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

PRESENTED BY BEN KAGARAMA BAHIZICOMMISSIONER GENERAL-RRA

www.rra.gov.rw

TO THE SCHOOOL OF FINANCE AND BANKING

MARCH 21st 2012

RWANDA REVENUE AUTHORITY

ContentsContentsTaxation in Rwanda- BackgroundgRRA backgroundMission statementVarious taxes administered by RRARwandan tax rates compared to other EAC countriesCollection against budget:1998-2011Collection against budget:1998-2011The Linkage between a Government’s efforts in Resource Mobilisationand efficient service deliveryStrategies to mobilize tax revenuesTax Incentives granted to investorsTrade facilitation initiativesTrade facilitation initiativesChallengesYour role as a public institution

www.rra.gov.rw Taxes for Growth & Development

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Taxation background in Rwanda g• Taxation in Rwanda dates way back in 1912 when property tax was

introduced;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 JulyCustoms and Excise duties were also introduced by the law of 17 July

1968;• Law No.8 of 26 June,1997 on profit tax was introduced• Law No 9 of 26 June 1997 on tax proceduresLaw No.9 of 26 June,1997 on tax procedures

• In 2001 VAT law was introduced requiring taxpayers to start paying ValueAdded TaxAdded Tax.

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

• Before the establishment of RRA, the Central Government through theMinistry of Finance was responsible for tax collection


Ministry of Finance was responsible for tax collection.

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RRA BACKGROUNDRRA BACKGROUNDThe Rwanda Revenue Authority was established under the law N° 15/97 of 8 November 1997 asy

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 designedto restore and strengthen the main economic institutions of the country. Additionally, theGovernment wanted to improve its resource mobilisation capacity while providing the publicwith better quality and courteous services In a bid to mobilise more resources RRA iswith better quality and courteous services. In a bid to mobilise more resources, RRA istherefore required to assist taxpayers in understanding and meeting their tax obligations thusraising their compliance.

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

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

www.rra.gov.rw Taxes for Growth & Development3/21/2012 4


MISSION STATEMENTMISSION STATEMENTRRA visionRRA vision“To become a world-class efficient and modern revenue agency, fully financing

national needs.”RRA mission statementRRA mission statementMobilize revenue for economic development through efficient and equitable services

that promote business growth.”RRA i lRRA core strategic values• Integrity;• Customer focus;• Transparency;• Professional Service delivery;• Teamwork• Teamwork.



Various taxes administered by RRAVarious taxes administered by RRA

• PROFIT TAX: Taxes levied on profit makingPROFIT 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 inRwf for any period of 12 month or 5 Million Frw in

three consecutive months in the last quarter of the

year.



Various taxes administered by RRAVarious taxes administered by RRA• The final consumer pays the tax and not the personThe 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 employmentthat 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 end3/21/2012 7


Various taxes administered by RRAVarious taxes administered by RRA

of the month for which the tax was due In theof the month for which the tax was due. In the case of engaging a casual laborer for less than 30 days during a particular tax year the30 days during a particular tax year, the employer shall withhold 15% of the taxable employment income of the casual laborer.



Various taxes administered by RRAVarious taxes administered by RRA• CONSUMPTION TAX: Taxable goods and services• 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 telephonetelephone communication supplied by telephone.

• CUSTOMS DUTIES: Taxes charged on importedg p

goods.



RWANDAN TAX RATES COMPARED TO OTHER EAC COUNTRIES

CO O CO S O C S O S ll dCOUNTRY VAT PROFIT TAX

CONSUMPTION TAX

CUSTOMS DUTIES

All goods from EAC are zero t drated

RWANDA 18% 30% 150% (5%‐150%) 25% 0%

Uganda 18% 30% 130% 25% 0%

Kenya 18% 30% 135% 25% 0%Kenya 18% 30%, (37.5%)

135% 25% 0%

Tanzania 20% 30% 30% 25% 0%(now 18%)

Burundi 18% 35% 100% 25% 0%



Tax collection against Budget 1998-June 2011

i l l l i l % ib i fFiscal year

Total tax Revenues (bn)

Total national budget (bn)

% contribution of 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 7 207 6 46 1%2002 95.7 207.6 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%



Tax collection against Budget 1998-June 2011

i l l l i l % ib iFiscal year Total tax Revenues (bn)

Total national budget (bn)

% contribution of tax revenues to national b d tbudget

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 2011

476.9 984.0 48.5%



PART TWOPART TWO



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

• The raising of tax revenues is arguably the most central activityfof any state,

• Revenue from taxation literally sustains the existence of thestate, and provides the necessary financial resources for all, p ysocial and economic activity,

• Taxation therefore lies at the administrative heart of anygovernment and provides the basis by which public goods aregovernment and provides the basis by which public goods aremade available and effective governance is implemented,

• Taxation is an avenue through which citizens are most directlyconnected to the state,

• It is an important catalyst for public demands with regard to agovernment’s responsiveness and accountabilitygovernment s responsiveness and accountability,

• Taxation can improve responsiveness and accountability byproviding incentives for citizens and government to enter into a“t b i ” “fi l t t”


“tax bargain” or “fiscal contract”.

