News Column

Effort Needed to Fund Budget

May 26, 2014

Kenneth Agutamba



On May 9, Rwanda Revenue Authority boss Richard Tusabe and his deputies met the press to explain why they had underperformed in the first nine months of this financial year.

The taxmen had projected revenue collections of Rwf581.1billion between July 2013 and March 2014 but managed Rwf554.3 billion. Tusabe's team now hopes to make amends in the last quarter (April-June).

Whether RRA meets this fiscal year's target of Rwf 782.5billion will depend on how the economy performs in April, May and June.

Generally, this fiscal year started off on a low with spillover effects of the previous financial year that saw delays and cuts in disbursement of development aid undercut government spending in key drivers of the economy, resulting in a slower than expected economic growth rate of 4.6 percent.

According to Tusabe, this affected domestic demand, leading to low collections from VAT and income tax.

His explanation is corroborated by the finance ministry which notes in its budget framework paper, published in April, that Rwanda's total consumption slumped while investment stagnated at just one percent.

In 2013, Rwandans made less money so they imported fewer goods, especially cars. This saw the Cost, Insurance and Freight (CIF) value of all imports drop to 12.9 percent from 17.8 percent of the previous year.

Subdued consumption also hurt sales of the largest tax payers with the likes of Bralirwa posting marginal growth which undermined VAT and exercise duty collections.

Can RRA collect Rwf228.2 billion by close of next month when this fiscal year closes? Tusabe believes it's possible.

With Kigali's hosting of the AfDB annual meetings where over 3,500 delegates attended; the hospitality, transport and other service sub-sectors should give RRA the much-needed boost to end the year on a high.

However, without tougher measures, if collecting Rwf 782.5billion has been hard this fiscal year, RRA will have an even harder time mobilising Rwf 906.8 billion in domestic tax revenues part of the $1.7trillion budget for the 2014/2015 financial year that Finance Minister Claver Gatete is expected to unveil in June.

The billion franc question is; will RRA turn up? Yes, it can.

However, for RRA to succeed, all the negative factors that worked against them this year must either be absent or significantly reduced.

With government-donor relations back to normal, public spending should stabilize and private sector actors whose major clients are government departments should also be back in business, banks could approve more credit and this resultant economic activity is expected to be enough to rejuvenate domestic consumption to generate more taxes revenue.

Early signs indicate that Gatete may announce some new taxes or increase others to increase revenue, but this could also be counterproductive as it may undermine consumption.

Recently, a bill was tabled in Parliament in which the government is seeking to increase the telecoms tax rate to 10 percent from the current 8 percent. If that move is blessed by legislators, government hopes to generate an extra Rwf2billion. But this could overburden the small community of large tax payers.

The need to get rid of gaps in the national budget is understandable but it is also important to avoid overburdening those already in the tax net.

As Rwanda takes firm steps towards a domestically-funded national budget, it's important to concentrate on widening the tax base and reduce on what others may regard as pressure on the small community of large tax payers.

Celestin Bumbakare, the former commissioner for domestic taxes, told me in an interview last year that the country has 330 firms listed in the category of large taxpayers.

By definition, large taxpayers are firms with an annual turnover of over Rwf1billion; these, according to Bumbakare, contribute 70% of all Rwanda's domestic tax revenues. They include telecom companies.

The remaining 30 percent comes from medium and small taxpayers.

There's at least 1,400 medium-sized taxpayers who by description include all VAT registered firms but with an annual turnover of less than a billion Francs.

But Rwanda's economy is dominated by businesses under the small tax payers' category numbering up to 80,000. By description, RRA regards small tax payers as those firms/individuals turning over between two million and fifty million Rwanda francs annually.

Many of them still operate informally and RRA is struggling to bring them on board through platforms such as the electronic billing machines, e-filing and payment to improve their compliance.

If RRA improves tax compliance and its own efficiency, it can spend less on field operations and send more to the national treasury because to fund Rwanda's next budget; every penny will count.

The writer is a post-graduate student at the Communication University of China


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Source: AllAfrica


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