Over the last 20 years, Rwanda Revenue Authority (RRA) has not only widened the tax base but also improved its efficiency through enacting a series reforms that have created value for taxpayers and improving compliance.
Widening the government’s tax net has boosted domestic resources collections needed to fulfill Rwanda’s bold ambition of becoming self-sufficient.
Thus, the government is expected to fund its 2018/19 budget to a tune of 67.5 per cent with domestic resources, largely due to ongoing efforts to widen the tax base and improve tax efficiency.
The tax efficiency has been improved by deployment of Information, Communication and Technology channels as well data mining without substantive tax increments, reflecting the significant achievements in mobilizing domestic revenue.
Statistics shows revenue collections have grown from Rwf62.8 billion in 1998, reaching to an all-time high this fiscal year, as captured by the 2018 Africa Tax Outlook (ATO)—a publication of African Tax Administration Forum.
In East African Community Rwanda’s tax-to GDP ratio surpassed the 16 per cent in fiscal year 2016/2017, placing Rwanda the second after Kenya, which averaged close to 18 per cent, during the period under review.
This has raised revenue collection prospects with Mr Richard Tusabe, Commissioner General RRA saying, “It was a long journey and we are grateful for walking with taxpayers who have made this possible and we believe we can achieve more in the coming years.”
Over the last 20 years RRA has embarked on supporting small and medium businesses which remain the backbone of the Rwandan economy. Recently, small businesses were saved from the lengthy and costly process of proving insolvency.
This was made possible through passing a new law which introduced a clause that says that for an individual whose debt is less than Rwf3 million ($3,400), they do not need to prove they are insolvent but rather prove they have taken all reasonable steps over three years to recover the debt.
RRA leadership also embarked on a restructuring exercise which resulted into the overhauling of procedures, expanding the tax base, increasing the level of compliance but also supporting business growth.
Managing Director Gorilla Logistics and Chairman Rwanda Freight Forwarders Association, Fred Seka as a player in the logistics industry is one of the biggest beneficiaries. He says several reforms by RRA have helped boost businesses growth and compliance levels, specifically through digital tax payments.
“Even when I am in the UK…US…outside Rwanda, I can pay the taxes which was not the case some 15 years back, said Mr Seka, explaining that before digitalization, the taxpayers used to find it cumbersome to pay taxes, resulting into the poor tax paying culture.
Through its continuous public education campaign programmes on the central role of taxation in rebuilding Rwanda and remaining highly accountable, the taxpayers are kept abreast with new taxation policy and administrative changes.
Mr Tusabe says, “The biggest achievement in 20 years is what the President keeps telling us – to be accountable. We have demonstrated that RRA has managed to fit into the government mandate to be an accountable government.”
As RRA sought to widen the tax base, the Sales Tax which was mostly paid by manufacturer and importers was replaced by Value Added Tax (VAT), which ropes in a wider supply chain into the tax system.
Thus, in 2001, Valued Added Tax replaced the sales tax. In 2002, the law which allowed district governments to collect their own taxes on trade licenses, property, and rental income was also passed.
The leadership at RRA as a tax advisory boy had in mind that the future of taxes is not in direct or indirect taxes but in local government taxes. And that any government that positions itself and collects enough local government tax will be able to sustain its budgets from local revenue resource mobilisation.
As an administrative measure, RRA further made it simpler and easier for taxpayers by adopting a one-stop-shop approach by merging related departments under a singled roof, which was a major shift away from the earlier setting where income taxes, sales taxes and auditing operated in different offices.
The revenue body also created specific departments to serve different categories of taxpayers which include small, medium and larger taxpayers departments. RRA was informed by the fact that the challenges a small taxpayer faces are different from the big taxpayers.
Therefore, staff to handle the different categories of the taxpayers were recruited, resulting into a speedy growth of business, expanding the tax base, because most taxpayers start small before they become large.
Then the requirement for taxpayers to have different tax identification numbers (TINs) for income tax, value-added tax, and customs tax was abolished, and instead a single nine-digit tin number was introduced, which signals RRA’s push for continuous reforms.
The biggest beneficiaries of RRA digitalisation programme are the taxpayers who are now recording huge savings on working capital and time but also ensuring steady supply of goods in the country which used to suffer stock-outs of goods due to delays.
“The combination of customs reforms and digital technology by RRA has resulted into transportation costs of a container from Mombasa Port to Kigali drop, from $7,500 per container, 15-years ago to $3500, logistics industry players say, adding that the cargo transit time has also significantly reduced from 21 days between five-seven.
According to tax experts, the automations of customs services has increased productivity, efficiency and increased compliance levels as many taxpayers find it easier to pay taxes and has built a strong data base.
RRA started its digitalization journey with the customs services department, largely because it had had some minimum software—Automated System for Customs Data (ASYCUDA) to process declarations, although all other procedures were still done manually.
The system was later upgraded to the latest version of the software, called ASYCUDA World which was installed on computers at all customs warehouses and border posts.
The new system allowed for self-assessment, as Seka explains.
“With ASYCUDA World, importers and exporters also could submit all forms electronically and pay customs duties and other fees without ever physically visiting the port or border post where a shipment arrived, said Mr Seka.
The digitalisation of the customs department helped RRA start building up an accessible central digital database that stored up-to-date information on all shipments.
Later, RRA also started digitising the domestic taxes department, after an off-the-shelf software system known as the standard Integrated Government Tax Administration System (SIGTAS), built by a Canadian company. However, it had challenges which were later addressed.
Then the Digital Data Exchange (RADDEx), a real time clearance system which links other departments, was deployed.
