Govt intervenes in RRA battle with businesses over tax exemption

Officials from Rwanda Revenue Authority (RRA) and Rwanda Development Board (RDB) signed and stamped papers that exempted several manufacturing firms from paying duty on imported raw materials worth millions in revenue on more than 50 occasions between 2011 and June 2013. However, a November 2014 verification audit by RRA on imported raw materials found that the exemptions had erroneously been awarded and recommended that the five manufacturing firms that benefited from the ‘mistake’ should refund the money. Unfortunately, the ‘mistake’ was not made once or twice, but 55 times. The firms in question include Rwanda Foam, Trust Industries, Mount Meru Soyco, SRB Investments and Flexi Foam. The latter two had the largest amount, worth more than Rwf150 million each. Since November when the audit came out, RRA has been seeking to recover the foregone revenues from the investors a demand they (firms) have been opposing. One of the five firms affected was exempted 55 times from paying duty worth at least Rwf195 million. Documents seen by The New Times indicate that RRA and RDB both signed and stamped their approval on all occasions this particular manufacturer applied for waivers. The firm, owned by a foreign investor and which operates from the Kigali Special Economic Zone, has rejected RRA demands to pay the money, threatening legal redress or, at worst, winding down. Under the RDB investor incentive guide, a registered manufacturer with an investment certificate to operate in the country is exempted from paying import duty, withholding tax and Value Added Tax on imported machinery and raw materials. “We drew our business plans based on these incentives, we calculated the cost of our raw materials well knowing that we would be exempted from duties and after registration in 2010, we started importing in 2011,” said a director of one of the firms. Tax waivers and other incentives to investors in Rwanda are an automatic right upon registering and meeting all other standards defined under the national investment code. However, every time a consignment of imports arrives in the country, the investor is required to fill an application form that is approved by both RDB and RRA to sanction the waiver. All the firms in question talked to told The New Times that they dully followed the procedure and have clearance documents certified by both RDB and RRA. What mistake? The mistake, if it’s to be called so, is a transitional one in nature, related to the period after Rwanda joined the East African Community (EAC) in 2007 and signed the Customs Union in 2009. According to Innocent Bajiji, an officer in RDB’s investment promotions department, all imports to the bloc and waivers on imported products are guided by the EAC customs management act. Under the act, each partner state must submit, on an annual basis, a list of manufacturers and items they expect to import so that they can be gazetted for exemption. Before the EAC customs management act, Rwandan manufacturers who qualified for waivers just had RDB and RRA to deal with. But under regional integration, countries have to submit the lists of their importers, items and waivers to the respective EAC Secretariat’s department in charge of trade. It’s the responsibility of the concerned departments of government (RDB, RRA, Ministry of Trade) to collaborate and notify, through submission to the EAC Secretariat, the list of items and waivers that would be active every year. The said companies fall in two categories; those that had acquired exemption rights before Rwanda joined the EAC Customs Union in 2009, and those under the duty remission scheme that started after 2010. Apparently, the current confusion originated from the two regimes; the exemptions enjoyed by many of the firms had reportedly not been submitted to the EAC Secretariat and were not listed in the gazette for the years 2011 to 2013. However, this does not mean that the firms did not pay any taxes during the period. For instance, one of the manufacturers supposed to refund Rwf195 million received in erroneous waivers claims that he paid more than Rwf500 million in income tax and other lawful obligations. All investors involved continue to enjoy other incentives, including tax waivers on all imported raw materials, but their problem is the money from the past that RRA insists they should have paid. In one exchange between RRA and a representative of one of the affected firms, it is claimed that the error was committed by a ‘junior official’ who has since been punished. Efforts to speak to RRA Commissioner-General Richard Tusabe – who was the head of customs when the contested tax waivers were awarded – were futile. Seeking compromise This is a catch 22 for the government whose tax body RRA, on one hand, is trying to recover lost revenue, and on the other hand, RDB working to protect investors from possibly paying for errors they are not responsible for. At best, one way out of the deadlock is by way of a compromise where government would write off the ‘loss’ and fix the loophole in the tax administration system in hope of avoiding similar scenarios in the future. However, this option would not augur well with RRA as it is struggling to meet its targets. Another option could be a court battle between RRA and the firms that feel they are being treated unfairly. Since February, RDB and the Ministry of Trade and Industry (Minicom) have met multiple times with RRA in an effort to reach a mutual understaqnding but little progress has been made. A source that has attended several of the meetings said, on all occasions, RDB and Minicom have failed to agree on the proper interpretation of the relevant laws, which forced them to seek the help of the Attorney-General. However, the delayed conclusion of the matter – about nine months after RRA released its audit report – is reportedly frustrating some of the investors affected as they ponder on ways of dealing with the contested taxes. Officials at RDB and Minicom separately told this newspaper that they were hopeful a win-win solution on the matter will soon be found. On June 1, Trade and Industry minister Francois Kanimba invited all the parties involved to a meeting at the ministry offices to try and find a solution. The meeting was inconclusive but RRA officials were asked to submit case-by-case reports on each of the affected manufacturers to inform the next course of action. The New Times is reliably informed that a consolidated report by RRA was submitted to Minicom recently, a development confirmed by Emmanuel Hategeka, the ministry’s permanent secretary. “We have received the report but at this stage, it’s no longer an industrial but a fiscal matter and has to be decided by the Finance ministry,” he said. Hategeka also revealed that a meeting between the Minister for Trade and Industry and that of Finance and Economic Planning will be convened soon to discuss the matter. “We are confident the matter will be resolved soon,” he added. editorial@newtimes.co.rw

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Govt intervenes in RRA battle with businesses over tax exemption