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

• Through this process, citizens accept and comply with taxes inThrough this process, citizens accept and comply with taxes inexchange for government providing effective services, the ruleof law and accountability.T b i t ll b fi i l iti i• Tax bargains are mutually beneficial, as citizens receiveimproved governance while the government receives larger,more predictable and more easily collected tax revenues.

• It follows that, governments relying mainly on tax revenue arelikely to be more accountable than those that rely on non-taxrevenue sources, most notably foreign aid.revenue sources, most notably foreign aid.

• Few, if any, governments have been able to implement highlyeffective tax systems without first entering into a nationaldialog e abo t ta ationdialogue about taxation.



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

• Taxation is the lifeblood of development and, it is desirable fordeveloping countries to take responsibility for improving theirown systems,y ,

• It is critical that any development initiatives are supportedprimarily by a country’s citizens by putting forward their owncontribution (thru payment of taxes) before any global partnerscontribution (thru payment of taxes) before any global partnersare called upon.

• The need to support domestic resource mobilisation is thusgrowing due to declining revenues from traditional tariffs oncross border trade, which are being incrementally removedunder trade-liberalisation measures as developing countriesgintegrate in the global economy. (Also due to donor fatigue andown domestic crisis)



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

• Efforts to generate and make available higher levels ofdomestic resources, and to ensure their effective utilization, insupport of service-delivery programmes, thus, need to bepp y p g , ,intensified.

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

and Citizens))




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.




The Role of Gov’t (RRA, Cont’d)The Role of Gov t (RRA, Cont d)

• The Reform and Modernization process:(Service Delivery & Trade Facilitation)

• In 2003, RRA Modernization Project was formed to steer the jreform 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.



Strategies to mobilize tax revenuesStrategies to mobilize tax revenuesOnline Tax Clearance certificate: This assists taxpayers to access bank loans, bidding

f t d t f f t t il d h t d i b ifor tenders, transfer of property etc more easily and hence promote 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 ani f SME i h l l l h F 200 000 000/opportunity for SMEs with an annual turnover equal or less than 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 byteaching, advising them in relation to tax information and nurture them tob l t PLUS R i l ffibecome large taxpayers. PLUS Regional offices.

Online registration of taxpayers through RDB where taxpayers can now get TIN upon registration of their businesses without necessarily coming to RRA offices.



Strategies to mobilize tax revenuesStrategies to mobilize tax revenues

• Online Tax Calculator: This online facility assists taxpayers in minimizing• Online Tax Calculator: This online facility assists taxpayers in minimizingarithmetical errors that might occur when calculating taxes. It also simplifies workand saves time that would be taken if one decided to do it manuallyR it t f T lt t d T Ad i It i i t t t h• Recruitment of Tax consultants and Tax Advisors: It is very important to havethese two experienced groups of people in order to advise taxpayers regarding taxmatters. e.g. sensitizing them on how to keep proper books of accounts for theirbusinesses how and when to file their due taxes in order to promotebusinesses, how and when to file their due taxes in order to promoteprofessionalism in doing business.Dialogues with Taxpayers:

• Tax Issues Forum: RRA in collaboration with the Private Sector Federationconduct quarterly meetings where members from the private sector and RRA meetand discuss pertinent issues regarding tax matters. This includes seeking joint

l ti t h ll f d b th b i itsolutions to challenges faced by the business community.• 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 toi b d ll i


increase tax base and revenue collection.

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Strategies to mobilize tax revenuesStrategies to mobilize tax revenues

• 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 toaddress taxpayer concerns as quickly asaddress taxpayer concerns as quickly aspossible.



Tax Incentives granted to investorsTax Incentives granted to investors

• Training and research expenses:All Training and Research expenses incurred for promotion of businessactivities during a tax period are deductible from taxable profits ing p paccordance with provisions of Article 21 of the law on direct taxes onincome.

