In order to address widespread tax defaulting by Small and Medium Enterprises (SMEs), the Minister of Trade and Industry (MINICOM), Francois Kanimba, proposed that fiscal and regulatory frameworks be tailored to establish a fixed taxation amount for SMEs.
He made the remarks last week while addressing the senate.
According to the Establishment Census 2011, SMEs operating in the private sector form 96.5 per cent (119,158) of businesses in Rwanda.
Although they form the biggest part of the economy, 88 per cent of them are not formally registered and do not pay taxes.
“SMEs that pay taxes are only 14 per cent; let us put in place simplified tax declaration forms and streamline all local government fees and taxes for them,” he said.
“RRA will conduct a feasibility study starting on September 25, with a goal to coordinate SME taxing activities as well as communicate and sensitize them about the tax regime. RRA is also planning to implement an electronic one-window for tax management.”
According to Kanimba, this will not only ensure that RRA’s revenue’s go up, but will also enhance the performance of SMEs, which are usually challenged with limited access to markets, poor business management and low access to finance.
“Businesses must be provided with portals that have easy market information to connect them with clients and key stakeholders,” Kanimba told the senate.
“This, together with the SME Policy passed in 2010, will create a critical mass of viable and dynamic businesses that are able to positively contribute to national economic development.”
However, the Private Sector Federation (PSF) argues that some businesses are too small to be registered and to be taxed by RRA.
“Many micro businesses make profits of less than one million francs per year; although they do not pay tax to RRA, they do so at district level,” Antoine Manzi, the Director of Employment at PSF told the Business Times.
“We have 22 business centers countrywide where we carry out meetings with several SMEs and micro businesses and sensitize them about the benefits of formal registration.”
MINICOM indicates the SMEs employ a total of 281,946 people, whereas the sector’s annual turnover is more than Rwf50 million.
The country has only one business incubation centre located in Masaka, Kicukiro District, which was established last year by RDB to offer information and technology demonstration to traders that deal in agricultural products.
The government has been involved in several bilateral talks, particularly with the Government of India, to establish an institute for entrepreneurship and technology transfer to enhance small businesses.