“We do not pay high taxes because we pay as a group under our cooperative association. But recently revenue officers from the Headquarters told us to go and register our businesses so that we are not highly taxed. They said we should pay a tax called tin number,” Jean Chrysostome Muzungu a business man and member of Cooperative manufacturers of different iron materials in Gicumbi said of the taxation system.
"We do not pay high taxes because we pay as a group under our cooperative association. But recently revenue officers from the Headquarters told us to go and register our businesses so that we are not highly taxed. They said we should pay a tax called tin number,” Jean Chrysostome Muzungu a business man and member of Cooperative manufacturers of different iron materials in Gicumbi said of the taxation system.
Muzungu’s response may sound "funny” especially to the elite business community but it actually reflects a bigger and serious problem in the country.
Such a response reflects a knowledge gap concerning taxation, yet tax administration is a key public sector responsibility that touches the lives of citizens and their businesses on a daily basis, and arguably has the greatest impact on their livelihoods.
For instance there is no such a tax known as "tin number.” TIN Number refers to Tax Identification Number. Yet failure to understand the concept of taxation within the business community simply leads to tax evasion and compromised compliance.
On the other hand the government cannot afford to lose any revenue, as revenue collected from taxes along with customs collections represents the major funding source for governmental expenditures.
An effective and efficient tax administration system is integral to any country’s well being.
"The taxation system is too complicated and not very clear. My company has been operating for only three months but I find paying tax a problem. Revenue officers give different information and this also makes matters worse,” Sandra Idossou , a Managing Partner of Shei and Enz Consulting firm complained about Rwanda Revenue Authority (RRA ) services.
Idossou observed that revenue officers at RRA do not give the same information about the taxation system while paying taxes consumes a lot of valuable time.
"When you go pay tax, you spend so many hours in the whole process. For instance it took me about 30 minutes for somebody in charge to print a form and another 15 minutes to scan the printed form, then queuing in the bank for about two hours,” she said.
"It would be much easier if there was an online process and also if payments are made in personal banks. I have no problem with the amount charged but the system.”
However according to Patrick Kagabo , the Chief Executive Officer of MAXINET Group Limited an International brokerage Company, failure to understand the taxation system leads to less compliance since most people will avoid it because they do not know what and why they should pay tax.
"The tax rates charged are fair compared to those in other countries within the region. But the problem is that there is a bad culture of not paying tax and waiting to be followed up by the revenue officials, Kagabo said, noting that the majority of the business community prefer to pay their taxes on the 15th of every month, the deadline for paying taxes like Value Added Tax (VAT ).
Kagabo explained that the "bad culture” is as a result of the knowledge gap about taxation especially when it comes to what is to be taxed and what is not.
"Educating the people about the whole process of taxation and why they should pay tax will enforce compliance. Tax education should also be included in school curriculum such that people appreciate the importance of tax,” he said.
While complicated tax systems and numerous processes make it difficult especially for the small business to pay their taxes hence remaining out the tax net, a taxation system that is simplified enforces tax compliance.
For instance tax returns can be designed to be as short and simple as possible. Small taxpayers in particular would benefit from the use of "plain” or easily understood language.
Both tax returns and accompanying instructions should be provided free of charge.
This also calls for increased taxpayer assistance and educational programs. This can include internet services and electronic filing of tax returns where technology and legislation permits.
Electronic payment of taxes through the banking system should also be utilised. The small business taxpayer may particularly benefit from providing taxpayer services after normal business hours and weekends.
Ignoring tax education means less tax compliance, a contributing factor to the narrow tax base.