Illicit trade hurting tax revenues

Treasury is losing a “substantial” amount of money due to smuggling and fraudulent practices among taxpayers in the midst of efforts to raise domestic revenues to bridge the budget deficit. Ben Kagarama, the Commissioner General of RRA, said the country’s improved business environment has opened up new business opportunities noting that revenue growth is being undermined by smuggling.He said it was difficult to ascertain the exact amount government loses to smugglers but stated it was a “substantial” figure.“I would be putting myself in a very difficult position if I am to predict how much loss is happening out there…because there is no record, I can guess it could be a substantial figure.” One of the top priorities for the treasury in the 2011/2012 budget is to reduce the fiscal deficit and domestic financing. Rwanda’s budget deficit is expected to be 1.9 percent of the Gross Domestic Product (GDP) for the full-year.RRA collected Rwf419.1 billion from taxes between July 2011 and March 2012, well above the target of Rwf387.5 billion due to the strong performance of the economy and improved tax payment system.The illegal trade practices cited require urgent attention from the authorities if the country is to maintain this trend of revenue growth.The tax evasion has been identified in areas where taxpayers overstate purchases, non-issuance of VAT invoices, forging of certificates of origin and invoices for imported goods.Although RRA has embarked on easing tax payment systems as one of the solutions to the problem, Kagarama recognises that the underlying answer might be change of mentality among taxpayers. “You still find people who want to be out of the tax administration system because of natural resistance to pay taxes but we believe this convenience system will change the behaviour,” he said.RRA is rolling out various initiatives aimed at facilitating trade by reducing the costs involved in paying taxes and providing quicker services to taxpayers.Some of the initiatives to facilitate the tax payment include extension of working hours from 12 to 18 hours, introduction of electronic single window system, introduction of e-filling and e-payment as well as electronic cargo tracking system.The tax body observed the electronic cargo tracking system will facilitate legal trade and improve turnaround time for transporters as delays in cargo movement would be eliminated.The system is also expected to improve the exchange of transit information with other sister revenue authorities in the East African Community.“Resistance to tax payment is natural, whether the tax system is fluid itself or people’s behaviour, and this true for both the average man who does (not) have records to the most sophisticated financial manager who instead of tax evasion will do tax avoidance,” Kagarama observed. He added that the loopholes might be there to facilitate even the most complicated business owner to exploit the laws and get away with tax.“The loopholes may be many but we will continue responding and make necessary changes in terms of systems, procedures and processes to reduce or stop the avoidance,” Kagarama assured.Government is experiencing low levels of compliance to the payment of tax arrears whereas some taxpayers tend to close their businesses and locate to unknown areas after completion of the final audit.Few enterprises operating under the formal sector shoulder the biggest tax burden as the country grapples with a narrow tax base while many businesses still operate under the informal sector.