Taxation Background in Rwanda and The Linkage Between a Government’s Efforts In Resource Mobilisation and Efficient Service Delivery

PRESENTED BY BEN KAGARAMA BAHIZI
COMMISSIONER GENERAL-RRA

TO THE SCHOOOL OF FINANCE AND BANKING
www.rra.gov.rw
MARCH 21st 2012

RWANDA REVENUE AUTHORITY

Contents
Taxation in Rwanda- Background
g
RRA background
Mission statement
Various taxes administered by RRA
Rwandan tax rates compared to other EAC countries
Collection against budget:1998-2011
The Linkage between a Government’s efforts in Resource Mobilisation
and efficient service delivery
Strategies to mobilize tax revenues
Tax Incentives granted to investors
Trade facilitation initiatives
Challenges
Your role as a public institution
p

3/21/2012 2
www.rra.gov.rw Taxes for Growth & Development


Taxation background in Rwanda
g
• Taxation in Rwanda dates way back in 1912 when property tax was
introduced;
• After independence, taxes were formally introduced in Rwanda by the law
of the 2nd June 1964 concerning Profit Tax;
• Customs and Excise duties were also introduced by the law of 17th July
1968;
• Law No.8 of 26 June,1997 on profit tax was introduced
• Law No 9 of 26 June 1997 on tax procedures
No.9 June,1997

• In 2001 VAT law was introduced requiring taxpayers to start paying Value
Added Tax
Tax.

• Law No.16/2005 on direct taxes on income
• Law No 25/2005 of 4th , December 2005 on tax procedures
No.25/2005

• Before the establishment of RRA, the Central Government through the
Ministry of Finance was responsible for tax collection
collection.
3/21/2012 3


RRA BACKGROUND
The Rwanda Revenue Authority was established under the law N° 15/97 of 8 November 1997 as
y
a quasi-autonomous body with the mission of assessing, collecting, and accounting for tax,
customs duties and other specified revenues.

RRA was established as part of the reform programme by the Government of Rwanda designed
to restore and strengthen the main economic institutions of the country. Additionally, the
Government wanted to improve its resource mobilisation capacity while providing the public
with better quality and courteous services In a bid to mobilise more resources RRA is
services. resources,
therefore required to assist taxpayers in understanding and meeting their tax obligations thus
raising their compliance.

This is achieved through effective administration and enforcement of the laws relating to those
revenues.

The RRA is also responsible for providing advice to the Government on tax policy matters
relating to revenue collections. It performs other duties in relation to tax administration, as
may be directed from time to time by the Cabinet

3/21/2012 4


MISSION STATEMENT
RRA vision
“To become a world-class efficient and modern revenue agency, fully financing
national needs.”
RRA mission statement
Mobilize revenue for economic development through efficient and equitable services
that promote business growth.”
RRA core strategic values
i l
• Integrity;
• Customer focus;
• Transparency;
• Professional Service delivery;
• Teamwork
Teamwork.

3/21/2012 5


• PROFIT TAX: Taxes levied on profit making
activities

• VALUE ADDED TAX: Enterprises are required to
register for VAT if their turnover is above 20 Million
Rwf for any period of 12 month or 5 Million Frw in
three consecutive months in the last quarter of the
year.

3/21/2012 6


• The final consumer pays the tax and not the person
registered for purposes of collecting and accounting
for and paying VAT to RRA.

• PAY AS YOU EARN (PAYE): The tax law requires
that when an employer makes available employment
income to an employee the employer must withhold,
declare, and pay the PAYE tax to the Rwanda
Revenue Authority within 15 days following the end
3/21/2012 7



of the month for which the tax was due. In the
due
case of engaging a casual laborer for less than
30 days during a particular tax year, the
year
employer shall withhold 15% of the taxable
employment income of the casual laborer.

3/21/2012 8


• CONSUMPTION TAX: Taxable goods and services
Consumption tax is levied on the following locally
manufactured products: Beers, lemonades, cigarettes,
wines, spirits and mineral water made in Rwanda and
telephone communication supplied by telephone
telephone.

• CUSTOMS DUTIES: Taxes charged on imported
g p
goods.

