Taxation of SMEs should be streamlined - Gatete

There is need for tax reforms to develop systems that assist small businesses to grow into bigger companies, Amb. Claver Gatete, the Minister for Finance, has said. “Although taxes contribute greatly to the proper functioning of economies today, we need to design a tax system which promotes trade and helps SMEs build their capacity to grow. The system should also encourage cross-border trade, especially between SMEs,” he said.He was speaking at the opening of the 34th Commonwealth Association of Tax Administrators (CATA) conference in Kigali on Sunday. The conference that has attracted delegates from 49 countries of the Commonwealth will focus on finding strategies of taxing SMEs and other untapped resources for development. It will also handle current issues around taxing ‘high worth’ individuals. Rwanda joined the Commonwealth, a group of mainly former British colonies, in 2009.According to the 2008 study by the Private Sector Federation, they are over 72,000 SMEs operating in Rwanda, but only 25,000 are registered.Gatete said micro-businesses comprise of 97.8 per cent of the private sector, and contribute 41 per cent of the private sector employment. The delegates heard that lack of financial education, high taxation and limited access to energy, as well as lack of a strong insurance industry were hurting the capacity of small-and-medium enterprises (SMEs) to expand. Difficulties with contract enforcement and a weak education system, access to market information and competitive pricing have compounded the problem for SMEs, Gatete added.Ben Kagarama, the Rwanda Revenue Authority Commissioner General, said these challenges mean that many small businesses collapse before they have barely started. Kagarama noted that the tax body is currently faced with a big challenge of whether to tax small businesses as they struggle to stay afloat.“The biggest challenge is how do you tax SMEs without affecting their growth?” Kagarama said the tax body is trying to find ways how it can ensure that SMEs gain capacity and understand the importance of paying taxes and complying with tax policies. “We need to come up with new mechanisms that will make it easy for us to collect government revenue more efficiently without hurting businesses,” Kagarama told tax administrators attending the CATA conference. However, Gatete said the SME policy addresses most of the challenges faced by small businesses. “The government introduced a flat tax regime for SMEs and has invested heavily in online tax facilities to help SMEs become tax compliant.”Gatete advised tax administrators to pay attention to the global financial developments, saying they affect tax systems across the world.“It becomes difficult to take measures when you are interconnected globally. “You need to understand what is going on globally because it’s what is effacting our tax systems,” he noted.George Blankson, the CATA chairman, said tax bodies are faced with new challenges that call for innovation. He said there is a need to find means to tax businesses without affecting their potential to grow.