Rwanda Revenue Authority (RRA) is aiming at collecting Rwf1.373 trillion by June this year, a target that is supported by better economic outlook, according to official data released yesterday.

The taxman is already past the half way mark towards its revenue target having collected Rwf666 billion between July and December 2018 against a projection of Rwf660.4 billion.

The authority attributed the performance to reduced inflationary pressures, increased compliance and improvement in administrative measures.

However, the continued slow growth of imports got in the way of even better performance.

Imports had been estimated to grow at 16.3 per cent but fell short of projections, growing at 12.4 per cent. This however is a common phenomenon across the entire East African Region.

RRA officials are yet to establish the impact of increased consumption of locally produced goods or reduced consumption on tax revenues.

The authority has an uphill task to finance the Rwf2.4 trillion budget for this fiscal year that has reduced dependence on aid and assistance to 16 per cent.

To meet the projections, RRA says, it has had to rely on tax efficiency, increased compliance and new tax brackets as opposed to solely raising taxes.

Among other new avenues of tax receipts in regards to tax bracket expansion include capital gains tax of 5 per cent of sales or transfer of shares.

This means that direct and indirect sale of shares in a Rwandan company is now considered to be taxable income.

The current regime also tightened restrictions on expense deduction for the determination of taxable income. For instance companies operating in Rwanda which have management fees, technical fees, and royalty fees are now restricted to 2 per cent of the company’s turnover. Anything above the cap is subject to taxation.

From July 2018, second hand apparel imports have also seen an increase in taxes to $4/kg from $2.5/kg while second-hand shoes are now taxed at $5/kg from $0.4 per kg.

This is part of an East African community move to encourage the development of the local apparel industry.

The pursuit of tax efficiency has seen an expansion of the scope of those required to issue EBM invoices beyond VAT taxpayers. Previously EBM invoices was solely by VAT taxpayers.

In the collection of taxes between July and December 2018, Rwanda Revenue incurred a cost of Rwf17.3 billion, which is 2.6 per cent of the revenue.

The agency is aiming at bringing down the cost to about 2 per cent in coming years.

However, according to Commissioner General of RRA Pascal Ruganintwali, the agency’s efforts have been facing challenges of increased smuggling especially of second hand clothes following the increase of taxes.

He however said that this was somewhat expected and they have been working with regional countries to curb the spread of the vice.

Last year, RRA reported that they intercepted about 230 tonnes of used clothes being smuggled into the country.

The most popular smuggling tactic is import goods and send them to a neighbouring country then find a way to smuggle back into the country.

People with insight into the operations say that once the goods cross the border into a neighbouring country, and the electronic seal removed the goods are ‘broken’ down to smaller packages and disguised as personal effects (without declaring them) in attempts to smuggle them across the border.

Other methods used by smugglers include undervaluation of imports in the paper work with the help of clearing agents.

editorial@newtimes.co.rw