NATIONAL TAXATION POLICY AND LOCAL
GOVERNMENT REVENUE COLLECTION
PRESENTED BY BEN KAGARAMA BAHIZI
COMMISSIONER GENERAL-RRA
OCTOBER 18th , 2013
www.rra.gov.rw
RWANDA REVENUE AUTHORITY
Contents
 Taxation background in Rwanda
 Tax structure in Rwanda
 Collection against budget:1998-2013
 Strategies to mobilize tax revenues
 Tax Incentives granted to investors
 Trade facilitation initiatives
 Local government revenue collection
 Key Challenges
 Mobilize tax revenues: a collective responsibility
3/12/2016
www.rra.gov.rw
2
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxation background in Rwanda
• Taxation in Rwanda dates way back in 1912 when
property tax was introduced;
• After independence, taxes were formally introduced
in Rwanda by the law of the 2nd June 1964
concerning Profit Tax;
• Customs and Excise duties were also introduced by
the law of 17th July 1968;
• Law on profit tax and law on tax procedures were
introduced 1997
• In 2001 VAT law was introduced requiring taxpayers
to start paying Value Added Tax.
3/12/2016
www.rra.gov.rw
3
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxation background in Rwanda
The Central Government through the Ministry of
Finance was responsible for tax collection. The
Rwanda Revenue Authority was established under the
law n°15/97 of 8 November 1997 as a quasiautonomous body with the mission of assessing,
collecting, and accounting for tax, customs duties and
other specified revenues.
3/12/2016
www.rra.gov.rw
4
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Rwanda Taxation policy
In general, Rwandan national taxation policy focuses on
mobilization of revenue for economic development
through efficient and equitable services that promote
business growth.”
The fundamental tax policy has seen the old tax
systems reformed and replacing them with
completely new tax laws and regulations inline with
the following objectives:
3/12/2016
www.rra.gov.rw
5
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
National taxation policy Cont’d
• Raising more revenue in the short term,
• Ensuring that the tax burden is distributed equally,
• Broadening the tax base to reflect the changing
structure of the economy,
• easing the tax burden on the general population,
creating favourable conditions for the development
of the private sector and furthering the ongoing
adaptation of the tax structure to fit a market
economy.
3/12/2016
www.rra.gov.rw
6
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Tax policy Cont’d
Rwandan national tax policy is reflected in the among
others the most important indicator which is Ratio of
tax revenues to GDP. This in many ways the single
most significant indicator of national fiscal
development and revenue performance and this in
2001 it was 10.1% and in 2012 -2013 is 14.2% which
gives us a better hope of “ Kwigira” in the years to
come.
3/12/2016
www.rra.gov.rw
7
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
TAX STRUCTURE IN RWANDA
Our structure is more than 90% progressive hence
breaching the economic gap between the low income
earners and high income earners hence being fair.
3/12/2016
www.rra.gov.rw
8
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxation structure cont’d
• Taxation is considered central to the building
of our state capacity in different sectors as “ as
it is always considered as the price to pay if
you are to live in an organized society.” say
Rwanda with well developed infrastructure in
all sectors. It has the following benefits to
play in our Rwandan economy.
3/12/2016
www.rra.gov.rw
9
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Local government revenues fulfill
multiple functions
• Building accountability
•Increasing citizen engagement with public affairs
•Stabilising the economy
•Incentivising /discouraging particular types of investment
•Regulating economic activity
•Redistributing wealth
•Discouraging dangerous/undesirable activity
•Decreasing dependence on aid/increasing autonomy
•Even if the intention of a tax relates to just one of these, it may
affect some of the others as well
3/12/2016
www.rra.gov.rw
10
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
TYPES OF TAXES COLLECTED BY RRA
• There are three major categories of taxes in
Rwanda: direct taxes, taxes on goods and
services, taxes on international trade.
3/12/2016
www.rra.gov.rw
11
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
1. Profit taxes
• Corporate Income Tax : The corporate income
tax is levied on business profit of entities.
•Tax on profit made by self employed persons
The personal income tax is levied on income
received by an individual. The taxable income is
composed by:
Business income
Employment income
3/12/2016
www.rra.gov.rw
12
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
This tax is calculated either on the basis of the real
incomes or by using the presumptive tax regime
(lump sum taxation regime).
• Withholding tax on imports and on Government
purchases
The amount of tax withheld is treated as a tax
prepayment of the payee to be offset later against
his final liability. These are:
3/12/2016
www.rra.gov.rw
13
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
• 5 % to be imposed on all imports, calculated
on the CIF value.
• 3 % on Government purchases as a down
payment on profit tax of the total amount on
income.
