Enforcing revenue law is not harassment, says tax expert

Many business people always feel ‘harassed’ when it comes to paying taxes. Complaints of “Rwanda Revenue Authority over taxing us” are also very common. Business Times’ Ben Gasore caught up with Paul Frobisher Mugambwa, a tax expert at PricewaterhouseCoopers Rwanda, who explains why taxpayers should be proud to contribute to national development by paying their taxes timely. What do you think are some of the major challenges in tax administration? From a government stand-point, the tax base is still narrow, and some taxpayers aren’t complying. The private sector has also been complaining that they are being overtaxed. But when you look critically at the local tax rates, they are similar to those of other countries in the region. The difference is that RRA enforces the tax law more aggressively than the other tax bodies in the region. Rwanda Revenue Authority ensures every penny owed them, be it in penalties and interests, is paid. Other revenue authorities may not follow up the penalties and interests as long as you pay the principal. Therefore, the tax environment is not any different from other countries in the region; RRA enforces the tax law religiously which makes taxpayers feel they are over taxed.That aside, the private sector faces many challenges, like the tax law that changes almost every year. One would not be shocked to find people still using the old value added tax law, which was amended last year. This is largely due to low sensitisation about new laws or developments in the business arena.There is also issue of human resource capacity, the people who are supposed to advise businesses on tax matters. Rwanda has about 200 qualified accountants, but not all of them are conversant with tax issues. Ideally, Rwanda should be having over 1,000 qualified accountants to serve all businesses satisfactorily. This leaves a huge skills gap.Whereas the big taxpayers can afford the services of tax experts, the small ones may not afford to hire consultants.There is also a knowledge gap, especially for some of the basic tax-related issues and generally business and financial management. Sometimes people are surprised when Rwanda Revenue Authority tells them that you didn’t comply with guidelines of filing returns. Most of the time, these people genuinely didn’t know. How can the government widen the tax base and stopconcentrating on a few individuals?That is a big challenge because widening the tax base doesn’t mean increasing the rates, it’s about increasing the number of taxable people. Therefore, the government needs to promote programmes that will develop the middle-income earners to achieve this goal. How can taxpayers pay tax in a way that they don’t feel the burden?Sometimes you can’t realise the privileges of our tax law unless you compare it with other laws in the region. Our law has so many incentives. For example, the law says that one has to pay withholding tax the moment he or she pays a supplier. Other countries in region compel business people to pay tax the moment they order for supplies; so they pay withholding tax before they are paid. But how many people here take this as an opportunity?Also, if I am going to pay you $100 for a service, I will have to add 18 per cent as value added tax. This money is supposed to be forwarded to RRA by business people because they are simply acting as Rwanda Revenue Authority tax collecting agents.Other incentives include the micro-business flat rate where a barber, for example, is supposed to pay, say Rwf60,000 per year after earning, say Rwf3m annually. The figure may seem negligible, but when every small business is paying that, that’s a lot of revenue for the government.The systems that are in place like the infrastructure for online and mobile declaration and payment are all to ease tax paying. Isn’t Rwanda Revenue Authority too rigid when it is collecting taxes?Given the context of the market and the sourcing they have got, they are doing a good job. They appreciate the laws and try as much as possible to work within its provisions. This has both advantages and disadvantages. It avoids having loopholes that would allow tax leakages. Besides, the moment you give people time to reason and start feeling they can overstep the law, that’s when leakages start. The disadvantage is the taxpayer finds it ‘very bad’ as they will have to follow what the law says. And that’s healthy. So, you need systems to be put in place so that the revenue authority, private consultants and businesses all benefit.

Insight

Enforcing revenue law is not harassment, says tax expert