TOP STORY: RRA to decentralise taxing SMEs

Under the BMS, each block does all the tax function of registering, assessing, collection and accounting for revenue.To enhance Small and Medium Enterprises (SMEs) compliance to taxes and to manage tax administration with the informal sector, Rwanda Revenue Authority (RRA) is planning to start using a new system called Block Management System (BMS). The new system will target small taxpayers by demarcating the areas in which they conduct businesses into sizeable and manageable areas called blocks. According to the RRA, the BMS will address tax related issues that limit business growth and tax compliance. In an interview with Business Times on Friday, Mary Baine, the Commissioner General of RRA said that the new system has been successfully piloted in the Nyabugogo area since October last year, after borrowing the idea from neighbouring Tanzania where it has been implemented successfully. Baine also noted that the system would re-enforce compliance, since unlike the old system where tax administration has been centralised at the tax authority’s headquarters,. the new system will see tax administrators coming to the tax payers in their business locations. “This will make it easy for tax payers because the system is geographically based,” she said, shortly after, the three International Tax Dialogue (ITD) Africa Conference hosted last week by the RRA. She added that basing on the results of the pilot project, RRA will determine how to roll out the programme to all the districts. The ITD conference focused on how tax administrators can best support growth and development of micro and small business while ensuring tax compliance. In a parallel interview on Thursday, Vincent Uzarama, the Deputy Commissioner, Small and Medium Taxpayers’ Department noted that implementation of the pilot project is in final stages and that the authority is working round the clock to ensure that the new system is spread out to others areas at the beginning of June this year. “This will enforce compliance because we shall be able to reach some businesses like garages, hardware shops and buildings that have previously not registered will get registered. Whatever amount they declare we do not mind as eventually the tax yields will increase especially VAT,” he said. He added that RRA has identified 3 blocks for the new management system within Kigali City and their corresponding political demarcations to the extent that each district will have its own block with sub-blocks. Under the BMS, each block does all the tax functions of registering, assessing, collection and accounting for revenue. The allocated staff will update taxpayers information (both personal and business). “We will be conducting door to door visits to businesses not only to collect tax but also help the business community to identify challenges that constrain from formalising their businesses. We want to be as close as possible to the tax payers,” Uzarama observed. According to Uzarama, the BMS will not only simplify the process of taxing SMEs, but also widening the tax base and enhance their tax compliance, one of the most challenging tasks for a tax administration. “Taxing SMEs is a hard task because their businesses are very mobile and most business owners are illiterate and do not keep records of their operations,” Uzarama said. “This is not unique to Rwanda, but our task as tax administrators is to enforce compliance not by confrontation but cooperation. We have learnt that cooperation and developing a strong relationship with tax payers is the best way to enforce compliance,” he added. Uzarama also added that compliance costs have to be reduced because it has been observed that people do not comply in most cases as they are afraid of the incoming costs of fulfilling their obligation. “This includes the time spent at revenue offices and the whole process of paying the taxes, the process is complicated, people will avoid it,” he observed. He noted that RRA has also embarked on decentralization of tax services to make it easy and convenient for tax payers to meet their obligation. To enforce compliance, RRA has also initiated dialogue with the private sector through the Tax Issues Forum (TIF) and Tax Advisory Councils (TAC) that works through local governments. “This helps to address taxpayers concerns and insures a strong and sustainable tax administration for small and medium taxpayers. Improved cooperation with local governments can facilitate and improve small businesses compliance management,” Uzarama said. In addition, effective the 1st of January this year, RRA has signed an agreement with Bank of Kigali, such that all clients of the bank pay their taxes instead of queuing at the headquarters. Tax administrators at the ITD conference, generally agreed that for small firms, the system has to be easy to comply with while for tax authorities the system must not require excessive administration to enforce tax compliance. In a joint communiqué at the end of the ITD conference, tax administrators from 23 African countries noted that tax is essential to sustainable development, particularly during the current financial crisis. The conference also reiterated support for the establishment of the African Tax Administrators Forum (ATAF) that will promote and facilitate cooperation amongst African countries to identify best practise, build capacity, combat tax evasion and promote good governance. Ends