3/21/2012 9


RWANDAN TAX RATES COMPARED TO OTHER EAC
COUNTRIES

COUNTRY VAT
CO PROFIT CO S
O CONSUMPTION
O CUSTOMS   ll
C S O S All goods
d
TAX TAX DUTIES from EAC
are zero
rated
t d
RWANDA 18% 30% 150% (5%‐150%) 25% 0%

Uganda 18% 30% 130% 25% 0%

Kenya
Kenya 18% 30%,
30% 135% 25% 0%
(37.5%)
Tanzania 20% 30% 30% 25% 0%
(now
18%)
Burundi 18% 35% 100% 25% 0%

3/21/2012 10


Tax collection against Budget
1998-June 2011
Fiscal
i l Total tax Revenues Total national
l l i l % contribution of
% ib i f
year (bn) budget (bn) tax revenues to
national budget
1998 68.4 173.2 39.5%
1999 67.1 174.1 38.5%
2000 68.4 169.2 40.4%
2001 81.1 184.8 43.9%
2002 95.7
95 7 207.6
207 6 46.1%
46 1%
2003 119.1 252.0 47.3%
2004 136.2 334.5 40.7%
2005 173.5 374.2 46.4%
2006 198.4 396.2 50.1%

3/21/2012 11


Tax collection against Budget
1998-June 2011
Fiscal year
i l Total tax
l Total national
l i l % contribution
% ib i
Revenues (bn) budget (bn) of tax revenues
to national
budget
b d t
2007 247.0 528.0 46.8%
2008 344.3 623.2 55.2%
Jan‐June 2009 188.0 392.1 47.9%
July 2009‐June 385.2 899.0 42.8%
2010
July 2010‐June 476.9 984.0 48.5%
2011

3/21/2012 12


PART TWO

3/21/2012 13


THE LINKAGE BETWEEN A GOVERNMENT’S EFFORTS IN
RESOURCE MOBILISATION AND EFFICIENT SERVICE DELIVERY

• The raising of tax revenues is arguably the most central activity
of any state,
f
• Revenue from taxation literally sustains the existence of the
state, and provides the necessary financial resources for all
, p y
social and economic activity,
• Taxation therefore lies at the administrative heart of any
government and provides the basis by which public goods are
made available and effective governance is implemented,
• Taxation is an avenue through which citizens are most directly
connected to the state,
• It is an important catalyst for public demands with regard to a
government s
government’s responsiveness and accountability
accountability,
• Taxation can improve responsiveness and accountability by
providing incentives for citizens and government to enter into a
“tax bargain” or “fi
“t b i ” “fiscal contract”.
l t t”
14
3/21/2012


THE LINKAGE BETWEEN A GOVERNMENT’S EFFORTS IN
G GO S O S
RESOURCE MOBILISATION AND EFFICIENT SERVICE DELIVERY

• Through this process, citizens accept and comply with taxes in
exchange for government providing effective services, the rule
of law and accountability.
• Tax b
T bargains are mutually b
i t ll beneficial, as citizens receive
fi i l iti i
improved governance while the government receives larger,
more predictable and more easily collected tax revenues.
• It follows that, governments relying mainly on tax revenue are
likely to be more accountable than those that rely on non-tax
revenue sources, most notably foreign aid.
• Few, if any, governments have been able to implement highly
effective tax systems without first entering into a national
dialogue about taxation.
dialog e abo t ta ation

3/21/2012 15


How can Rwanda be self sustaining in its social economic and
political growth?

• Taxation is the lifeblood of development and, it is desirable for
developing countries to take responsibility for improving their
own systems,
y ,
• It is critical that any development initiatives are supported
primarily by a country’s citizens by putting forward their own
contribution (thru payment of taxes) before any global partners
are called upon.
• The need to support domestic resource mobilisation is thus
growing due to declining revenues from traditional tariffs on
cross border trade, which are being incrementally removed
under trade-liberalisation measures as developing countries
g
integrate in the global economy. (Also due to donor fatigue and
own domestic crisis)

3/21/2012 16


How can Rwanda be self sustaining in its Social-
Economic and Political Growth?

• Efforts to generate and make available higher levels of
domestic resources, and to ensure their effective utilization, in
support of service-delivery programmes, thus, need to be
pp y p g , ,
intensified.

WHAT DOES IT REQUIRE?
• Collective effort by all stakeholders, (Gov’t
and Citizens))

3/21/2012 17


The Role of Gov’t (RRA)
( )
• After its establishment in 1998; a number of things
happened:
• Staff Recruitment
• Intensive Capacity Building (on-job, formal upgrade
y g( j g
including professional and masters programs)
• The Update of Tax Laws (From 1912, 1968, 1997, 2001,
2005 etc….) the process is continuous as need arises.

