A Critical Analysis of Effectiveness of Tax Offences Control Mechanisms Under Rwandan Law
par Charles KABERA
Kigali Independent University - LLB 2008
Efforts have been made in fighting importers who use forged invoices, dumping and monitoring international transit malpractices which had developed especially in paper work. Special attention was also given to operations aimed at fighting smugglers of some sensitive products such as liquors and wines, offenders of value added tax and users of forged documents. Also, operations were carried out in markets and trading centres where several smuggled goods were seized32(*).
During the course of the year 2007, 17 investigation cases out of 48 planned were finalised with a total assessment of RFR 1.065 billion and 14 cases were in progress at the end of the year.
RRA encountered various forms of VAT refund and credit fraud, such as false claim on exports, overstated input tax, understated output tax and illegitimate businesses registered for the sole purpose of defrauding the government. On average, 18 percent of VAT refund claims lodged were rejected.
In addition, many seizures of fraudulent cases led to recovery of taxes that would have otherwise been evaded. The total revenue recovered was RFR 256.9 million. Other violations recorded in 2007 were undervaluation, misclassification, and transit violations.
Other efforts to eradicate or minimize customs fraud and tax evasion have been made by RRA. Information exchange with sister Revenue Authorities on imports destined and transiting through Rwanda was enhanced. Information and documents exchanged with other authorities are composed of true costs for the major exports and imports to our country and will enable RRA create a database capacity for disqualifying fake invoices declared at customs. This has been the most practice used by a majority of non compliant importers.
During the year 2007, RRA continued to monitor the application of the tax laws in order to identify any areas of difficulty that may require legislative amendment. In this respect, a document containing areas of possible amendment to the tax laws was prepared. This document has been updated since then and was used as a basis for proposing the amendments to both the Law on Direct Taxes on Income and the Law on Tax Procedures33(*).
The changes proposed in this draft cover the following:
Clearer presentation of the provision on depreciation34(*) on Plant and Equipment, which poses ambiguity as to whether the rate for depreciation of heavy plant and machinery falls under the 5% straight line bracket method or if it falls in the depreciation method of pooling at 25%.
§ The tax treatment of finance leases which is missing in the current tax legislation.
§ Clarity on Thin- capitalisation rules.
§ Review of Tax procedures law on the procedure of estimated assessments.
§ Sanction against non-compliance to VAT invoicing: The requirements for items that should be shown in a VAT invoice are specified in the law on Tax Procedures. However, this provision is not supported by sanctions for non-compliance.
For example in 2006, Customs law of 1968 which was complicated and outdated was abrogated and replaced by law no 21/2006 on customs systems, with a view to simplifying it and making it more taxpayer friendly.
Also in 2007 RRA participated in the policy initiative of the law modifying law no 26/2006 of 27/05/2006 determining and establishing consumption tax on some imported and locally manufactured products. The tax on airtime was dropped from 10% to 3%.
* 32 RRA Annual Report, Kigali, March 2007
* 33 RRA Annual Report for 2007, Kigali, March 2008
* 34 Article 24, paragraph one, of Law No. 16/2005 on the Law on Direct Taxes on Income
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