Effectiveness of Rwandan Law of Tax Administration in addressing Tax Offences

III.6. Taxpayer compliance29(*)

Despite improvement in taxpayer compliance especially for large taxpayers, most small and medium taxpayers still face difficulties in complying with their tax obligations. Some taxpayers still have difficulties in keeping books of accounts and as such have impact on certain taxes that require proper invoicing like VAT.

Medium-size enterprises generally keep records, however common compliance issues include understating sales, overstating purchases, falsifying documents (e.g., VAT invoices), and creative accounting (such as keeping of two sets of books). Small and micro business operators generally have low literacy and numerical skills, and have limited understanding of both the tax system and business record keeping. Also some taxpayers fail to file and pay on time.

In addition, RRA encounters many forms of VAT refund and credit fraud, such as fake exports, overstated input tax, understated output tax, and illegitimate businesses registered for the sole purpose of defrauding the government. On average, RRA rejected 18 percent of VAT refund claims lodged, the majority being from medium-size enterprises.

Smuggling of goods from neighbouring countries continues also to surface in districts bordering Uganda and DRC. Other methods of smuggling and tax evasion are also being employed by the business community including forging of documents for imported goods.

* ²⁹ RRA Annual report for 2007