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A Critical Analysis of Effectiveness of Tax Offences Control Mechanisms Under Rwandan Law

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par Charles KABERA
Kigali Independent University - LLB 2008

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This paper has briefly explored the many contemporary issues connected with the infringement of tax legislation in Rwanda. It would be natural to ask whether any definitive resolutions can be predicted in order to construct a more effective and equitable system of addressing tax offences under Rwandan law.

Unfortunately, many other countries are wrestling with similar problems although most have a much longer legislative history in comparison with Rwanda. The common solution is gradual improvement of tax legislation accompanied by elimination of systemic problems. The Tax Law of this country has the potential to become more elaborate but systematic and fair, transparent and predictable in the future. Accordingly, the forthcoming plan of the Rwanda government to substantially modify the Tax Law in pursuit of these goals is welcomed as a long-awaited universal remedy to the current situation. One can only wait and observe what the future holds for this field of law.

In the words quoted by Richard Bird, Wallschutzsky (1989) has suggested that the key elements in such a strategy must be summarised as follows: «Keep the tax laws as simple as possible; aim for a global tax with few exemptions, rebates, or deductions; Do not try to use the tax system to achieve too many social and economic goals; Continually monitor the tax system; Concentrate on basic tasks such as collection of taxes at source and ID number system; Do not collect more information than can be processed; actively encourage good record keeping; and, Aim, as a long term goal, for self assessment.» 92(*)

Therefore in order to improve the level of tax compliance and minimise the level of tax offences, the tax administration should: Provide high quality services to their clients, reducing the cost of compliance through simplification of the laws; Provide a level-playing field to all the taxpayers by securing registration with a safe TIN, enhancing the penalty system, and working to combat stop-filers, late filers, and delinquents; Increase the overall efficiency of the tax system and improve the effectiveness of the tax administration by prioritizing its activities, and concentrating its scarce resources on highly productive tasks- A focus on the large taxpayers is essential because of their critical importance to the revenue base; Bring the small business sector into the tax net effectively. While recognizing that the tax administration has only a limited number of skilled staff to deal with the large number of small business taxpayers operating in the community, it is important that a tax compliance culture be developed within this sector; Undertake effective audits to build a long-term compliance ethos among the taxpayer population;

The Tax system should be managed in an open and accountable way, that it is balancing education and enforcement functions. This reflects a `prevention is better than cure' approach.

RRA should actively communicate areas of risk and concern so that taxpayers understand the Authority's position and the response they can expect.

Whilst there are many things that Tax administration can do to prevent, detect and deal with different kinds of tax offences, it should be acknowledged that the effective combating of such practices needs to be approached at the whole of government level. Those who evade or avoid taxes are probably committing frauds against more than one government department or agency. Hence, the Local authority, the immigration Authority, the Police, Rwanda Bureau of Standards, the central bank, Social Security Fund, the Army, and many others, need work together. These government Agencies should work together to demonstrate to taxpayers how their money is being spent to benefit the population. If taxpayers cannot see any benefits of paying taxes, they will be more inclined to evade or avoid their taxation responsibilities. Similarly, effective control and monitoring of corruption across the board is equally important in encouraging compliant tax behaviour.

The opportunities to achieve success in addressing tax offences are facilitated by an environment which embraces the rule of law, a political commitment to public sector reform, a political commitment to combat corruption, and rational tax policies. Given this environment; adequate resources; an information management system based on a unique TIN; technical assistance by experienced consultants; and a reasonable timeframe, success will be achieved.

A well functioning tax administration, perceived as treating all taxpayers fairly and with respect, and concerned with collecting only the proper amount of tax, will go a long way towards achieving the goal of voluntary compliance which benefits everyone.

While no one enjoys paying taxes, seeing others escaping the tax net while you are attempting to pay your fair share is even less appealing.

The preventive measures should be given priority over punitive measures while tackling fraudulent activities. This should be the principle of legislation and enforcement. Fraud can be curbed by making tax laws less complex and leaving less scope for subjective decision.

Establish separate investigation unit and investigate taxpayers who fall in high revenue risk area. Start criminal proceeding against the offenders. Tax Administration needs to set annual target of investigations in both Customs and domestic taxes. Improvements in tax administration, however, are never final, and reform efforts need to be continuously updated. Otherwise gains in effectiveness can easily be reversed93(*).

The goal of taxpayers is to maximize their financial position; as such they will continue to evade taxes as long as benefits from delinquency outweigh the risk of detection and punishment.

Application of severe penalties is of no help if many tax evaders do not get caught. Therefore Rwanda Tax administration needs to continually review its systems, strategies and skills to keep pace with the problem of tax evasion.


1. Legal texts

1.1 Ministerial Order N001 of 13/01/2003 Providing For Value Added Tax Rules and Taxation Procedure

1.2 Law N 21/2006 Of 28/04/2006 Establishing the Customs System

1.3 Law n° 06/2001 of 20/01/2001 on Value Added Tax.

1.4 Law n° 25/2005 of 04/12/2005 on Tax Procedures

1.5 Law n° 21/2006 of 28/04/2006 Establishing Customs System

1.6 Ministerial order No 002/07 of 09/05/2007 governing the implementation of the law No 25/2005 of 04/12/2005 on tax procedure

2. Textbooks

2.1 Tax Law Design and Drafting (volume 1; International Monetary Fund: 1996; Victor Thuronyi, ed.)

2.2 The Law and Theory of Income Tax; Kirkbride, James & Olowofoyeku, Ambimmbila A., 2001

3. Course notes

4. Internet

* 92 Administrative Dimensions of Tax Reform, Richard Bird, April 2003, P.32

* 93 Designing a Tax reform Strategy: Experience and guidelines, Carlos and Katherine Baer, IMF, March 1997, P.5

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