3/12/2016
www.rra.gov.rw
14
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
2. Taxes on income
• Pay As You Earn (PAYE)
PAYE is a tax on income derived from employment. The
base is the income from employment activities
including wages, salaries, bonuses, leave pay; sick pay,
medical allowances, etc… and all kinds of allowances.
The employment income includes also all benefits in
kind.
3/12/2016
www.rra.gov.rw
15
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
• Taxes on investment income
Taxes on investment income include taxes on
loans, dividends, interests, royalties, lottery
and other gambling proceeds. The tax rate is
15 % of total realized income.
3/12/2016
www.rra.gov.rw
16
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
3.Taxes on goods and services
• Value Added Tax (VAT)
Rwanda government after recognizing that many
African countries have adopted VAT system as a
foundation for their economic growth, it
introduced VAT in its taxation system in order
to pursue the tax reforms by establishing a fair
and suitable tax system.
3/12/2016
www.rra.gov.rw
17
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
• The merits of VAT system are as follows:
• Broaden the tax base: VAT is a multistage tax for all
registered suppliers. This concept of broadening the
tax base aims at having more people and more
products/ services to pay and have each contributing
less.
• Self-policing mechanism: the purchase of one
taxpayer is the sale of another one hence, the tax
involved is the input for the last and output for the
first taxpayer.
3/12/2016
www.rra.gov.rw
18
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
• Avoid cascading effect: this is a situation
whereby a tax is imposed to another.
• Export promotion: exported products are
zero-rated. Since all the VAT inputs on exports
are refunded, our exports will be competitive
on international market.
• Cash flows: through refund mechanisms,
traders acquire cash for running their business
3/12/2016
www.rra.gov.rw
19
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
• Excise duties
Excise tax or excise duty is a tax imposed on
goods or services considered to be luxuries
rather than necessities and luxury taxes may
be levied with the aim of taxing the rich or in a
deliberate effort to regulate consumption of
some goods or services, either for moral
reasons, national emergency or revenue
productivity
3/12/2016
www.rra.gov.rw
20
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
• Excise tax is levied on locally produced beers,
lemonades, mineral water, juices, liquors,
wines, fuel, vehicles, powdered milk as well
as on cigarettes and their imported
counterparts and on telephone
communication
3/12/2016
www.rra.gov.rw
21
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Taxes
• Taxes on international trade : Import duty
Import duties are paid on imported goods
coming from out of EAC. At the customs point,
the tax administration collects some taxes and
duties like VAT, Customs duties and excise
duties.
3/12/2016
www.rra.gov.rw
22
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Rwanda Tax structure (Con’t)
OTHER COLLECTIONS
• Non fiscal revenues: fees for services rendered
by other government institutions
• RSSB contributions ( health and pension): in
2010 the Government decided to transfer the
collection activities of Rwanda Social Security
Contributions and Medical Insurance
Contributions to Rwanda Revenue Authority).
3/12/2016
www.rra.gov.rw
23
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Tax collection against Budget
1998-June 2013
Fiscal
year
Total tax Revenues
(bn)
Total national
budget (bn)
% contribution of
tax revenues to
national budget
1998
68.4
173.2
39.5%
1999
67.1
174.1
38.5%
2000
68.4
169.2
40.4%
2001
81.1
184.8
43.9%
2002
95.7
207.6
46.1%
2003
119.1
252.0
47.3%
2004
136.2
334.5
40.7%
2005
173.5
374.2
46.4%
2006
198.4
396.2
50.1%
3/12/2016
www.rra.gov.rw
24
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Tax collection against Budget 1998-June 2013
Fiscal year
Total tax
Revenues
(bn)
Total national
budget (bn)
% contribution
of tax revenues
to national
budget
2007
247.0
528.0
46.8%
2008
344.3
623.2
55.2%
Jan-June 2009
188.0
392.1
47.9%
July 2009-June 2010
385.2
899.0
42.8%
July 2010-June 2011
473.9
984.0
48.2%
July 2011-June 2012
574.5
1,194.2
48.1
July 2012-June 2013
665.8
1,550.3
42.9%
3/12/2016
www.rra.gov.rw
25
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
(1) Taxpayer Education
 We have invested in tax education across all sectors, using
seminars, dialogues with stakeholders and media to address
taxpayer problems related to tax matters. This has strongly
helped in:
 Tax mobilization,
 Reducing errors committed by taxpayers that brings about
uncalled for penalties
 reducing tax evasion,
 increasing compliance
 And other issues that are tax related
3/12/2016
www.rra.gov.rw
26
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
(2) E-Solutions
RRA introduced various online facilities with the aim of:
 Simplifying the process of paying taxes
 Reduce the cost of paying taxes, doing business in Rwanda
 Reduce the time taken by taxpayers while trying to declare and
pay taxes
 Increase domestic investment and competitiveness of Rwanda
compared to other EAC and regional countries
3/12/2016
www.rra.gov.rw
27
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
2. E-Solutions (cont’)
(i) E-Filing and E-payment of taxes and RSSB
contributions: this was introduced in 2011. Using
the system, taxpayers are able to file and pay their
returns on line, but payment is made through their
respective banks.
