In a bid to further widen the tax base and reach those people who currently slip through the net, Rwanda Revenue Authority (RRA) is set to unveil at the start of the second quarter of the 2013-14 financial year, in September, the M-declaration of taxes by small taxpayers.

'M' stands for Mobile and all small enterprises will be enabled to use their mobile phones to declare income returns and pay their dues via any of the mobile money platforms including MTN-Mobile money, Tigo Cash or Airtel Money.

The development comes at a time when members of the business community complain that dealing with the tax administration is one of their biggest challenges, as shown in a study commissioned by the Private Sector Federation called 'Business Investment Climate Survey,' which was launched three weeks ago, and in which entrepreneurs rank fiscal challenges as the leading obstacle to smooth trading.

According to the survey, entrepreneurs claim that they are subjected to very high tax rates noting that VAT is one of the most problematic to deal with; they also call for more information and sensitization on Rwanda's tax system which they call complicated.

Other business people whose views were captured in the survey lamented about the time spent on tax reporting and clearance, that either the processes require a lot of time or that they are complicated.

One PSF chamber director alleged that "local governments seem to have power to create taxes from anywhere. Some members of my chamber have to pay 3 to 5 different taxes on billboards."

From RRA's perspective, no matter that some of the allegations may sound unfair, it just justifies the need for more efforts in creating more awareness through the taxpayer department.

For instance, while a number of forums have been used to create awareness on the VAT tax and how to manage it, the PSF report says business people want more education on the matter and thus, RRA shall do so.

Concerning complicated tax declaration and payment processes, RRA is currently putting much effort and resources into ensuring that there's more awareness and efficiency with which tax affairs are handled.

For instance, the e-filing and payment facilities that have been put in place to enable taxpayers to declare their returns and pay electronically have all been aimed at cutting on the time and inconvenience of having to visit RRA offices to do so as was the case in the past.

Even at the borders, the same is being done for importers and exporters with facilities such as the Electronic Single Window (ESW) and Authorized Economic Operator (AEO) all enabling traders or their agents to deal with RRA electronically anywhere and at anytime. E-filing and payment for big taxpayers

According to Fred Karara, the Project Manager for e-payment, today all large-taxpayers in the country are paying taxes electronically. Large taxpayers are those with an annual turnover of over Frw 1billion; there are over 330 firms such firms contributing over 70% of all domestic tax revenues.

Over 80% of all medium sized taxpayers have also enrolled for the e-tax payment. Thesy number 1400 in total and they include all VAT registered firms but turning over less than a billion francs. By the end of June, RRA reckons that all medium-sized taxpayers had enrolled for the e-tax service.

While E-filing and Payment has been a success with the large and medium taxpayers, it has not yielded similar results with the small ones. According to Pierre Celestin Bumbakare, RRA's commissioner for domestic taxes, the biggest obstacle hindering small taxpayers from using the e-tax service is lack of tools such as personal computers and internet connection.

Only 5.8% of small taxpayers had adopted to the e-filing and payment of taxes by the end of May.

While the biggest volume of tax revenues comes from large and medium taxpayers, small taxpayers are the majority numbering between 80,000 to 100,000.

Considering that the Rwandan economy is dominated by SMEs, many of them still operating in the informal sector, a solution to helping them formalize their business while contributing to national development had to be sought. Defining a small taxpayer

For RRA, small taxpayers are those business entities with a turnover of less than Frw 50million per year.

However, two specific groups are created to cater for 'flat tax regime beneficiaries' and 'Presumptive tax regime beneficiaries.

A) Flat tax Regime beneficiaries

These are small taxpayers with an estimated income of between Frw 2 million to Frw 12 million per year.

They are divided into four categories each with a flat tax rate:

Annual revenue

Tax payable

Frw 2 to 4 million

Frw 60,000

Frw 4 to 7 million

Frw 120,000

Frw 7 to 10 million

Frw 210,000

Frw 10 to 12 million

Frw 300,000

B) Presumptive (lump sum) tax regime beneficiaries

These are small taxpayers who make between Frw 12 and 50 million per year. Taxpayers under this regime are required by law to pay only 3% of their turn over which was reduced from 4% previously charged in order to be more business friendly to SMEs. M-declaration and how it works

As already noted, small taxpayers are the majority in this country being a young but growing economy.

Many of these are to be found in the informal sector while those in the formal sector have inadequate capacity to adapt to the more complex systems of filling taxes. A good example here is the commercial motorists who will now be required to declare and pay returns via this platform.

"We are investing much in taxpayer education to create awareness and make our people responsible taxpayers."

"A system to cater for this group was paramount," notes Fred Karara, who is also RRA's head of Business Analysis & Operational Policy Implementation Division.

RRA contracted CMC-TATA Ltd to develop the M-declaration system, and after testing was successfully completed, the actual activation is scheduled for September this year.

Easy & simple to use

Register with TIN, & Mobile No to avail the services

Declaration using USSD / Apps / SMS solutions

Declare last year turnover, profit tax calculated for the current year

Payment through Banks / Mobile Money

Acknowledgement of Payment

Payments are collected in every quarter

Check status of previous transactions

After completing tax declaration, taxpayers may chose to use mobile money, over the counter (paying to the bank teller) or internet banking facilities to pay taxes. Anticipated benefits

The expected benefits to businesses operating in Rwanda from this initiative include the following

Increased stakeholder buy-in to and compliance with tax reform resulting from implementation of these systems;

Improvement of the tax payment system by making available to small and micro-enterprises a more accessible payment option;

The requirement to register with RRA in order to access this service is expected to reduce informality for small and micro-enterprises;

Ease of complying with tax requirements and reduced informality are expected to result in higher tax revenues for RRA. Anticipated Challenges

Globally, taxes to taxpayers are regarded as unwelcome costs as all businesses strive to maximize profits. Challenges are therefore to be anticipated especially in changing people's negative attitudes towards meeting their tax obligations as responsible citizens.

PSF Chairman Benjamin Gasamagera concurs, saying that the main challenge on taxation is to create awareness among small entrepreneurs to understand the importance of taxes and consequences of tax avoidance.

For instance, VAT, one of the taxes frowned upon by business people is technically paid by consumers yet many of them find it hard to remit it to RRA.

Taxpayers also need to know the benefits of filing returns in time; for instance if a trader didn't sell anything in a certain period of time, the law requires them to go and file 'zero' returns yet some people ignore this obligation and end up carrying heavy penalties for failure to declare.

"That's why we are investing much in taxpayer education to create awareness and make our people responsible taxpayers," explained Drocella Mukashyaka, RRA's Head of Taxpayer Services.

Indeed, even the 2013/2014 projections underscore the need to invest in more efficient methods of tax administration in the country in order to achieve the projected collections.

"The revenue projections for the 2013/14 fiscal year do not envisage any substantial changes in the tax regime; however they are underpinned by several on-going as well as new measures to be implemented by the Rwanda Revenue Authority (RRA)," said Finance Minister Gatete.

New initiatives to facilitate taxpayers

E-filing and E-payment to ease compliance costs on administration and taxpayers

Electronic Single Window for easy customs clearance of goods

Electronic Cargo Tracking Equipment for cargo protection while in transit

Mobile declaration and paying of taxes

The Gold Card scheme system to facilitate compliant taxpayers