3/21/2012 18


The Role of Gov’t (RRA, Cont’d)
Gov t Cont d)
• The Reform and Modernization process:
(Service Delivery & Trade Facilitation)
• In 2003, RRA Modernization Project was formed to steer the
j
reform process.
• Intensive Taxpayer Education,
• Quality Assurance and
• Revenue Protection functions were put in place to strengthen
education, check on internal systems and fight against
smuggling & corruption.

3/21/2012 19


Online Tax Clearance certificate: This assists taxpayers to access bank loans, bidding
for tenders, t
f t d transfer of property etc more easily and h
f f t t il d hence promote d i b i
t doing business.
VAT Quarterly payment: In a bid to promote SMEs in Rwanda where most taxpayers
doing businesses fall -98%, the government revised the VAT law giving an
opportunity f SME with an annual turnover equal or l
i for SMEs i h l l less than F 200 000 000/
h Frw200,000,000/
to file and pay their VAT returns on a quarterly basis (ensures cash flow,
interest free borrowing from gov’t).
Introduction of Bloc Management: RRA opened up bloc offices in Nyabugogo,
Kicukiro and Kimironko areas, with the objective of reaching out to SMEs by
teaching, advising them in relation to tax information and nurture them to
become l
b large ttaxpayers. PLUS R iRegional offices.
l ffi
Online registration of taxpayers through RDB where taxpayers can now get
TIN upon registration of their businesses without necessarily coming to
RRA offices.

3/21/2012 20



• Online Tax Calculator: This online facility assists taxpayers in minimizing
arithmetical errors that might occur when calculating taxes. It also simplifies work
and saves time that would be taken if one decided to do it manually
• Recruitment of T consultants and T Ad i
R it t f Tax lt t d Tax Advisors: It i very i
is important t h
t t to have
these two experienced groups of people in order to advise taxpayers regarding tax
matters. e.g. sensitizing them on how to keep proper books of accounts for their
businesses,
businesses how and when to file their due taxes in order to promote
professionalism in doing business.
Dialogues with Taxpayers:
• Tax Issues Forum: RRA in collaboration with the Private Sector Federation
conduct quarterly meetings where members from the private sector and RRA meet
and discuss pertinent issues regarding tax matters. This includes seeking joint
solutions t challenges f d b th b i
l ti to h ll faced by the business community.
it
• Tax advisory council (TAC): A forum where RRA meets with provincial and
district local authorities to discuss about tax issues and come up with strategies to
increase tax b
i base and revenue collection.
d ll i
3/21/2012 21



• E‐filling and e‐payment processes:
• This is still in a piloting phase and tests have proved
successful,
• Returns/declarations and payment will be made on line‐ no
need to go to RRA or meet tax officials.
• Soon to be launched‐April 2012,
• Establishment of RRA call center :3004 to
address taxpayer concerns as quickly as
possible.

3/21/2012 22



• Training and research expenses:
All Training and Research expenses incurred for promotion of business
activities during a tax period are deductible from taxable profits in
g p p
accordance with provisions of Article 21 of the law on direct taxes on
income.
• Loss carried forward: If the determination of business profit results in a
loss in a tax period, the loss may be deducted from the business profit in the
next five (5) tax periods, earlier losses being deducted before later losses.
However, foreign sourced losses can neither reduce domestic sourced
business profits nor can they reduce future domestic sourced business
p
profits.

3/21/2012 23


g
• Profit Tax Discount: A registered investor is entitled to a profit tax
discount of:
1° two percent (2%) if he/she employs between one hundred (100) and two
hundred (200) Rwandans;
2° five percent (5%) if he/she employs between two hundred and one (201)
and four hundred (400) Rwandans;
3
3° six percent (6%) if he/she employs between four hundred and one (401) and
nine hundred (900) Rwandans;
4° seven percent (7%) if he/she more than nine hundred (900) Rwandans.
The tax discount mentioned above is granted to the investor only if he or she
maintains the employees for a period of at least six (6) months during a tax
period, and are not in the category of employees who pay at the rate of zero
percent (0%) as stipulated in Article 50 of the law nº 16/2005 of
18/08/2005;

3/21/2012 24



• If a taxpayer exports commodities or services that bring to the country
between three million (3,000,000) US dollars and five million (5,000,000)
US dollars in a tax period, he or she is entitled to a tax discount of three
percent (3%).

