10 March 2014

Rwanda: Why You Need to Embrace IT to File Tax Returns

In a bid to reduce the cost of doing business and ease tax payment, as well as promote economic development through increased tax compliance, Rwanda Revenue Authority initiated various Information Technology (IT)-led systems to enable all categories of taxpayers file and pay their tax returns in a hustle-free environment.

These state-of-the-art technology systems that are used to file and pay taxes include e-filing and e-payment, where a taxpayer files tax returns using the Internet whether they are in or outside the country.

This facility has proved to be more efficient, especially in filing tax returns electronically from any location using a web interface. It has also reduced errors in the process.

It also improves communication between the tax authority and taxpayers to encourage understanding and compliance. It saves time and gives one unlimited opportunities to file and pay taxes until midnight (on the deadline date).

It should be remembered that one of the major characteristics of a good tax regime is the relative ease with which taxpayers can meet their obligations without any hassle or unnecessary red tape.

With IT, RRA has been able to introduce flat tax regime last year - a simple and user-friendly tax system that is showing tremendous returns by bring up potential taxpayers that were previously operating 'underground' into the tax net.

The flat tax regime covers small enterprises that form the base of Rwanda's private sector, but those businesses whose annual turnover is Rwf2m and below are exempted from paying tax.

Businesses that earn between Rwf2m Rwf4m and between Rwf4 and Rwf7m pay a flat rate of Rwf60,000 and Rwf120,000 per annum, respectively. This means that the tax obligation that small businesses now have depends on the size of the enterprise. Moreover, an entrepreneur is not obliged to pay the annual tax at once. The money can be paid in four monthly installments. All these innovations have given the tax collectors a human face, and have made citizens and businesses understand that paying tax is national duty that benefits all.

Under such arrangements, taxpayers no longer close their businesses and run on suspicion that a tax collector is within their vicinity.

Taxpayers whose businesses are worth Rwf7m-10m pay Rwf210,000 and those that earn between Rwf10- Rwf12m pay Rwf300,000. While small enterprises that range from Rwf12,000,001 to Rwf50m pay a lump sum tax of 3 per cent on annual turnover.

Arguably, this is one of the best innovations that are necessary as the country struggles to expand the private sector and create more jobs, as well as collect more taxes to fund development programmes. The most interesting aspect of the new tax regime is that it strikes a balance between helping enterprises to grow, yet, at the same time enabling the tax body to collect more revenues needed to reduce the country's dependency on the problematic and often less reliable donor funds.

Another good aspect of this arrangement is that micro-taxpayers can file and pay their tax returns using their mobile phones under the new technology dubbed M-declaration. To file returns using this system, a taxpayer types *800# on their mobile phones and sends it, then follow instructions.

And as we approach the deadline of March 31, for declaration and payment of profit tax realised in 2013, all taxpayers should take advantage of the hi-tech systems currently at their disposal to file and pay their taxes electronically and in time to avoid penalties.

The writer works with Rwanda Revenue Authority Communications

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