A Critical Analysis of Effectiveness of Tax Offences Control Mechanisms Under Rwandan Law
par Charles KABERA
Kigali Independent University - LLB 2008
In case of an administrative tax offence, the taxpayer cannot be prosecuted through tribunal because there is no criminal law that has been violated. On the other hand, the tax offence will be liable of administrative sanctions provided by the fiscal law. These sanctions are the pecuniary sanctions and the accessory sanctions.
1. Pecuniary sanctions
The pecuniary sanctions are of three: the stationary fines, the proportional fines and the interests for late payment.
The fixed fines are the amounts that constitute an administrative sanction for a noncompliant taxpayer. According to article 60 of LTP, the administrative offences which lead to fixed amount fines are applied to a taxpayer who fails to:
· file a tax declaration or late tax declaration, withhold tax;
· cooperate with the tax administration;
· provide information requested by the tax administration;
· register with the tax administration, pay on time profit tax advance;
· keep books of accounts and records or to file on time;
· file a withholding declaration on time;
Fines related to violations of above provisions are set as follows:
· one hundred thousand (100,000) Rwanda francs if the taxpayer's annual turnover is equal to or less than twenty million (20,000,000)Rwanda francs;
· three hundred thousand (300,000) Rwanda francs if the taxpayer's annual turnover exceeds twenty million (20,000,000) Rwanda francs;
· five hundred thousand (500,000) Rwanda francs if the taxpayer was informed by the Tax Administration that he or she is in a large taxpayer category42(*).
The fixed amount fines apply only to one tax offence. This means that if the taxpayer commits several offences mentioned above, he will be liable to pay as many fines as the number of committed offences.
Finally, it should be noted that that in case the same violation is committed twice within (5) years, the fine is doubled. In case the same violation is committed again within such five (5) years, the fine is four times the original fine43(*)
The proportional fines are the administrative sanctions that constitute percentages calculated on the tax due. These fines take place in three (3) situations: late payment of the tax, misrepresentation of the due tax and non-payment of VAT.
In case of late payment of tax, the taxpayer is subject to tax increased by ten percent (10%) of the tax payable. The taxpayer is not subject to this fine if the Commissioner General provides the taxpayer with an extension for filing of the declaration. The proportional fine is calculated based on the tax excluding the fines and interests of late payment44(*).
Concerning the understatement of a tax due through understatement of received income, overstatement of deductible expenses or understatement of tax rate, the taxpayer is subject to the following fines45(*)
· ten percent (10%) of the amount of the understatement if the understatement is equal to or more than five percent (5%) but less than twenty percent (20 %) of the tax liability he or she ought to have paid;
· fifty percent (50%) of the amount of the understatement if the understatement is twenty percent (20%) or more but less than fifty percent (50%) of the tax liability he or she ought to have paid;
· one hundred percent (100%) of the amount of the understatement if the understatement is fifty percent (50%) or more of the tax liability he or she ought to have paid.
However, if the taxpayer rectifies his tax declaration before he is notified that he will be audited he is not subject to the above fines.
Finally, concerning VAT violations, the following administrative fines are imposed to persons who do not comply with provisions of law on Value Added Tax46(*):
· in the event of operation without VAT registration where VAT registration is required, fifty percent (50%) of the amount of VAT payable for the entire period of operation without VAT registration;
· in the event of the incorrect issuance of a VAT invoice resulting in a decrease in the amount of VAT payable or in an increase of the VAT input credit or in the event of the failure to issue a VAT invoice, one hundred percent (100%) of the amount of VAT for the invoice or on the transaction;
· for issuing of a VAT invoice by a person who is not registered for VAT is assessed a penalty of one hundred fifty percent (150%) of the VAT which is indicated in that VAT invoice and is due to pay the VAT as indicated on that VAT invoice.
Concerning decentralised taxes violations, where declaration has either not been made, is made late, is fraudulent or incomplete, the taxpayer pays a surcharge equal to 40% of the amount due47(*).
In case of late payment, the taxpayer is required to pay interest on the amount of tax.
The interest rate is fixed at the inter bank offered rate of the National Bank of Rwanda increased by two (2) percent and which is set every year on January 1st. Interest is calculated on a monthly basis, non-compounding, counting from the first day after the tax should have been paid until the day of payment, which is included. Every month started will count for a complete month. The interest is always payable, even when the taxpayer has started an administrative appeal or a judicial appeal against the assessment. However, interest accrues can not exceed one hundred percent (100%) of the amount of tax. This is to avoid the case where the interest payable can be greater than the main of the due tax.
For the decentralized taxes, Taxes not paid in the specified time shall bear such interest for the District or Town as is determined by the District or Town Council. However, this interest cannot exceed 1.25% per each month late payment, and is calculated from the date 'the taxes were due to the date they are paid. A late payment interest is calculated as follows48(*):
· days that are less than one month are considered as a full month;
· the computing base for interest is rounded up to hundred francs;
· the interest is stated in Rwanda Francs;
· late payment interests is calculated from the basic tax plus surcharges and fines due.
The law on tax procedure states that `A taxpayer who commits fraud is subject to a fine of two hundred percent (200%) of the evaded tax. With exception to that penalty, the Tax Administration refers the case to the Prosecution service if the taxpayer voluntarily evaded such tax, like use of false accounts, falsified documents or any other act punishable by law. In case of conviction, the taxpayer can be imprisoned for a period between six (6) months and two (2) years49(*)'.
Further more, the same law states that `In case a person intentionally fails to deliver the tax withheld to the Tax Administration, he or she is subject to a fine of two hundred percent (200%) of the unpaid tax. In addition, the Tax Administration refers the case to the Prosecution service. In case of conviction, the taxpayer can be imprisoned for a period between three (3) months and two (2) years50(*)'.
* 42 The large taxpayers are designated by the tax administration on basis of the different criteria of which the most important criterion is having the annual turnover equal or more than 150.000.000 Rfr.
* 43 Article 60 of LTP.
* 44 Article 61 of LTP
* 45 Article 63 of LTP
* 46 Article 63 of LTP
* 47 Article 28 of law no 17/2002 of 10/05/2002 establishing the source of revenue and its management
* 48 Article 31 of law no 17/2002 of 10/05/2002 establishing the source of revenue and its management
* 49 Article 64 of LTP
* 50 Article 65 of LTP
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