Voluntary disclosure: What tax incentives does Rwanda offer?

Taxpayers who volunteer to disclose and pay arrears they owe before being notified of the imminent audit by Rwanda Revenue Authority (RRA) have the right to a waiver of related penalties and interests for late payment, it has emerged. This is stipulated under a Ministerial Order determining modalities to benefit from voluntary disclosure incentives that was approved by Cabinet on February 27, according to the Ministry of Finance and Economic Planning, and RRA. The order is provided for by the law on tax procedures, which was published in the Official Gazette of March 31, 2023. ALSO READ: Why new tax procedures law is a big deal Voluntary disclosure is the process of exposing previously unpaid or underpaid tax liabilities (and paying the dues). At a Post-Cabinet press conference held on February 28, the Commissioner General of Rwanda Revenue Authority (RRA), Pascal Bizimana Ruganintwali, said that there have been challenges where some taxpayers who delayed paying taxes were not willing to disclose them as they feared penalties. Under voluntary disclosure, he said, an entity that discloses due taxes they were not able to pay on time and clears them, will not pay late payment interests nor penalties provided for by the law. The cabinet's decision paves way for relevant technical procedures that will involve gazetting the scheme which will spell out eligibility criteria. The period for the disclosure shall be determined by the Minister in charge of Finance, according to RRA officials. According to the law, a taxpayer who fails to declare and pay tax within the time limit provided for by law pays it and is liable to an administrative fine of 20 per cent of due tax, if the time limit for payment extends for a period not exceeding 30 days; 40 per cent of due tax, if the taxpayer paid within a period ranging from the 31th day to 60th day from the final date of payment; and 60 per cent of due tax, if the period exceeds by more than 60 days. The law also stipulates that a taxpayer who fails to pay tax within the period provided for by the law pays late payment interests on the amount of principal tax, which ranges from 0.5 per cent, if the taxpayer has recorded a delay not exceeding six months, to 1.5 per cent, if the taxpayer has recorded a delay of more than 12 months. Another provision in the abovementioned Ministerial Order, Ruganintwali pointed out, is that a Rwandan or any taxpayer working in Rwanda who owes tax but an audit has not yet been carried out, for instance for last year and earlier, has the right to declare and pay it without incurring penalties, if they are not on the list of entities that the tax administration plans to audit in the current year. Normally, he pointed out, people have different problems that make them unable to pay tax on time, citing negligence and lack of money. ALSO READ: A closer look at 2023’s tax changes: Five laws tailored to citizens’ needs Transparency beyond tax audit Also, Ruganintwali said, that taxpayers who come forward to disclose taxes that RRA did not identify through an audit it conducted can pay it free from penalties. Referring to the five-year time limit for the tax administration’s power to audit taxes, he said that there are people with integrity who are willing to pay overdue taxes even after such a period lapses, indicating that they can do it and no penalties are imposed on them. Such arrangement, he said, can also help companies listed on the country’s capital market, which want to have clean tax records in their books of accounts or financial statements, adding that some were afraid to declare outstanding taxes because of penalties. He indicated that it is an international level best practice that ensures transparency in taxation, adding that in the global forum framework, Rwanda, along with other countries, committed itself to information sharing with other countries to ensure that every person is taxed accordingly. “This will ensure transparency in taxation and help taxpayers,” he said, adding that countries such as Kenya and South Africa started such practices. Citing some examples of such a practice, he said that two foreign investors have voluntarily paid over Rwf4 billion after realising that they paid employees’ salaries for their companies based in Rwanda, but the due tax was not deducted from their remunerations. “We want to create a room to all people, small and large, Rwandans, and foreigners who are doing taxable businesses in Rwanda that ensures that they can voluntarily disclose their taxes, but they do not get punished for that,” he said.

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Voluntary disclosure: What tax incentives does Rwanda offer?