• If he or she exports commodities or services that bring to the country more
than five million (5,000,000) US dollars in a tax period, he or she is entitled
to a tax discount of five percent (5%).

• Companies that carry out micro finance activities approved by competent
authorities pay corporate income tax at the rate of zero percent (0%) for a
period of five (5) years from the time of the approval of the activity.
However, this period may be renewed by the order of the Minister.

3/21/2012 25


Cross border Trade facilitation initiatives
Reduction of import related documents. In an effort to facilitate trade and simplify the
processes of doing businesses in Rwanda, Rwanda Revenue Authority-Customs
Services Department has revised documents required as follows;
The mandatory documents are: Commercial Invoice, Packing List, Bill of
Lading/Airway Bill
• Pre-clearance System: Declarations are processed before the arrival of
consignments at the borders; Quick documentary verification is conducted upon
arrival of consignment
• Compliant trader scheme (Blue and Gold Channels): It is granted to compliant
companies with the lowest risks (65% of imports are under this scheme).The
compliant companies have their goods released without any customs verification;No
p p g y
offloading into warehouses;
• Companies granted this scheme are subjected to Post Clearance Audit (PCA) on risk
basis.
• AUTOMATION PROCESS: ASYCUDA World (Automated System for Customs
Data) has been rolled out to all major Customs Offices ;Transit bonds acquittals done
immediately on arrival at destination p ; Customs computerization speeds up the
y post; p p p
clearance of goods and reduces delays in deliveries to customers
3/21/2012 26


• Revenue Authorities Digital Data Exchange (RADDEx):It is a computer
system that facilitates exchange of Customs data between EAC Partner
States; Advance information accessed before arrival of goods.
• RADDEX reduces delays in cargo clearance by avoiding the
duplication of data capturing at the border posts;
• Mobile Cargo scanners: 3 mobile Cargo Scanners deployed at Gikondo
Gatuna and Rusumo; Scanned goods are not offloaded into warehouses
; g
unless there is suspicion; No extra fee charged on scanned
consignments; Reduces clearance time because manual, physical
inspection is minimised.
• Simplified Certificate of Origin: Simplified Certificate of Origin ensures
that Customs border posts bordering with our neighboring countries
facilitate small scale cross-border traders; using a common list of
approved goods imported by small scale cross border traders with a
commercial value not exceeding US$2000.

3/21/2012 27


1. ELECTRONIC SINGLE WINDOW SYSTEM (ESWS): It was implemented
recently by Customs and its partners; RDB, RBS, MAGERWA and ministry of
Health. This allows all parties involved in trade and transport to lodge
standardized information and documents with a single entry point. It is still in the
g yp
piloting phase and plans are to make all relevant agencies registered with this new
system.
Future projects:
p j
1. Online tax payment system :e-tax and e-payment where taxpayers will be
required to declare and pay tax returns online.
2. Electronic Cargo Tracking System will facilitate legitimate trade and improve
2
turn around time for transporters as delays in cargo movement will be eliminated;
3. Electronic Tax devices: These are automated machines that will help taxpayers
in real time issuance of tax invoices .

3/21/2012 28


Key challenges faced

• L tax paying culture among taxpayers;
Low i l
• Large informal sector
• Ignorance of some taxpayers especially SMEs
regarding tax information.
• The structure of the Rwandan economy largely
dominated by subsistence Agriculture
• Businesses are still largely done manually

3/21/2012 29


The role of Citizens /Universities???

1. Develop an early tax payment Culture (Compliance)
2. Include tax education in studies
3. Link taxation to National Development
• Be advocates of taxation and all facilities presented
p
• Invest heavily in research within the Rwandan
taxation system to identify the existing gaps and
new ideas that can be relied on to formulate
innovation to tax compliance mechanisms
This will legitimize citizens tax-bargain and social
contract with government as a basis.

3/21/2012 30


Conclusion
• It is a responsibility of all Rwandans to play a positive role in ensuring that
Domestic Resource mobilization for Social-Economic, growth and
development and self reliance is achieved- The RRA VISION
• RRA will continue to make reforms that streamline taxation for growth and
development (our MOTO/SLOGAN).
• RRA will continue to facilitate doing business hence promoting investment
business,
in the country.

3/21/2012 31


Thank you
Merci
Murakoze

3/21/2012 32

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