Why new AG report puts revenue body on the spot

The auditor-general’s report presented to Parliament, on Monday, painted a worrisome state of affairs at Rwanda Revenue Authority (RRA); it highlighted serious cases of mismanagement that are likely to ignite doubts as to whether the institution is up to task.
A trader pulls a receipt out of an e-Billing machine. Electronic billing was introduced to curb tax evasion and boost revenue collection. (File)
A trader pulls a receipt out of an e-Billing machine. Electronic billing was introduced to curb tax evasion and boost revenue collection. (File)

The auditor-general’s report presented to Parliament, on Monday, painted a worrisome state of affairs at Rwanda Revenue Authority (RRA); it highlighted serious cases of mismanagement that are likely to ignite doubts as to whether the institution is up to task.

There are about a hundred footsteps between RRA and AG’s office but in weeks to come, commissioners of the tax body are likely to move a longer distance to Parliament where they will face the dreaded parliamentary Public Accounts Committee (PAC).

“Based on the findings, it doesn’t look good at RRA but I can’t really make a comment right now until the committee has finished analysing the report,” MP Théoneste Karenzi, a member of PAC, told The New Times yesterday.

Normally, the procedure is that after the AG’s presentation, PAC analyses the report and later explains it to Parliament. It is then decides which officials among the public institutions on the spot, should appear to clarify matters before the committee.

That is partly why efforts to get a comment from any of the RRA commissioners yesterday were futile as this newspaper was instead directed to the Ministry of Finance and Economic Planning – which supervises the tax body.

“We are not in position to comment on the report at the moment, it’s too early,” said one commissioner.

What’s in the report?

The Auditor-General, Obadiah Biraro, believes that RRA is plagued by too many problems of incapacity or just sheer inefficiency that have resulted in government failure to collect all the potential tax revenue.

He listed some of RRA’s “body parts that were diagnosed with serious ailments” for which a remedy is needed if the government is to achieve its dream of fiscal independence, a situation that requires ability to collect enough domestic revenues to fund development projects.

As a symptom of inefficiency, the AG found that RRA lacks proper tracking mechanisms of its registered taxpayers for domestic taxes and also discovered that the tax body failed to register some taxpayers and yet they were known to be in existence.

Having a limited tax base is one of those reasons that have previously been fronted as being responsible for Rwanda’s limited domestic revenues but revelations of deliberately failing to register new taxpayers who could have helped expand the tax-net are likely to anger Parliament.

The report also underlined capacity challenges in RRA’s tax audits that did not only lead to low tax audit coverage but also many of the audit reports, 43 percent out of 145 cases, have been contested.

Normally, contesting tax audit reports means long and tiresome legal battles between the taxpayers’ attorneys and those representing the tax body.

A local commercial lawyer that has previously represented a client in a case against RRA intimated that, most times, the tax body loses cases because of carelessness or minor mistakes made during the audit process.

Inflated revenue collections

But perhaps one of the most disturbing revelations in the AG’s findings was one that found the tax body’s revenue reporting and accounting systems seriously wanting and dogged with serious shortcomings.

“These (weaknesses) resulted in presentation of inaccurate information in the revenue accountability statement for the year ended June 30, 2014, and failure to properly account for all collections made during the period,” Biraro said.

In the financial year, RRA announced to the public that its total revenue collections in the period were over Rwf838.6 billion, but the Auditor General’s report found the figure to have actually been overstated by some Rwf32.5 billion.

“The actual revenue collections based on the trial balance amounted to Rwf806 billion compared to Rwf838.6 billion that was disclosed in the revenue accountability statement,” revealed the report.

Over the past few years, RRA has invested heavily in modern technology projects to improve efficiency in tax administration. It has now fully transferred all tax declaration and payment systems from manual to electronic services supported by the Internet.

However, the AG’s report found that the returns to these investments are yet to show, citing banks that receive tax payments on RRA’s behalf as, for example, taking too long to transfer the money to the tax body.

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Obadiah Biraro, the Auditor-General 

The deployment of too many electronic platforms for payments have also, reportedly resulted into RRA having many bank accounts yet when it came to the reporting process, many of them were not reconciled to the total collections.

For example, the AG found that there were no cashbooks provided for at least 40 RRA bank accounts, 12 of which were omitted from the revenue accountability statement; yet eight of the omitted 12 actually appeared in the RRA bank register.

Burden of conflicting statement

As a result of this conflict between manual and electronic systems as well as account issues, it caused inaccuracies in the financial reporting of RRA.

“These led to unexplained differences of Rwf10.7 billion between total collections in the revenue accountability report of Rwf806 billion, and the amounts extracted from the underlying information technology systems used in revenue collection of Rwf795 trillion,” the report said.

According to the report, collections reported in RRA’s revenue accountability statement were found to be higher than what was generated from its IT systems; this, the AG said, shows that the tax body is not using its IT systems to process all revenue transactions.

These inconsistencies forced the AG to raise questions related to value for money and demanded for a rational to justify RRA’s heavy investment in IT systems that don’t seem to work.

It is the questions and other inconsistencies that the PAC is now expected to follow up on in the coming weeks.

This comes after Parliament approved the National Budget Framework for the financial year 2015/2016.

Next financial year, government plans to spend about Rwf1,768 billion, an increase of Rwf5.9 billion from Rwf1,762 billion for the current Budget.

Thirty-three per cent of the Budget will be externally funded.

“The Budget is well prepared and in line with the government’s development agenda but we should reduce reliance on foreign aid and focus more on domestic funding,” said MP Constance Mukayuhi Rwaka, the chairperson of the parliamentary Committee on National Budget and Patrimony.

However, for that to happen, the ailments bedeviling RRA as highlighted in the AG’s report must be healed first.

Ironically, the Ministry of Finance and Economic Planning which supervises the tax body was one of those that received a clean bill of health from the Auditor General’s critical eye. In spite of this, the Ministry is likely to be put to task to explain some of the serious issues at RRA.

editorial@newtimes.co.rw

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