Rwanda prefers a wider tax net to raising levies

Wednesday June 26 2019

Wider tax base.

Rwanda intends to increase compliance by enlarging the tax base through tapping into the informal sector. PHOTO | FILE | NATION MEDIA GROUP 

MOSES K. GAHIGI
By MOSES K. GAHIGI
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After passing a Rwf2.877 trillion ($3.16 billion) budget for the 2019/20 fiscal year, 11 per cent more than the current $2.7 billion one — and with more than 60 per cent of it expected to come from domestic revenue — Rwanda did not raise taxes.

Instead, it took to the law to remove loopholes in the system and expand the tax net.

The tax procedure law, which is expected to be passed soon, will deepen the use of digital tools such as electronic invoicing for taxpayers and electronic billing to increase the volume of taxes.

“I don’t expect any extra burden on the poor and low-income earners. The plan is to widen the net such that the burden is spread to many as opposed to overtaxing a few,” said Angello Musinguzi, a senior tax manager at KPMG

The government has also introduced changes to cap penalties arising from audits and investigations to a maximum of 20 per cent on any underdeclaration of taxes exceeding 10 per cent of the declared tax. The penalties were previously progressive, going up to 50 per cent.

The government will also reduce the 60 per cent late filing and 50 per cent late payment penalties, with the proposed penalties being computed based on the default period.

In the new VAT regime, the country intends to increase compliance by enlarging the tax base through tapping into the informal sector.

The government also reviewed the exercise duty law to plug the tax gaps and increase compliance.

According to government statistics, Rwanda’s economy grew 8.4 per cent in the first quarter of 2019, with the services sector contributing 48 per cent; agriculture 28 per cent while industry accounted for 17 per cent of the GDP growth, while the remaining 7 per cent was attributed to adjustment for taxes and subsidies on products.

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