Government will finance 66 per cent of its Rwf1768.2 trillion budget for 2015/2016 using domestic resources meaning Rwf1174.2 billion must be sourced from within the economy; that’s an increase of Rwf41.6 billion compared to the domestic revenues for the current fiscal year.

External resources which include loans and grants will only contribute Rwf594 billion or 34 per cent of the total budget, representing a reduction of Rwf35.8 billion.

Grants (which may include money from development agencies such as International Fund for Agricultural Development-IFAD) will contribute Rwf 358.4 billion, indicating a reduction of Rwf58.8 billion. Money from grants account for 20 per cent of the total external support.

Government will also borrow Rwf235.7 billion from abroad, which will account for 14 per cent of the total external support; loans will come from the likes of African Development Bank, Arab Development Bank and other multinational lenders.

Clearly, slowly but steadily, government is de-weaning Rwanda’s economy from donor-support dependency while increasing its inward looking for domestic resources to fund national expenditure and that will be the case in the 2015/16 financial year.

"External support is money which normally comes with conditionalities and it’s a relief to see that we are moving away from that,” said Edouard Munyamaliza, president of the Rwanda civil society platform.

RRA Challenge

At least Rwf894.8 billion or 51 per cent of the next budget is expected to come from domestic tax revenues while non-tax revenues will fetch Rwf219.3 billion or 12 per cent and Rwf60 billion will be from government domestic borrowing.

The implication of reducing on external budget support dependency is that Rwanda Revenue Authority (RRA) will either be widening its tax-net to capture new taxpayers or increase efficiency in collecting taxes from those that are already inside the net.

It’s likely going to be more the latter (improving efficiency) than the former, especially after a recent meeting between officials from the ministry of finance and top RRA commissioners during which they discussed bottlenecks that have lately hindered the tax collector from meeting its targets.

As a matter of fact, RRA doesn’t expect to meet its targets for the current fiscal year ending June 30, mainly because of inefficiency in tax administration and other short-comings in the economy. 

"It’s unlikely that we shall meet the target for 2014/2015 due to several challenges that we hope to fix in the next fiscal year,” Aimable Kayigi, RRA’s Commissioner for Domestic Taxes told Sunday Times yesterday.

The tax body will have a slightly reduced burden in the next financial year after the Ministry of Finaance reduced its target by 1 per cent from Rwf906.8 billion which is 52 per cent of current budget to Rwf894.8 billion or 51 per cent of the next. 

In a brief telephone interview, yesterday, Commissioner Kayigi said, "we are likely to miss that target by at least Rwf20 billion.”

Missed targets explained

Whether RRA manages to meet its Rwf894.8 billion target for 2015/2016 will largely depend on how efficiently it fixes problems that have seen it miss targets in 2013/2014 and 2014/2015 financial years.

In the 2013/2014 fiscal year, for instance, RRA activities were derailed by a slowdown in economic activity after growth slowed to 4.6 per cent compared to an 8 per cent projection that had been set that year.

But last year, the economy rejuvenated to 7.0 per cent, a trend which is expected to continue in 2015 and further into 2016 and help the tax body meet its targets. 

"That’s because, in many ways, our performance depends on how the general economy performs,” Kayigi said.

For instance, in next budget year, government has earmarked Rwf298.1 billion to be spent on, among others, development of a peat power plant and an electricity access-roll-out programme; the implementation of these projects should result into various taxable activities for RRA.

"However, when government somehow fails to implement its planned projects due to one reason or the other, our revenue targets would definitely be affected negatively,” explained Kayigi.

Targeting more VAT

Arguably, the most destabilising factor for RRA has been the challenging administration of Value Added Taxes (VAT); although the tax body has a large number of tax-payers in the category, many of them still avoid making the payments.

The introduction of the Electronic Billing Machines (EBM) was supposed to help RRA to surmount that challenge; by distributing the machines to all VAT eligible payers who would be required to issue all invoices/receipts using the machines.

The use of EBMs would help RRA monitor transactions and know exactly how much VAT to expect from all registered tax-payers but that hasn’t been the case; on one hand, although many taxpayers have indeed acquired the machines, most don’t use them and prefer issuing invoices manually.

"For a manual receipt, we can’t track it for auditing if the taxpayer doesn’t file it, which is what most of them do, they avoid using the EBMs which they know transmits the transaction details to our databases,” said the tax collector.

As a result of poor usage of EBMs, RRA estimates it has lost some Rwf20 billion which it thought would be realised through improved efficiency in the collection of VAT using the machines.

Tough measures sought

The government expects over Rwf345 billion from VAT related duties but, to do so successfully,it has devised some measures to help RRA close the gaps through which it has lost resources in the past.

Sunday Times understands that starting July 1, all government institutions wishing to pay private suppliers and contractors will have to do so after presenting invoices issued electronically, by EBMs.

"This will at least put us in a situation where we are assured of 100 per cent of VAT from government agencies,” said RRA’s Kayigi.

Large tax-payers whose combined tax liabilities contribute over 60 per cent of the country’s domestic revenues have also been given new instructions on the use of EBMs to further deal with VAT avoidance tactics.

The feeling at RRA is that the tax-body’s collection for the 2015/2016 fiscal year is a more realistic target than the current target and they hope to achieve if all factors play in their favour.

"We know there will be challenges here and there but I am sure we shall meet the target for the next fiscal year,” said the domestic revenue commissioner.