• By last month (September, 2013 )there were 24,638
taxpayers using the system.
3/12/2016
www.rra.gov.rw
28
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
(ii)Rwanda Electronic Single Window:
• This system was introduced in 2012 and it is being used by
customs and its agencies such as clearing agents, RDB, Ministry
of Health, RBS, and other organs that deal in handling taxpayer
goods.
• The implementation of Electronic Single Window solved the
problem of clearing agents moving from one place to another in
the clearing process.
• The system allows traders to lodge information with a single
web-based portal to fulfill all import or export related regulatory
requirements. The system has been rolled out at all border posts
• It has been rolled out to all boarder posts.
3/12/2016
www.rra.gov.rw
29
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
3. E-Solutions (Con’t)
(iii) M-declaration
• M-declaration is a newly introduced online system of
declaring and paying taxes for Micro and small enterprises
with an annual turnover below Rwf50million (classified as
small enterprises) using mobile phones. (e.g. Motorcyclists,
small business owners)
• Taxpayers are required to register their TIN and mobile phones
by dialing *800# to avail the services and follow instructions.
It is the easiest and convenient method of effecting payment
and saves time for other activities.
3/12/2016
www.rra.gov.rw
30
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
3. E-Solutions (Con’t)
(iv) Online Tax Clearance certificate: This assists
taxpayers to access bank loans, bidding for tenders,
transfer of property etc more easily and hence
promote doing business. Using this, the Tax
Clearance Certificate is obtained within 2 days.
3/12/2016
www.rra.gov.rw
31
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
3. E-Solutions (Con’t)
(v) Electronic Billing Machine.
• These are authorized electronic devices that are used by VAT
registered taxpayers in issuing certified tax invoices to clients.
They are basically meant for
 Combating sales suppression
 Combating corruption
 Data protection
 Provide taxpayer sales data to RRA servers
 Provide market balance and equality for every entrepreneur.
3/12/2016
www.rra.gov.rw
32
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
3. E-Solutions (Con’t)
(vi) Online Payment of Non fiscal revenues.
• Non fiscal online payment is a system used by the general
public & foreigners to pay for public services like; passport,
VISA, driving license fees, Resident permit, Criminal record
certificate fees, various fines penalties by court, purchase flag
fees, examination fees for O’ level & A' level, Publication of
official journal fees, RBS fees.
• The client has to go to the Rwanda Revenue Authority
website, and fill the required information. After having the
reference number of payment advice ticket.
3/12/2016
www.rra.gov.rw
33
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Strategies to mobilize tax revenues
(3) Flat Tax Regime for SMEs
• In order to promote SMEs’ development, the government
introduced a flat tax regime for Taxpayers with an annual
turnover
of
between
2,000,000million50,000,000million have a special tax rate for profit tax.
3/12/2016
www.rra.gov.rw
34
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Tax Incentives granted to investors
• Training and research expenses are deductible from
taxable profits
• Loss carried forward
• Profit Tax Discount
3/12/2016
www.rra.gov.rw
35
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Trade facilitation initiatives
• Reduction of import related documents. Only three
documents are required: Commercial Invoice, Packing
List, Bill of Lading/Airway Bill
• Pre-clearance System:
• Compliant trader scheme(Blue-Channel
• Mobile Cargo scanners
• Simplified Certificate of Origin to facilitate small scale
cross-border traders; for the goods imported by small
scale cross border traders with a commercial value not
exceeding US$2000.
3/12/2016
www.rra.gov.rw
36
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
B. LOCAL GOVERNMENT REVENUE COLLECTION
The Government of Rwanda has embarked since
2000, on decentralization process as an
instrument of people‘s empowerment, a
platform for sustainable democratization, a
structural arrangement for mobilization for
economic development energies, initiatives
and resources and as a means for
reconciliation, social integration and well being.
3/12/2016
www.rra.gov.rw
37
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
• Certain taxes which were formerly collected
by the Central government have been
transferred to Local Governments. They
include:
a) The property tax
b) The trading license tax
c) The rental income tax
3/12/2016
www.rra.gov.rw
38
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
• Property Tax
• Property tax‖ is a tax levied on immovable
property: parcels of land, buildings and
improvements. Currently, the property tax is
the single most important local tax in
developing countries.
3/12/2016
www.rra.gov.rw
39
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
• Rental Income Tax
Rental Income Tax‖ is a tax for individual
persons, who earn income from rented
immovable properties located in Rwanda.
Currently, this type of tax is a potential source
of revenue for urban authorities where the
demand for accommodation and commercial
activities will always be higher than supply.
