In a bid to modernize and boost the effectiveness of the tax administration, the government has signed a US$ 4.1 million agreement with Investment Climate Facility for Africa (ICF).

CEO of ICF Omar Issa and RRA commissioner general Mary Baine. (Internet/file photos)

As regards the agreement, he said that the initiative will involve improving communication between the tax body and its clients, training of RRA staff and also look at aspects such as customer care.

According to the agreement, ICF is set to contribute US$ 2.5 million or 69%, while RRA will contribute US$ 1.6 million or 31%.

In the recently released Doing Business Report – which saw Rwanda become the best reformer worldwide – the country made progress in seven out of then indicators in the survey. One of the three indicators where it did not improve, was indeed “paying taxes.” Indeed, Rwanda even slightly regressed from the 58th to the 60th position on this indicator.

Even though this is still much better than the regional average ranking of 112, it is clear that improvements can be made. For instance, it still takes a total of 23 days and three different locations to complete all transactions for paying taxes at RRA. This clearly, is an utter waste of time and money for businesspeople.

With the modernization of the tax administration, this should be drastically reduced. “Transactions should then be done in a single day in one location, and a tax clearance certificate should be issued in not more than three days,” Issa said.

Internet connectivity

The strategy behind the initiative will be to transform business processes which will be supported by technology. For instance, technical activities such as e-Filing and e-Payment are to be included in the modernized tax administration system which will enable internet transactions. “It will be easier to declare goods and pay taxes online, which will save time and reduce the cost of doing business,” Omar Issa explained.

On top of that, the program will also develop a new module on which social security and health contributions to provide a single point of contact for all employers which would enable the tax authority to combine and improve the processes and procedures faced by taxpayers.

One of the main obstacles to be overcome, though, is the low level of internet penetration and the lack of computer skills among many owners of SMEs, especially in rural areas.

Here, the commissioner general of RRA, Mary Baine, pointed out that those issues are beyond her agency’s control, yet she expressed confidence that the Rwanda Development Board / IT, the ICT regulatory body and the telecom companies were moving in the right direction to improve connectivity. She also pointed at the Private Sector Federation efforts to take internet to rural areas through the Business Development Services centers (BDS) across the country as another way of ensuring that the rural areas also get connectivity.

“We have a contract with IT providers to focus on the SMEs by making available simplified software that they can easily use,” Baine said.

However the modernization of the tax administration also requires a legal framework. “We are looking forward to amending our laws so as to accommodate the adjustments we are making in our tax system,” the commissioner general explained.

Facilitating SMEs

Omar Issa also pointed at the need to facilitate SMEs as they are the future of Africa’s development. “If you look at developed countries, you find that SME’s contribute 60 to 70% of their GDP, while in Africa it’s only 10%,” he said.

Finance Minister James Musoni lauded the agreement, saying that it will have a positive impact on business growth through reduction of compliance costs, thus resulting in economic growth.

Musoni was optimistic that the program will also help Rwanda perform well in the 2011 World Bank’s Doing Business report. “We hope that the modernization of our tax administration as well as improving on other doing business aspects will increase our current ranking from 67th to 33rd position,” he said.

The minister also highlighted other areas where the government is negotiating with ICF to help modernize, such as development of a single electronic window, construction permits, cross-border trade as well as modernizing of the public finance management systems (PFMS).

ICF is already supporting Rwanda in the judicial system and the energy and power sector.

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