According to clearing agents, RADDEX removed the duplication of data capturing at the border offices which was time consuming and came with unnecessary costs.Then the electronic billing machines (EBM) was rolled out in order to plug revenue leaks, from businesses that avoided paying VAT, and reduced the costs of filing and paying taxes for small enterprises run by owners.
The EMB was to complement the RRA’s internal SIGTAS IT system which was introduced in 2009.
While SIGTAS gave RRA a centralized database for employee use, those outside the system—taxpayers still had to queue to receive their declaration forms, fill them out, sign them, stamp them, and then queue again to submit them, a task which could take four days.
Thus, RRA IT experts improved the SIGTAS to be able to talk to large taxpayers which led to the introduction of ETax from scratch. After that eFiling and ePayment to all taxpayers was introduced in 2012
The shift to electronic services resulted into the introduction of electronic billing machines (EBM) to counter VAT underreporting.
RRA compelled all VAT-registered businesses—those with annual taxable turnover of more than Rwf20 million (about $24,000)—to buy billing machines and always issue tax receipts to their customers.
According to RRA, receipts issued by a registered VAT agent using EBM are automatically transmitted and recorded on the RRA’s central server, minimizing the risk of companies’ keeping their sales off the books to avoid paying VAT.
However, EBM targets only mid and large sized taxpayers leaving out the small taxpayers.
The gap compelled RRA parent ministry—Ministry of Finance and Economic Planning to amend the tax code and introduce a simple flat tax for enterprises with annual turnovers of less than Rwf12 million ($14,000) annually.
This presumptive tax roped in micro-taxpayers including taxi motos in the tax base to declare and pay taxes using mobile money. According to RRA, the system allowed users to declare and pay their taxes easily and quickly on basic cell phones that lacked internet browsers or mobile apps.
RRA officials say the mobile system has eliminated the need for small businesses and small taxpayers to spend money on accountants. By reducing the compliance cost, it made it much cheaper and easier” to for small businesses to move to the formal economy and start paying taxes.
Since 2012, Rwanda Electronic Single Window System ReSW which linked stakeholders involved in the clearing of goods has been in use.
The system allows the submission of a single declaration containing all information required by the various agencies responsible for controlling trade into and out of Rwanda and enables these agencies to inform traders and their representatives of the progress of the release process.
Before ReSw, the business community seeking tax exemptions used to drive to Rwanda Development Board (RDB), to a supervising ministry, RRA, Rwanda Bureau of Standards and to Magerwa. But now all these government agencies are interlinked by ReSW which has made doing business easy.
“Trade facilitation has been a long journey. It has been met with skeptics from some circles, but this is understandable as everything new is always received with reservations. But the good thing we have a government that is foresighted as it seeks to help its people,” said Mr Seka.
The desire by Rwanda government to reduce the challenges impeding business growth, explains why key departments that facilitate trade easily adopted the ReSW.
As ReSw is celebrated, the Single Customs Territory (SCT) was rolled out in 2014, resulting into restrictive regulations being dismantled, internal border controls on goods moving between partners decreasing.
“I thank President Kagame and Commissioner General RRA for bringing the Ports to Rwanda,” said Seka, before adding that they no longer need to spend time and money to travel to Mombasa and Dar es Salaam to clear goods. The clearance is done in Kigali.
Abdul Ndarubogoye, Chairman TransAfrica Container Transport Limited, celebrates the SCT for increasing the turnaround time for trucks from a single trip, each month to two.
This means investors in cargo transportation are making much more money than before the SCT was rolled out. To the ordinary Rwandan who used to suffer stock outs of essentials items due to delays at customs are also celebrating with steady supplies of essential items.
“Trucks used to spend almost a month along the northern corridor before goods were delivered in Kigali due to the delays and many stops, police checks in Kenya, Uganda and Rwanda and Tanzania,” said Mr Ndaru.
As part of the SCT, the Regional Electronic Cargo Tracking System (RECTS), which has monitoring centers in Kampala, Nairobi and Kigali allows goods to be monitored electronically along transit routes.
The system comprises tracker satellites, central command centres in each of the revenue authorities in Nairobi, Kampala and Kigali, smart gates and rapid response units.
With this system, logistics industry players are reporting a further reduction in transit time, no cargo theft and diversion of goods in transit, besides, the need for physical escorts and monitoring of sensitive cargo has stopped.
“The system has also helped in reducing transit time, enhance cargo safety and help traders to better predict arrival of goods,” said Mr Seka.
RRA also adopted risk based approach in inspection of goods; this is the systematic application of management procedures and practices which provide customs with the necessary information to address movements or consignments that present a risk.
To reduce the time taken at internal border in pursuit of facilitating trade, One Stop Border Posts have been operationalized and more are to be commissioned including Gisenyi/Nemba, Rusumo/Rusumo and Kagitumba / Mirama Hills.
Rwanda is also implementing Authorised Economic Operators (AEO) Programme, a global programme that aims to facilitate compliant traders during the movement of cargo along the international trade supply chain. Over 24 businesses have been recruited and currently enjoy numerous benefits aimed at facilitating trade.
Some of the benefits of AEO programme include expedited processing of entries/declarations. No physical or document examination except for random or risk based interventions but these, according to customs are exceptional cases. Others benefits which accrues include automatic passing of declaration. Expedited payment of refund claim and reduced customs security wherever applicable.
As Mr Seka points out, RRA has been instrumental in building the taxpaying culture because of the raft of reforms it has implemented to boost revenue collections but also mind full not to hurt business as it facilitates the national development agenda of maturing the privates sector to eventually drive business.
“Paying taxes shows the high level of patriotism as we seek to build the Rwanda we want,” said Mr Seka.