A Critical Analysis of Effectiveness of Tax Offences Control Mechanisms Under Rwandan Law
par Charles KABERA
Kigali Independent University - LLB 2008
If the law is difficult, the procedure for assessment is even more complex. People would therefore like to stay away from the tax net as long as they possibly can through commitment of different tax offences.
High tax rates may persuade some individuals to non compliance. Therefore, it would be counter productive and the people complain that VAT rate of 18 percent is very high and it has induced commitment of tax offences and has diverted trade from official routes to non official routes. However, low rates may not promote payment of taxes but high rates are definitely ill-conducive for tax compliance.
Unfortunately, the limited resources and capacity of tax administration is a reality and often means that Tax offences activities remain unchecked. Limited resources and capacity can take the form of inadequate numbers of staff or inadequate staff with the required skills and knowledge (e.g. audit and investigation skills); poor infrastructure or systems; and lack of support, funding or autonomy from the government.
With the tax administration unable to adequately carry out its role of enforcement and education/assistance effectively and efficiently, this often translates into taxpayer perceptions that there is a low risk of getting caught and/or there are minimal consequences of non-compliant behaviour.
This factor is related to the complexity of the tax laws/system discussed above, but also encompasses the rules and regulations imposed by other government agencies. In this case, the costs associated with formalising a business such as registration costs, permits, yearly costs for accounting and secretarial services may discourage formalisation and provides disincentives for taxpayer to be compliant and resort to commitment of different tax offences. Excessive amounts of regulation can also encourage corruption, as taxpayers try to bribe their way through the red-tape.
The lack of coordination between government agencies also exacerbates this problem. Therefore, a considerable degree of the ease which the informal sector can bloom and grow is attributable to the extent to which business activity regulatory rules are enforced by the relevant authorities and the extent to which these authorities cooperate with the tax administration in dealing with the problem.
Persons committing breaches of tax laws in Rwanda have not been described as criminals. In international tax literature, they have been described as "white collar criminals" and evasions and avoidance acts as "white collar crimes". Since they are not named they are not demotivated to commit tax offences22(*).
Lack of publicity (naming and shaming) of tax offenders is one of the reasons for widespread of tax evasion and other tax offences. Even when the tax offender is caught and punished for committing a tax offence is not publicised. Therefore, this has encouraged tax offenders to evade tax just because they are not exposed to the public.
* 22 Study For the measures of Tax Compliance habit and Leakage Control, October, 2006
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