Rwanda proposes VAT tax incentive for consumers

Consumers could start getting a share of the 18 per cent value-added tax levied on taxable goods and services, once a bill proposed by the Rwanda Revenue Authority (RRA) is enacted into law. The disclosure was made on Friday, September 23, during a public hearing in which RRA officials were appearing before the Parliament’s Public Accounts Committee (PAC) to provide explanations for the public funds mismanagement cases raised by the Auditor General’s report for the fiscal year 2020-2021. VAT is a consumption tax on goods and services that is charged at each stage of the supply chain where value is added, from initial production to the point of sale. MP Jean-Damascène Murara said that there are some traders who sell products but do not give receipts to buyers, which hinders VAT collection. “When they do not provide the receipts, the VAT is lost. What are the strategies to address that issue for the country to be able to maximise tax collection?” he asked RRA officials. In order to encourage people to request electronic receipts issued by the electronic billing machine (EBM), RRA Commissioner General, Pascal Bizimana Ruganintwali, told lawmakers that there is a tax bill in the pipeline that seeks to introduce the provision of a VAT share to the consumers. “We want that, if a resident buys water [for instance], and a VAT of 18 per cent is charged, they will get a percentage share of that rate [to be determined by the law], which will be directly deposited on their [bank] account or EjoHeza [long-term savings scheme] account. That will motivate people to request EBM issued receipts,” he told lawmakers. Speaking to The New Times, Ruganintwali said that the move was informed by the fact that the revenue collection body has been facing issues where some businesspeople were not willing to give (accurate) receipts. He said that the draft tax law was agreed on by RRA and the Ministry of Finance and Economic Planning, indicating that it is awaiting approval from other entities [including the Cabinet and Parliament]. “But, this is an urgent action. We wish that it gets enacted within this financial year [which will end on June 30, 2023], and start being implemented in the following fiscal year,” he said. EBM system came to replace manual invoicing, chiefly for VAT registered taxpayers – those having at least an annual turnover of Rwf20 million. Normally, the EBM system eases tax collection with electronic receipts that help revenue collectors to monitor businesses’ sales and how much tax they have to pay. Boosting tax revenue and people’s savings Ruganintwali said that there is a system in place where people can register (to have an account) and enter the number of their receipt, then it calculates the amount of money they should receive. Such money, he said, would then be sent to their [bank or mobile money] account. “There are traders who give receipts with lower prices compared to the money they received [for the purchased products]. [With the new move], no buyer will accept a receipt with Rwf1,000 yet they bought products worth Rwf10,000, because they would be losing in the process [the VAT incentive],” he indicated. “This implies that, as people will be giving accurate receipts, both the VAT and income tax will increase,” he observed. For over five years, MP Théogène Munyangeyo, Chairperson of the Committee on Economy and Trade at the Chamber of Deputies, has been putting forward a similar proposal to support tax collection and at the same time boosting savings culture among Rwandans. As he reacted to RRA’s plan, Munyangeyo told The New Times that if an electronic receipt will guarantee benefit for Rwandans on products they buy, they will be motivated to ask for it, which will help to raise the government’s tax revenue. “Currently, people go to a restaurant or bar, but they do not attach importance to asking for EBM receipts for the products they consumed. But, once this proposed scheme is approved, they will be willing to request it because they will get some money on their account as a benefit,” he said. “For instance, if someone builds a house worth Rwf100 million, they might save on the construction materials they bought, money that can help them to renovate it, if need be,” he said, adding that such savings can even supplement people’s pension. Meanwhile, Ruganintwali said that VAT accounts for 34 per cent of the total tax collection in Rwanda. According to statistics from RRA, Rwanda collected total tax revenues amounting to over Rwf1,635 billion in the 2020-2021 fiscal year.

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Rwanda proposes VAT tax incentive for consumers