The planned enforcement of the income tax law, which looks to make co-operatives pay profit tax has come under resistance from some quarters.

Those against compelling co-operatives to pay income tax said that it is likely to scare away small savers and borrowers, which will impact negatively on poverty reduction programmes in the country.

Analysts said a good tax law should stimulate economic growth and development, pointing out that retrogressive taxes negatively affect the economy.

“In many places co-operatives are exempted from taxes. Co-operatives are formed to mobilise savings and if you tax them you discourage savings,” said Patronella Namubiru a senior manager at Deloitte, a global tax consultancy firm.

But Tony Nsanganira, State Minister for Agriculture said the government is going to be prudent when applying the income tax law in order not to hurt the growth of co-operatives and stifle their contribution to the economy.

Mr Nsanganira, said the private sector should contribute to the development of the economy by paying taxes as the country moves to become self-reliant.

The government is moving away from donor-support dependency by bringing in several taxpayers into the tax bracket as it seeks to increase domestic resources to fund national expenditure.

However, the revenue body expects to collect Rwf344 billion from income tax this financial year and projects it to grow to Rwf393 billion in the next financial year before settling at Rwf451 billion in 2018. Part of the revenue is expected from co-operatives.

The steady growth in income tax contributions to the national budget is premised on the many businesses that operate in the country but are not paying corporate tax.

The Rwanda Revenue Authority estimated that there are 6,000 co-operatives that are eligible to pay corporate tax.

“We will start the registration exercise by looking at each co-operative’s revenue flow, which will inform the government about which co-operatives should pay tax,” said a junior revenue officer.

Analysts said some co-operatives still need incentives to become competitive and to help drive government policies.

Rwanda has several sector based co-operatives like transporters; livestock; agriculture and federations; and Savings and Credit Cooperatives (Saccos), which are grappling with low asset bases, partly due to their low revenue base occasioned by the small equity they attract from their members.

Despite the low asset base, the co-operatives have impacted positively on the economic development of the country. They have arguably been the main drivers of financial inclusion by roping in millions of the unbanked population partly because of their affordable services.

Data from the central bank shows that the microfinance sector alone in Rwanda is comprised of 493 institutions including 13 limited companies and 480 Saccos of which 416 are Umurenge Saccos serving more than 1.8 million clients.

The government partly targets the inclusion of co-operatives in the tax bracket, as the law has not been enforced fully.

The Rwanda Revenue Authority has also not been meeting its targets mainly because of inefficiency in tax administration and other shortcomings in the economy.

“The co-operatives have become easy targets because they are registered under their umbrella body but most are not registered for taxes,” said Ms Namubiru.

As the government widens its tax base, it has also been conscious about stimulating consumption.

The Rwanda Revenue Authority plans to roll out automation of tax collection by deploying electronic tax filing machines.

“Given how well the implementation of the EBM for VAT has worked, Rwanda Revenue Authority is looking at ways to extend something similar to other taxes,” said Ms Namubiru.