Rwanda’s nascent private sector is vigorously pushing for tax reforms to ease doing business and support business growth around the country.
In a meeting with Rwanda Revenue Authority (RRA) last week, the private sector through their umbrella organisation, Private Sector Federation (PSF), noted that knowledge of the taxation system is still low, especially within Small and Medium Enterprises (SMEs).
This leads to less compliance and increases administrative costs, the PSF said.
“For SMEs sometimes they are given deadlines and they do not know the details of how much they are required to pay and for what period. These are some of the reforms RRA is looking at and they are very necessary,” Molly Rwigamba, the acting Chief Executive Officer (CEO) of the PSF told Business Times after the meeting.
Citing “article 51” of law 16/2005 that currently requires all car importers to pay 15 percent of withholding tax on airfreight, sea freight and inland transport, Rwigamba observed that the law needs further clarification.
“Importers have a problem. When they bring goods that have been shipped by an international carrier or international transporters, they have the burden to pay that withholding tax, which the transporting company will not pay.”
Local insurers also requested for the removal of Value Added Tax (VAT) on insurance premiums in Rwanda. Insurance firms in Kenya, Uganda and Tanzania do not pay VAT on collected premiums, which make their insurance products more competitive compared to those offered by Rwandan insurers.
The business community also requested government to remove VAT on Gas (LPG) in order to enable cheaper prices to their clients.
The federation says that the current tax system should be simplified to a flat rate tax to increase compliance.
In an interview with the Deputy Commissioner for Large Taxpayers, Ben Kagarama, said that the “flat rate tax” system was being studied and evaluated to establish if it can help to improve doing business for SMEs.
“The objective is to simplify a tax system especially for the SME’S which are often regarded as too small and sometimes without sophisticated skills to adapt to a mult-rate system for different taxes,” he said.
RRA is also working on a sensitisation programme for SMEs to improve professionalism within their business operations.
“It will even encourage more business growth because a professional business yields profits which is good for us in terms of taxes.”