’ money held up in VAT refund.

Now to avoid further losses, banks  are threatening to stop funding leasing saying it is not profitable. When they pull out, the leasing industry once described as bringing hope to Rwanda’s business, will be doomed.

Stev Caley, the managing director of Fina Bank said to avoid making further losses, his bank plans to lease to only those customers with collateral. The bank also plans to shift the VAT burden on a final customer.

These banks have been providing cash to poor Rwandans without collateral to acquire assets. The banks further accuse RRA of frustrating the entire programme by insisting on taxing assets rented to the business community.

To banks, this is taxing customers’ deposits and subjecting clients to pay tax on rented assets, which they (banks) say, is not provided for in the taxation laws.

If this is done, then leasing will become more expensive and will exclude the poor Rwandans from asset financing. Only the haves will access the services.

Literature from the International Finance Corporation (IFC), the World Bank’s private sector development arm indicates that since the leasing programme was created in Rwanda, many financing opportunities for Rwanda’s business community, especially the small and medium enterprises have been created.

Leasing has the advantage of not stretching ones collateral. If one doesn’t have the security, the equipment itself can serve as collateral, unlike a bank loan,” information from IFC says.

Also, one can finance the rentals through instalment payments using cash flow. Leasing is relatively convenient, less bureaucratic and, at the end of the day, one still gets to own the equipment.

Fina Bank pioneered micro leasing to serve smaller businesses. The bank has helped these businesses with basic equipment such as bicycles, motor cycles, small juice making machines, equipment for masons (builders), and meat industry machinery.

While BCR chose to fund sectors like ICT, tourism, agriculture and livestock farming. Brian Kirungi, the team leader/legal specialist, IFC said his organisation is trying to broker an agreement between government and banks with a primary role of supporting the creation of a favourable environment for leasing investment.




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