RRA tightens noose on construction sector to curb tax evasion

Rwanda’s construction industry has been growing over the last 5 years as manifested by the high rates of urbanisation and increased demand for housing and infrastructure across the country.
RRA will start mandatory registration for unregistered workers on construction sites. (Kisambira T)
RRA will start mandatory registration for unregistered workers on construction sites. (Kisambira T)

Rwanda’s construction industry has been growing over the last 5 years as manifested by the high rates of urbanisation and increased demand for housing and infrastructure across the country.

The sector contributed more than Rwf125billion to the national economy (GDP)   during the first quarter of 2016 up from Rwf109billion same period 2015.

 

This is more than Rwf11.4billion contributed during the 2015/16 fiscal year.

 

However, despite posting positive growth, the sector’s contribution is still less when compared to what other sectors are contributing and does not match the current growth rates.

 

In terms of tax remittances and compliance, the sector still ranks at the bottom when compared to other sectors.

This has forced the tax body to crack the whip on defaulters to enhance compliance in the sector.

The Revenue Authority last week met with sector players to unveil a  new strategy expected to  help  boost  tax compliance.

 Based on analysis done on returns data, RRA identified 4 areas within the construction sector with noncompliance issues including; registration, filing, payments and tax reporting.

According to Drocelle Mukashyaka, the Deputy Commissioner for taxpayer services, the tax body is currently working with stakeholders to further understand the reasons why sector is not meeting their tax obligation.

The idea is to put in place a mechanism that will help determine risk assessment and enable comprehensive tax compliance in the industry, Mukashyaka told Business Times.

This is important because, a recent study conducted by RRA revealed   underperformance on Pay as You Earn (PAYE) by construction companies.

This is because the underperformance in the sector is largely attributed a pervasive culture of the informal employment in the construction sector, she told Business Times.

Additionally, a study by RRA revealed a high likelihood of large construction companies using complex schemes to evade taxes.

There is also still a number of “fly by night” and fictitious companies and a significant number of unregistered foreign workers not paying taxes.

Late tax filing

The number of cases of late tax filing according to the revenue authority is still high besides large number missing out on returns.

The situation is compounded by lack of basic tax literacy knowledge on filing and compliance.

There is still evasion on importation tax by investment certificate, the study indicated.

This has resulted in accumulation of tax arrears and none compliance on various occasions

For-example, up to Rwf706million were registered in tax arrears in construction industry alone in 2015.

Such huge sums of cash often hinders RRA’s obligation to meet its revenue collection targets.

The revenue body targets to raise Rwf1, 084.4 billion for the 2016/17 fiscal year, which accounts for 55.6 per cent of the Rwf1, 949.4 billion National Budget.

Therefore ensuring construction companies and contractors meet their tax obligation is a big step for the tax body to meet its targets.

To address the challenge, the revenue authority says it wants to put in place a strategy that will enhance    compliance around individual construction projects but also foster registration.

According to RRA, new requirements will be introduced for online verification followed by random visits to construction sites to conduct on spot registration.

Equally, RRA will introduce more SMs platforms to remind sector players of filing and payments obligations and deadlines in addition to conducting sensitization and awareness tax campaigns to boost compliance among other measures.

The measures according to Aimable Kayigi Habiyambere, RRA’s deputy commissioner for large taxpayers, are designed to help the sector meet its tax obligation and increase its contribution to the national economy.

“We want to ensure strong coordination between RRA and relevant institutions including Rwanda Institute of engineers to ensure total compliance,” Habiyambere, said while meeting construction companies in Kigali last week.

 Both the construction and hospitality sectors were ranked worst performers in Rwanda Revenue Authority (RRA) tax compliance survey.

And according to the RRA commissioner-general Richard Tusabe the poor performance is due to the prevailing culture of informal employment that leads to tax evasion through non- PAYE  tax.

 The commissioner general recently vowed to penalize and close down construction companies that are not fulfilling their tax obligations.

“Anybody found to have committed criminal offences will be prosecuted to deter and prevent any form of tax evasion by other taxpayers,” Tusabe reassured in a recent interview with The New Times.

Alex Nsengumuremyi, the president   Rwanda Association of construction companies, said the need to increase sensitization on taxation among sector players is critical.

But also the introduction of innovations that will make compliance more efficient will be an important milestone, he said.  

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