The Rwanda Revenue Authority (RRA) will carry out a sensitisation campaign to stop loss of revenue.

Over Rwf2 billion worth of pay-as-you-earn (PAYE) from public institutions did not reach the taxman’s coffers during the last fiscal year, which impacted on total revenue collection and GDP.

Many government agencies are not remitting PAYE and in most cases budget managers cannot account for the funds. The institutions are also not complying with withholding tax, which has led to a shortfall in revenue collections.

With a limited tax base because of a large informal sector, any leakages in the tax system will greatly affect total GDP.

READ: Rwandan, Ugandan tax bodies anticipate revenue shortfall

The RRA therefore trying to seal the loopholes in the tax system.

“When we carried out an audit last year, we found out that PAYE in some government organisations had not been remitted. While some of it was lost through corruption, some remained redundant and was reimbursed back to the Ministry of Finance,” said Ezra Gasangwa, legal advisor to the office of the auditor-general state finances.

Rwanda is ranked among the least corrupt countries with tough penalties for offenders.

Although there are heavy penalties for tax evasion and corruption, the taxman wants to use this as a last resort.

“There is a lack of compliance for PAYE and withholding tax which calls for more effort from government entities to bring all these in the tax net to achieve our revenue targets,” said Richard Tusabe, the commissioner-general of RRA.

A withholding agent who fails to withhold tax is liable to pay to the tax administration as provided for in the law. However, the agent is entitled to recover the money from the payee excluding the associated fines and the interest on arrears.

However, the tax authorities also blame the shortfalls on the generous tax incentives given to mostly foreign investors by the Rwanda Development Board.

The tax body estimates that 16 per cent of total revenue collection is lost through tax incentives extended to investors.

“All these incentives have to be made clear by specifying who is entitled to them since in some cases we seen even third party contractors claiming to have tax waivers, which creates confusion,” said Mr Tusabe.      

RRA has been struggling to meet its quarterly targets mainly because of the slow economic growth occasioned by declining imports and the impact of aid cut in 2012.   

READ: Hard times ahead for Rwanda as taxman misses revenue target again
Total collections for both tax and non-tax in the fiscal year 2013/2014 Rwanda collected $1.11 billion (Rwf769 billion) against a target of $1.14 billion (Rwf793.2 billion).

RRA is trying to close all the gaps in the tax system in order to position the country to become independent of foreign aid.

The government is shifting its attention to domestic financing for its budget. The government plans to reduce donor budget support from the current 40 per cent to 38 per cent in the next financial year.

However, the government may not be able to finance its development projects entirely from within thus it is looking for more external borrowing, which would ultimately increase the country’s external debt.

Rwanda’s economic growth shrunk to 4.6 per cent last year from 6.5 per cent a year before due to the aid cut that the country suffered in 2012 — the lowest in more than five years.