Rwanda Revenue Authority (RRA) has found it difficult to determine if non VAT registered taxpayers have reached the required turnover of at least Rwf20 million per year in order for them to qualify for VAT payment and therefore use Electronic Billing Machines (EBMs).
That’s unfair for VAT registered taxpayers whose businesses are regularly monitored by the tax collection body because they use EBMs for their transactions.
In an exclusive interview with The New Times’ Eugene Kwibuka last week, Emmy Mbera, the Electronic Billing Machine Project Coordinator at the RRA, revealed that using EBMs will soon be mandatory for every business in the country.
Below are the excerpts:
First, tell our readers why EBMs were introduced as a way of collecting taxes in Rwanda
Electronic Billing Machine (EBM) system was introduced in 2013 to replace the manual invoicing system which was mainly paper based with its weaknesses such as paper being easily destroyable by fire, water or any other disaster, easy to make forgery of invoices, resulting into unreported sales and undue value added tax (VAT) refund claims.
The undue tax refund claims would possibly include keeping double sales invoice books, especially for large, medium, or small family owned businesses.
Manual invoicing also meant high cost of financial audits and the process would take a lot of time and there was lack of transparency for both taxpayers and tax administration.
The EBM system is Information Technology (IT) based and is made for producing, recording and transferring business sales information from taxpayers’ systems to tax administration management systems on real time.
What benefits have you, at RRA, seen so far with the use of EBMs?
The main purpose of introducing EBM system in Rwanda was to improve doing business in the country and monitor the Value Added Tax (VAT) compliance. Since the inception of this policy, EBM users have seen it as an internal control mechanism tool as it has the option of stock management and improves the business transparency.
EBM data serve for accounting purposes, EBM information is safely kept, and EBM constitutes a means of information for business stakeholders and partners and permanent communication and contributes to real time sharing of information between the administration body (RRA) and taxpayers, hence contributing to less time and financial audit costs.
On RRA side, EBM constitutes a management tool and an efficiency control mechanism as it helps to safely keep information from taxpayers, constitutes a channel of permanent dialogue and communication with taxpayers, and improves the VAT refund process, transparency in tax audit process, the level of VAT collections, and reduces the time and cost of audit.
Any other impact you have noticed so far?
In 2014, the International Growth Center (IGC) conducted research on the incidence of EBM for VAT in Rwanda and found out that, from 2013 to September 2014, EBM contributed to an increase of VAT payment by 6.5 per cent. More to this, the VAT collected on sales declared increased by 20 per cent in 2015 when compared to 2014, while in 2016 (January to August), VAT collected from sales declared registered an increase of 12 per cent compared to the same period in 2015. Machines used grew from 800 machines during the pilot phase in 2013 to 14,000 machines today while users also grew from 800 to 12,000 today.
RRA targets to collect Rwf1,071 billion for the 2016/17 fiscal year. How much of this revenue is the body expecting to collect by using EBM?
The total VAT to be collected is Rwf346 billion, representing 33 per cent of total revenue collections whereby customs shall collect 117 billion and domestic taxes should amount to Rwf229billion. EBM shall help in collecting the Rwf229 billion which, represent 22 per cent of the total envisaged collections.
Tell us about eligible taxpayers for the use of EBMs?
According to the VAT legal provisions, all VAT payers are obliged to use a certified Electronic Billing Machine that generates invoices, indicating the tax as agreed by the tax administration. VAT registered taxpayers have more than Rwf20 million per year or Rwf5 million per quarter in turnover from their businesses.
Why isn’t the use of EBMs mandatory for every business? Isn’t it unfair that some businesses use EBMs to pay taxes while others aren’t?
During the monitoring and enforcement of EBM usage, price distortion and unfair competition were observed between VAT registered taxpayers and non-VAT registered taxpayers, hence leading to non- compliance of EBM users in order to remain competitive on the market. That’s why the agaovernment of Rwanda wants all businesses to use EBM regardless of whether they are VAT registered or not.
But taxpayers not using EBM do not mean that they are not paying taxes. They are not using EBM because their conditions do not allow them to do so. However, being not VAT registered doesn’t mean not paying taxes. There are other taxes such as Income Tax and other taxes that they pay.
So, how is the government going to ensure that all business people use EBM?
Well, there is a draft law to amend the law that governs tax procedures, which will require all businesses to use EBMs regardless of being VAT registered or not. That way, RRA will be able to monitor and determine every business’s revenues. Once the law is in place, RRA will facilitate all businesses to comply with the use of EBM.
At what level is the draft law right now?
It’s at the Ministry of Finance and Economic Planning and is still being reviewed.
Tell us about challenges that you have noticed with the use of EBMs so far?
Despite the achievement so far registered we are still encountering challenges related to the low culture of invoice requesting amongst Rwandans and EBM users not issuing EBM invoices. They issue manual invoices, delivery notes or simply nothing, especially restaurants, bars, and in supermarkets. Some EBM users also issue an invoice with the price lower than the actual money received and the misusage of tax rates (taxable goods considered as exempted ones).
What is the RRA doing to address those challenges?
Consumers have to be educated and sensitised on the Value Added Tax as they constitute the real payers of this tax. The only way to be sure that the tax charged on purchases reaches the national treasury is to request for an EBM invoice and also check the amount it bears and time of its printing in order not to confuse it with other invoices. Campaigns have to be conducted in universities, secondary schools, among religious congregations, and in private and public institutions.
RRA has also initiated a consumer motivation, “EBM lottery scheme”, to motivate consumers requesting for their EBM invoices and stand a chance to win different prizes, including motor vehicles, motorcycles, flat screen TVs and smart phones.
In the near future, RRA plans to introduce the Supply Chain Management software to monitor the stock at all levels of the business (from importation or local manufacture to retailer through wholesaler and distributor). And, from time to time, RRA studies the price structure of some commodities in order to reduce the under-reporting of sales in EBM invoices. Last but not least, in the course of monitoring and enforcing the EBM usage, RRA does anonymous shopping to understand and determine the real prices of commodities.
Are there any other plans to scale up the use of EBMs?
RRA intends to invest in service delivery for doing business facilitation. RRA wants to have an Online Certified Invoicing System (CIS) and a Virtual Sales Data Controller (VSDC) to facilitate some category of taxpayers who today do not use EBM while they are legally required to use it. This is due to the nature of some business activities but with internet connection they can use CIS and VSDC. Taxpayers with very few invoices per year for whom buying EBM devices would not make sense will also be able to use the systems.
Also, as stated earlier, the RRA plans to request non VAT registered taxpayers to use EBM in order to overcome challenges of unfair competition between EBM users and non EBM users, which often leads to non usage of EBM. There is a plan to go up to 80,000 machines in the coming five years for the acquisition of EBM devices, up from the current 14,000.