Tricks traders use to evade billions of francs in taxes

At Quartier Mateus, Kigali's premier trade centre, business is booming; the sellers are cashing-in and the buyers are taking their money's worth but one party is being cut out of the deals - Rwanda Revenue Authority (RRA).
A busy downtwon Kigali. Many traders evade taxes by not issuing receipts. (File)
A busy downtwon Kigali. Many traders evade taxes by not issuing receipts. (File)

At Quartier Mateus, Kigali’s premier trade centre, business is booming; the sellers are cashing-in and the buyers are taking their money’s worth but one party is being cut out of the deals – Rwanda Revenue Authority (RRA).

On Wednesday evening, a New Times journalist lurked around this busy area, poking his nose in several premises to see how people here do business and the findings were worrisome.

“My mind on money, money on my mind” seems to be the tune on everyone’s mind here; every deal must yield maximum profits.

To do that, merchants give away as little as possible to retain as much as they can, which also means avoiding as much tax as they can.

It is estimated that transactions worth over a billion francs are made in this area daily, but most of these are not receipted and, therefore, untraceable by a tax collector.

For this story, the writer bought a 5-litre box of red wine at Rwf20,000, which is less than the Rwf27,000 it would cost in uptown supermarkets such as Nakumatt.

“There’s no receipt but if you want one then pay more,” said a smiling female attendant.

This kind of habit is widespread among shops in the area as the writer witnessed and it means for every un-receipted transaction, RRA is cheated out of taxes.

Where receipts are given, they are manually written on receipt books that government is seeking to weed out through the use of Electronic Billing Machines (EBMs) that dispense electronically generated receipts and sends data directly to RRA.

EBMs are supposed to help government maximise its Value Added Tax (VAT) collections by enabling the tax collector to get copies of every transaction that a merchant makes, hence easily compute the taxes due.

VAT, which is a consumption tax, is the leading source of revenue for economies and contributed 34 per cent of total revenue in 2013 followed by Pay As You Earn at 25 per cent.

For every transition made, the government must earn an 18 per cent charge which is included on the total cost price that the consumer pays for a product or service, but if a transaction is not officially recorded, then that potion of tax is lost.

With an EBM, the seller must enter details of every transaction he makes into the machine, which then electronically calculates the VAT payable and generates identification details of the transaction before dispensing an electronic receipt for the customer.

However, The New Times has gathered that while most of these shops indeed acquired EBMs, courtesy of a countrywide RRA campaign, few are using them.

‘Serious problem’

Aimable Kayigi Habiyambere, the commissioner of domestic taxes at RRA, admits it’s a serious problem.

The revenue agency is expected to collect the targeted Rwf996 billion for the fiscal year 2014/2015.

“It’s a serious problem we are aware of but we are determined to stop them,” Habiyambere said, adding that non-issuance of EBM generated receipts and undervaluation of transaction figures are the leading tricks used by dishonest traders to avoid taxes.

In a recent case cited as an example, a retail businessman from an upcountry district came to Kigali and shopped for commodities worth Rwf7.1 million, but the seller wrote out a receipt of Rwf4.3 million.

“The buyer was given two receipts; a manual receipt worth of the transaction [Rwf.7.1 million] but the EBM receipt reflected that the transaction was worth Rwf4.3 million,” Habiyambere said, adding that they have sued the offending trader.

RRA believes it is a case of connivance between sellers and buyers and that for the EBM machines to really serve their purpose, there must be honesty among sellers and vigilance among buyers.

But it is even worse among restaurants and bars where most of them do not issue receipts at all.

“People are just not used to collecting receipts after a meal or a drink and restaurant owners are exploiting this culture to their benefit,” said the tax collector, adding that RRA faces an uphill task of popularising the culture of people demanding receipts.

Even for some who issue receipts, customers are not keen on them. In an act of enforcement, over 60 businesses have already been punished for non issuance of EBM receipts and the whip cracking RRA is not about to stop.

RRA has also deployed field agents to lurk around shops to detect illegal transactions and that’s how the Rwf7.1 million transaction was detected.

Limited tax base

Electronic Billing Machines were introduced to help RRA collect more VAT with ease given that most businesses were keeping messy ledger books which made it hard for RRA to audit tax payers.

There are more than 7,000 VAT-registered accounts at the revenue agency, of which at least 6,537 have acquired EBMs, but with revelations that many of these are circumventing their use, RRA faces a tougher task of meeting its targets from a generally limited tax base.

RRA’s target for July to September, which is the first quarter of 2014/2015 fiscal year, was Rwf144 billion, of which just about Rwf140.9 billion has been collected (although more countrywide compilation is still ongoing).

“We are still hopeful to meet the target and possibly surpass it slightly,” Habiyambere said, adding that there are about 130, 000 registered taxpayers but only 335 of them are classified as large taxpayers.

By RRA definition, large tax payers have an annual turnover of above Rwf1 billion and, under IMF standards; they should collectively contribute between 60 to 75 per cent of a country’s domestic taxes.

In 2013, large tax payers contributed 68 per cent of all revenues collected.

But the majority of tax payers are in the category of medium and small enterprises but they are also the most problematic to administer compared to large tax payers.

Currently, RRA is involved in an ongoing campaign to recover several billions in arrears from more than 1,000 defaulting firms.

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Way forward

RRA says it is determined to win a battle that it admits is a tough one. However, it is banking on honest business people who can help report their unscrupulous colleagues and watchful consumers who can insist on having an EBM generated receipt for every transaction.

“We want to tell Rwandans that when they don’t get a receipt, their contribution to government revenues is stolen and they must therefore insist on being receipted,” Aimable Kayigi Habiyambere, the commissioner of domestic taxes at RRA, said.

“To honest business people who pay their taxes promptly, dishonest dealers promote unfairness and they should help us stop them.”

In the next few days, every mobile phone owner will receive a text message with an appeal from RRA encouraging them to always insist on a receipt for every item bought.

But this, observers say, will take some years to transit from a culture of no receipts to one where a receipt must be issued for even the smallest of transactions.

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