Rwanda tops the region in issues of tax compliance, the World Bank Doing Business in the East African Community (EAC) report for 2013 indicates.
The report ranked Rwanda 25th out of 185 countries surveyed globally. It is followed by Uganda at position 93, Tanzania was ranked 133rd, Burundi at 137 and Kenya trailed at position 164.
The report noted that Rwanda is the easiest country to pay taxes in the region with just 17 payments annually followed by Burundi, 25, with Uganda businesses having to make 31 payments, Kenya 41 and Tanzania makes it harder for taxpayers with 48 payments.
It also noted that Rwandans pay nine different taxes, but pay VAT and social security contributions quarterly, resulting in fewer annual filings and payments for business compared to its regional peers. Complying with taxes takes only 134 hours a year in Rwanda, while it takes 340 in Kenya.
The report advised governments to, not only choose appropriate tax rates within a broad based, fair and transparent tax system, but also design a tax compliance system which does not discourage taxpayers from participating.
"Effective information exchange is essential to ensure the correct application of tax laws while maintaining sovereignty over the application and enforcement of these laws," the report noted.
According to the report, the average number of tax payments in EAC economies fell from 36 in 2004 to 32 in 2011, while the average total tax rate dropped from 91.7 per cent of profit to 42.2 per cent. Over the same period, the average time for tax compliance increased slightly, showing the need for continued efforts to make compliance easier.
Among EAC economies, Burundi and Rwanda have advanced the furthest toward the frontier in regulatory practice in paying taxes since 2004.
The EAC bloc's tax compliance average ranking is lower than that for the Southern African Development Community (SADC), at 83, and the Common Market for Eastern and Southern Africa (Comesa), at 92.
In both of these regional blocs, which have overlapping memberships, rankings range from 12 for Mauritius to 171 for the Democratic Republic of Congo.
The EAC has a significantly lower average total tax rate at 42.2 per cent of profit, than SADC at 52.2 per cent, Comesa has an average tax rate of 65.1 per cent higher than the overall sub-Saharan Africa which is 57.8 per cent.
According to the report, 16 economies have enhanced electronic filing, eliminating the need for 196 separate tax payments and reducing compliance time by 134 days in total. Seven other economies implemented electronic filing for the first time, raising the number offering this option from 67 in 2010 to 74 in 2011.
Rwanda enacted a new law in 2010, reducing the frequency of VAT filings from monthly to quarterly. The country has also implemented electronic filing and payment for taxpayers.