In accordance with the new law on value-added tax, all VAT-registered businesses in the country will have to adopt a new transaction registration system based on Electronic Billing Machines.
In a first phase of the implementation of the new system, RRA has allocated the EBM system to 500 selected enterprises in the areas of Nyabugogo, Muhima and Kigali city center. These were taxpayers who did not have any form of electronic receipting systems and RRA chose them to help them to adjust to the new regulations.
While most of the recipients have cooperated, a few of them have complained that the system was imposed upon them. That is rather surprising, considering that the law requires that all VAT-registered companies will have to use the system, and that these 500 taxpayers received the system for free, while others will have to acquire it themselves.
"Inasmuch as we collect taxes for our country's development, we do so through proper legal frameworks," says Charles Kabera, RRA's head of Risk Management Division in the Domestic Tax Department who is also the EBM project manager. "While failure to comply with tax laws can result in penalties, at RRA we believe we can avoid this by developing a mutual understanding with our taxpayers."
The new VAT law:
The adoption of EBMs draws its legal mandate from the new VAT law published in the Official Gazette of 05/02/2013 as Law N°37/2012 OF 09/11/2012 establishing Value Added Tax.
The law's article 1 explains its purpose as being to establish the value added tax on supplies of goods and services in Rwanda as well as on imported goods and services from outside Rwanda.
Article 3 mandates RRA to deduct VAT from all taxable goods and services as well as taxable imported goods and services. However, the law requires RRA to compute the amount of VAT charged on taxable goods and services or imported goods and services by applying the rate specified by law to the value of the goods/services being taxed.
In Rwanda, RRA charges a rate of 18% on all taxable goods and services, although some goods or services are zero-rated or exempted from VAT (see sidebar).
According to the law, VATon the taxable goods or services produced within Rwanda is paid to the Commissioner General (RRA) by the taxpayer who supplied goods or services while VAT on imported goods or services is paid by the importer.
RRA maintains an up-dated list of all registered VAT payers in the country complete with their locations.
Challenges faced by RRA in collecting VAT:
While there are over 7000 VAT-registered taxpayers in the country, the business of redeeming taxes from them is not easy.
Robert Mugabe, RRA's Director of Revenue Protection explains that while there are many compliant taxpayers in the country, there are also a good number who don't comply and are always looking for new ways of evading taxes.
This has serious consequences:
Loss of domestic tax revenue by the government.
Increased cost of tax collection which hurts projected revenue earnings.
Unfair competition where those who evade taxes make bigger profits than those who comply.
Habits of tax evasion lead to hostility between RRA and some tax payers, this is not necessary.
Consumer exploitation as their contribution through VAT inclusive prices is retained by dishonest and evasive taxpayers.
To reduce tax evasion and fraud as much as possible, the government examined various possible mechanisms and finally opted for the electronic billing machines, an approach that has succeeded elsewhere such as in Tanzania and Kenya.
Article 24 of the VAT law states that 'Value added tax registered persons are obliged to use a certified electronic billing machine that generates invoices indicating the tax as agreed by the tax administration'.
Responsibilities of the VAT registered taxpayer
As a taxpayer, you can help RRA reduce on its cost of collecting VAT by complying with all tax laws.
Taxes are for national development as they help the government fund provision of public services such as security, education as well as help on reducing donor dependence. As a taxpayer, you can help by being patriotic and honest through meeting all your VAT obligations.
You can buy and install the EBM at all your points of sale (Pos) as required by law.
Once you have bought the EBM machines meeting the RRA requirements, make sure they are working and recording data properly.
Ensure that you issue an electronic generated receipt generated by the EBM complete with all the sales details.
Ensure that all sales transactions are recorded on the EBM machines certified by RRA as required by law.
Responsibilities of the consumer:
Every consumer has a responsibility to make sure the VAT charged on the goods/services they pay for, is delivered to RRA in accordance with the law.
As a consumer, insist on an electronically generated receipt for every purchase. If a vendor refuses to issue you a receipt, return the goods and don't pay.
Report to RRA's toll free numbers anyone who refuses to issue electronic receipts.
Be a responsible citizen by ensuring your tax contribution is well accounted for by getting receipts for all your purchases.
Advantages for all:
If we all encourage the use of EBM machines, RRA will find collecting VAT much easier, and will also reduce its overhead cost and the resulting resources would be used in the nation's development.
To the tax payer, you will have fewer visits from RRA at your businesses which are normally an inconvenience to you. EBMs will enable RRA to look at your books of accounts from a distance.
To the consumer, having legal receipts for all your purchases protects you legally as they are evidence that you own the goods legally. By insisting on a receipt, you will also be helping to safeguard our tax revenues.
Finally to the government, more taxes means more revenues which in turn means better public services, improved efficiency as well as reduced donor dependency, a key factor for national pride.
Zero-rated goods and services:
Article five of the VAT law defines zero-rated goods and services as exported goods bearing stamps recognized by the Commissioner General.
Goods used in aircrafts from Rwanda to abroad.
Goods sold in shops that are exempted from tax as provided for by the law governing customs.
Services rendered to a tourist for which value-added tax has been paid.
Goods and services intended for special persons such as diplomats accredited to Rwanda that are used in their missions; projects funded by partners that have signed agreements with the Government of Rwanda.
Note: The law requires the commissioner General to set out guidelines in implementing these zero rated goods.
VAT exempted goods and services:
These are explained under article six of the VAT law and they include services of supplying clean water and ensuring environment protection for non-profit making purposes; goods and services related to health purposes; educational materials and services provided to students of nursery, primary, secondary and higher institutions of learning.
Also exempted from VAT are educational services provided by social welfare organizations to students and other youths, meant for promoting the social, intellectual and spiritual development and for non-profit making purposes as well as educational materials supplied directly to institutions of learning.
The VAT law also clarifies which bodies or institutions qualify to benefit from this tax holiday.
Books, newspapers, journals and other electronic equipment used as educational materials are also exempted from paying VAT.
Transportation of persons by air, boat, energy supply equipment such as power savers, kerosene intended for domestic use, premium and gasoil are also among the VAT exempted goods and services.
For a proper understanding of goods exempted from VAT and Zero rated goods and services, you are encouraged to read articles five and six of the new VAT law.