3/12/2016
www.rra.gov.rw
40
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
• Trading License Tax
Trading license Tax is a tax paid every year by
the individuals who has decided to undertake
any profit-oriented activity in Rwanda. Legally
registered organizations or companies which
are liable to the corporate tax should also pay
the trading license tax annually.
3/12/2016
www.rra.gov.rw
41
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
• The basic trading license is fixed each year by
the Council of the District or Town where
taxpayers are based .
• Trading licence tax is paid according to type of
business activity and area, but for VAT
registered taxpayers, trading licence will be
paid according to their annual turnover and
the basis will be the turnover realized during
the previous tax year revised by RRA.
3/12/2016
www.rra.gov.rw
42
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
• Fees/charges in the local governments of
Rwanda
User fees/charges are prices charged for specific
services to cover all or part of cost of providing such
services.
The fees are supposed to cover the costs of
Administration and supervision of the public service,
but in Local Government where own revenue
especially from local taxes are limited, fees perform a
revenue-raising function
3/12/2016
www.rra.gov.rw
43
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
• The fees limits are fixed by the District or Kigali City
Council. Such fees should not exceed the real or
estimated limit as specified in the Presidential order
no 02/01 of 31/03/2008 establishing the list of fees
charged by Districts and determining their limits
• Fees limits are set annually because the costs of
providing a service may vary from year to year,
therefore, user fee levels should be reviewed
annually and, if needed, revised to reflect changes in
costs
3/12/2016
www.rra.gov.rw
44
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Performance of the 3 decentralised
taxes
• 1) Trading licenses .These have performed best &
most consistently: 70-80% of businesses are
registered and pay this tax.
• 2) Rental income tax. Has been increasing fast in all
districts (both in terms of registered taxpayers and
absolute sums collected).Report are inconclusive
regarding whether districts or RRA are more effective
in collecting this tax
•It’s difficult to distinguish rental from other income.
3/12/2016
www.rra.gov.rw
45
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Performance Cont’d
3) Property tax
•Remains the most limited: amounts to around
12% of the three decentralised.
3/12/2016
www.rra.gov.rw
46
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Key challenges faced
• Low tax paying culture among taxpayers;
• Large informal sector
• Ignorance of some taxpayers especially SMEs
regarding tax information.
• The structure of the Rwandan economy largely
dominated by subsistence Agriculture
• Businesses are still largely done manually
3/12/2016
www.rra.gov.rw
47
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Indicators on the way forward
• The size of the tax gap. The bottom line with respect
to tax administration in many ways is the size of the
‘tax gap’, the difference between the potential tax
revenue if all taxes were fully enforced and the actual
taxes collected.
• The corruption index. This indicator helps in assessing
the size of the tax gap.
• The size of the hidden economy as a percent of GDP.
This is another helpful indicator
• to assess the size of the tax gap
3/12/2016
www.rra.gov.rw
48
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Mobilize tax revenues: a collective
responsibility
RRA has been working hand in hand with the local
government in mobilizing, sensitizing and enforcing
tax revenues in the following ways:
• TAC meetings: Tax Advisory Council meetings were
introduced in 2002 with the aim of strengthening joint
efforts between RRA, PSF and local government in
sensitizing, mobilizing and increasing tax base as well
as addressing challenges faced at all levels in the
process of collecting tax.
3/12/2016
www.rra.gov.rw
49
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Mobilize tax revenues: a collective responsibility
• Tax Issues Forum (TIF): this forum was established
in 2007 between RRA and PSF with the following
objectives:
Strengthen partnership between RRA and PSF
Jointly identify and address tax issues that are
affect both parties.
Discuss and recommend new approaches for
addressing tax issues such as proposing
amendment of tax laws etc.
3/12/2016
www.rra.gov.rw
50
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Mobilize tax revenues: a collective responsibility
• Mobilizing and sensitizing taxpayers is a joint responsibility
and not a one man’s show. All Rwandans and more importantly,
the policy makers, local leaders and PSF.
 This done, we shall be able to:
 Track those that evade taxes
 Crack down smugglers across Rwandan borders
 Exchange information regarding the taxpayer, because some of
them hide useful information that can lead to high chances of
losing government revenues.
 Increase tax compliance and widen the tax base
 Jointly address challenges affecting taxpayers and collecting
institutions through taxpayer sensitization.
3/12/2016
www.rra.gov.rw
51
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Conclusion
• In conclusion, the corrective responsibility of
tax governance is the central rock of economic
growth and state building at both central and
local levels.
3/12/2016
www.rra.gov.rw
52
Taxes for Growth & Development
RWANDA REVENUE AUTHORITY
Thank you
3/12/2016
www.rra.gov.rw
53
Taxes for Growth & Development