• Loss carried forward: If the determination of business profit results in a• Loss carried forward: If the determination of business profit results in aloss in a tax period, the loss may be deducted from the business profit in thenext five (5) tax periods, earlier losses being deducted before later losses.However, foreign sourced losses can neither reduce domestic sourcedbusiness profits nor can they reduce future domestic sourced businessprofits.p



Tax Incentives granted to investorsg

• Profit Tax Discount: A registered investor is entitled to a profit taxdiscount of:discount of:

1° two percent (2%) if he/she employs between one hundred (100) and twohundred (200) Rwandans;

2° five percent (5%) if he/she employs between two hundred and one (201)and four hundred (400) Rwandans;

3° six percent (6%) if he/she employs between four hundred and one (401) and3 six percent (6%) if he/she employs between four hundred and one (401) andnine 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 taxperiod, and are not in the category of employees who pay at the rate of zeroperiod, and are not in the category of employees who pay at the rate of zeropercent (0%) as stipulated in Article 50 of the law nº 16/2005 of18/08/2005;



Tax Incentives granted to investorsTax Incentives granted to investors

• If a taxpayer exports commodities or services that bring to the countrybetween 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 threepercent (3%).

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

• Companies that carry out micro finance activities approved by competentauthorities pay corporate income tax at the rate of zero percent (0%) for aauthorities pay corporate income tax at the rate of zero percent (0%) for aperiod 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.



Cross border Trade facilitation initiativesReduction of import related documents. In an effort to facilitate trade and simplify the

processes of doing businesses in Rwanda, Rwanda Revenue Authority-CustomsServices Department has revised documents required as follows;

The mandatory documents are: Commercial Invoice, Packing List, Bill ofLading/Airway Bill

• Pre-clearance System: Declarations are processed before the arrival ofconsignments at the borders; Quick documentary verification is conducted uponarrival of consignment

• Compliant trader scheme (Blue and Gold Channels): It is granted to compliantcompanies with the lowest risks (65% of imports are under this scheme).Thecompliant companies have their goods released without any customs verification;Nop p g yoffloading into warehouses;

• Companies granted this scheme are subjected to Post Clearance Audit (PCA) on riskbasis.

• 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 post; Customs computerization speeds up the


y p ; p p pclearance of goods and reduces delays in deliveries to customers

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Trade facilitation initiativesTrade facilitation initiatives• Revenue Authorities Digital Data Exchange (RADDEx):It is a computer

system that facilitates exchange of Customs data between EAC Partnersystem that facilitates exchange of Customs data between EAC PartnerStates; Advance information accessed before arrival of goods.

• RADDEX reduces delays in cargo clearance by avoiding theduplication of data capturing at the border posts;

• Mobile Cargo scanners: 3 mobile Cargo Scanners deployed at GikondoGatuna and Rusumo; Scanned goods are not offloaded into warehouses; gunless there is suspicion; No extra fee charged on scannedconsignments; Reduces clearance time because manual, physicalinspection is minimised.

• Simplified Certificate of Origin: Simplified Certificate of Origin ensuresthat Customs border posts bordering with our neighboring countriesfacilitate small scale cross-border traders; using a common list offacilitate small scale cross-border traders; using a common list ofapproved goods imported by small scale cross border traders with acommercial value not exceeding US$2000.



Trade facilitation initiativesTrade facilitation initiatives1. ELECTRONIC SINGLE WINDOW SYSTEM (ESWS): It was implemented1. ELECTRONIC SINGLE WINDOW SYSTEM (ESWS): It was implemented

recently by Customs and its partners; RDB, RBS, MAGERWA and ministry ofHealth. This allows all parties involved in trade and transport to lodgestandardized information and documents with a single entry point. It is still in theg y ppiloting phase and plans are to make all relevant agencies registered with this newsystem.

Future projects:p j1. 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 improve2. Electronic Cargo Tracking System will facilitate legitimate trade and improve

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 invoicesin real time issuance of tax invoices .



Key challenges facedKey challenges faced

L i l• Low tax paying culture among taxpayers;• 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



The role of Citizens /Universities???The role of Citizens /Universities???

1. Develop an early tax payment Culture (Compliance)2. Include tax education in studies3. Link taxation to National Development• Be advocates of taxation and all facilities presentedp• Invest heavily in research within the Rwandan

taxation system to identify the existing gaps andnew ideas that can be relied on to formulateinnovation to tax compliance mechanismsThis will legitimize citizens tax-bargain and social contract with government as a basis.



ConclusionConclusion • It is a responsibility of all Rwandans to play a positive role in ensuring that

Domestic Resource mobilization for Social-Economic, growth anddevelopment and self reliance is achieved- The RRA VISION

• RRA will continue to make reforms that streamline taxation for growth anddevelopment (our MOTO/SLOGAN).

• RRA will continue to facilitate doing business hence promoting investment• RRA will continue to facilitate doing business, hence promoting investmentin the country.



Thank youMerci

MurakozeMurakoze
