PRESENTATION OUTLINE

1. DEALING WITH LOW INCOME TAXPAYERSPresented to ITD Global ConferenceNew Delhi, December, 2011By: BUMBAKARE Pierre Celestin Commissioner for Domestic Taxes

2. PRESENTATION OUTLINE • Overview on Rwanda geography, population and economy, • Taxpayers’ segmentation, • Management of taxpayers with low income, • Conclusion

3. RWANDA GEOGRAPHY, POPULATION AND ECONOMY

4. RWANDA GEOGRAPHY, POPULATION AND ECONOMY (Cont’d…) • Surface: (sq. Km) 26,338 • Small land locked country located in centre part of Africa sharing borders with UGANDA in North, BURUNDI in the South, TANZANIA in the East and DRC in the West • Population: around 11 Million • Population density/ km²: 407

5. RWANDA GEOGRAPHY, POPULATION AND ECONOMY (Cont’d…) • GDP composition 2010 (sector share in%) the difference of 6% is explained by adjustments • GDP per capita: 540 USD • GDP growth per annum: 7%

6. TAXPAYERS’ SEGMENTATION • Taxpayers are categorized into 3 segments

7. TAXPAYERS’ SEGMENTATION(Cont’d…) REVENUE CONTRIBUTION BY DEPARTMENTS Domestic taxes contributes up to 69% of total tax revenue collections

8. TAXPAYERS’ SEGMENTATION(Cont’d…) • in Rwanda 90% of business operators are SMEs category, • 87% of SMEs employees are primary leavers or no formal education,

9. MANAGEMENT OF TAXPAYERS WITH LOW INCOME (Commonly known as SMEs) SMEs CHARACTERISTICS • Illiteracy, • Low compliance level vis-à-vis their tax obligations, for those registered with the tax authority, • Informal sector not in tax net,

10. SMEs MANAGEMENT (Cont’d...) SMEs CHARACTERISTICS • Failure to register with the tax authority, yet they have required registration threshold (1.2 Million Rwf, equivalent to 2,000 USD in a year) • Limited access to finance, • SMEs form the bigger majority of enterprises, however they form a very narrow tax revenue base. Only 0.5 taxpayers contributes 62% of domestic taxes collections in Rwanda. • Wrong advises from tax practitioners, • Understatement of income

11. SMEs MANAGEMENT (Cont’d...) CHARACTERISTICS • Small number of personnel, • Family business, • Frequent change of address,

12. SMEs MANAGEMENT (Cont’d...) • Challenges to tax taxpayers with lower income: • high administrative and collection cost, • Poor culture of book keeping (81.7% of informal sector operators do not keep any books of accounts), • Ignorance of tax laws, • The mindset factor

13. SMEs MANAGEMENT (Cont’d...) • SMEs filing compliance issues by type of tax: Medium taxpayers

14. SMEs MANAGEMENT (Cont’d...) • SMEs filing compliance issues by type of tax: small taxpayers

15. SMEs MANAGEMENT (Cont’d...) • Methods used to tax SMEs • Real earning regime, • Presumptive tax regime, • Withholding tax,

16. SMEs MANAGEMENT (Cont’d...) Methods used to tax SMEs • Medium taxpayers keep proper books of accounts and prepare their income tax return in real earning regime (single rate:30% for companies and progressive rates:0%, 20% and 30% for individuals), • Small taxpayers have two options: 1° Real earning regime 2° Presumptive regime (tax=4% of turnover)

17. SMEs MANAGEMENT (Cont’d...) • The advantages& challenges of withholding systems • Type of withholding taxes • PAYE (Pay As You Earn) withheld by employers at progressive rates 0%, 20% and 30% on employment income, • 3% of invoice value (VAT exclusive) on public tenders,

18. SMEs MANAGEMENT (Cont’d...) • The advantages& challenges of withholding systems • Type of withholding taxes • 5% of CIF value of goods imported for commercial use, • 15% withheld on interest payment, dividend income royalty and other payments for non registered taxpayers.

19. SMEs MANAGEMENT (Cont’d...) The advantages& challenges of withholding systems The advantages of withholding systems • means to combat tax evasion, • increase compliance level among taxpayers, • reduce administrative and collection cost, • Good source of Government revenue • withholding taxes account for 30% of total tax revenue collections (in 2010)

20. SMEs MANAGEMENT (Cont’d...) • The advantages& challenges of withholding systems Challenges of withholding systems • Affect negatively the cash flow, • Relatively high for business with low profit margin

21. SMEs MANAGEMENT (Cont’d...) • Initiatives to simplify SMEs taxation Objectives: simplifying the tax law, mainly for three reasons: • Lowering both compliance costs and administrative costs, • Improving the level of voluntary compliance • Reducing uncertainty faced by taxpayers,

22. SMEs MANAGEMENT (Cont’d...) • Initiatives to simplify SMEs taxation • Introduce Simplified books of accounts for SMEs • Reducing tax burden for micro and small taxpayers in presumptive regime by reducing tax rate based on profit margin analysis study, • Changing the current presumptive regime, by introducing a fixed amount regime for micro taxpayers

23. SMEs MANAGEMENT (Cont’d...) • Initiatives to simplify SMEs taxation • allowing micro taxpayers to make tax declaration once in a year then proceed with annual and quarterly payment using mobile phone messages, • Simplifying tax return forms, • E-filing and E-payment facilities for large, medium taxpayers and later to be extended to small taxpayers,

24. CONCLUSION • Further simplification of policy and administrative procedures for SMEs, to comply with their tax obligations, • Reducing informal sector as a priority by a comprehensive taxpayers’ sensitization program

25. THANK YOU FOR YOUR KIND ATTENTION