A Critical Analysis of Effectiveness of Tax Offences Control Mechanisms Under Rwandan Law

Dedication

I dedicate this research work to

My children Charlotte and Junior,

My Late wife Ruth,

My Dear mother Therese,

My Late father Ladislas,

My sister and brothers,

All Creative Thinkers and Researchers.

Acknowledgement

The success and accomplishment of this research work stems from efforts and dedication offered by many individuals and institutions whose support was either direct or indirect. I thank all of you for your devotion, generosity and mercy to complement my labours in making my education successful.

Esteemed acknowledgement is attributed to Rwanda Revenue Authority, my employer for allowing me to further and diversify my studies while performing my usual duties.

I acknowledge the Kigali Independent University (ULK) particularly the Faculty of Law for the quality training accorded to me for the past four years. The efforts of both academic and non-academic staff in organisation and implementation of the faculty agenda are much appreciated. I acknowledge the support and guidance that was offered by the Dean of Faculty of Law whenever I approached him. The skills attained will facilitate perfection in my professional career.

Special thanks go to Mr. ABIJURU Emmanuel, the Supervisor of this research work for his wise and kind guidance. His genuine cooperation, encouragement and simplicity enabled me to accomplish my work in a calm and convenient environment. I wish to thank him sincerely for his precious availability. His assistance and his advices have been particularly helpful. His devotion and commitment towards the success of this work will always be valued.

With much regard, I thank late Dad and loving Mother for their endless love. I equally thank my Loving Sister and brothers who were always by my side when things turned the other way round. Thank you indeed for being there when I needed you. You have been special friends to me.

Special consideration is accorded to all my classmates and friends.

Special thanks also go to my colleagues at work for being so friendly and supportive during this period.

Above all, I owe much tribute to the Almighty God who gave me a life worthy living and I thank Him for giving me the strength to accomplish this project.

KABERA Charles

Acronyms

RRA: Rwanda Revenue Authority

PAYE: Pay as You Earn

RIEPA: Rwanda Investment and Export Promotion Agency

MAGERWA: Magasins Généraux Au Rwanda

RFR : Rwanda Francs

TPL : Law on Tax procedure

Commissioner General: Commissioner General of RRA

Customs Law: Law N° 21/2006 Of 28/04/2006 Establishing The Customs System

EAC CMA: East African Community Customs Management Act

Table of Contents

Dedication i

Acknowledgement ii

Acronyms iv

General Introduction 1

i. Background of the study 1

ii. Statement of the problem 3

iii. Research questions 4

iv. Research Hypothesis 4

v. Research Methodology 4

vi. Objectives of the study 5

a. General objective 5

b. Specific objectives 5

vii. Scope of the study 5

viii. Significance of the study 6

c. To the researcher 6

d. To ULK 6

e. To Taxpayers 6

CHAPTER I. Overview on Tax offences 8

I.1. Definition of Tax and Tax Offences 8

I.1.1 Introduction 8

I.1.2 Definition of Tax 8

I.1.3 Elements of Tax 11

I.1.4 Classification 11

I.2. Justification of tax 11

I.2.1 Economic Stability 12

I.2.2 Increase of government revenue 12

I.2.3 High employment level 13

I.2.4 Fair distribution of income 13

I.2.5 Protection policy 13

I.2.6 Optimum allocation of Resources 13

I.2.7 Restriction of consumption of certain commodities 14

I.2.8 Controlling Inflation 14

I.3. Tax offence 14

I.3.1 Definition 14

I.4. Main tax offences under Rwandan tax law 15

I.4.1 Consumption Tax Offences 15

I.4.2 Income Tax offences 16

I.4.3 Value Added Tax violations 17

I.4.4 Customs offences 17

I.5. Causes of tax offences 20

I.5.1 Historical 20

I.5.2 Lack of civic sense 20

I.5.3 Cash economy 20

I.5.4 Complexity of laws 20

I.5.5 Complexity of tax system 21

I.5.6 Tedious procedures 22

I.5.7 High rates of taxes 22

I.5.8 Limited resources and capacity of tax administration 22

I.5.9 Government regulations and prohibitions 22

I.5.10 Tax offenders are not named and published 23

I.5.11 Attitudes and perceptions towards taxation 24

I.5.12 Corruption among some tax officials 24

I.5.13 Low literacy and lack of tax education 26

I.5.14 Poor economic development and poverty 26

I.5.15 Technological developments 26

I.5.16 Unemployment in border areas 27

I.6. Negative impacts of Tax offences 27

I.6.1 Cost of non compliance to tax offenders and the government 27

I.6.2 Honesty loses and offender wins 27

I.6.3 Additional costs to honest tax payers 27

I.6.4 Loss of Government Revenue 27

I.6.5 Distortion of market prices 28

I.6.6 Collapse of local industries 28

I.6.7 Unemployment 28

CHAPTER II. A critical Analysis of Tax Offences Control and Prosecution.... 29

II.1. Rules and Procedures in tax offences control 29

II.1.1 Customs Department 30

II.2. Powers to investigate tax offences 33

II.2.1 Powers to get information from the taxpayer 33

II.2.2 Powers to information from the third party 35

II.3. Contradictory and Assessment without notice 36

II.3.1 Contradictory procedure 36

II.3.2 Assessment procedure without notice procedure 37

II.4. Sanctions in case of tax offences 39

II.4.1 Sanctions based on the law on tax procedure 39

II.4.2 Additional sanctions 44

II.4.3 Administrative Sanctions provided for by Customs law 44

II.4.4 Other sanctions not mentioned in the law 45

II.5. Settlement of disputes 45

II.5.1 Administrative Appeals 46

II.5.2 Judicial Appeals Phase 48

CHAPTER III. Recommendations for improvement 49

III.1. Legislative measures 49

III.1.1 Simplifying and amending the law 49

III.1.2 Strong investigative powers 50

III.1.3 Powers to seize of remove materials 51

III.1.4 Application of adequate penalties 52

III.1.5 Prosecution, Sanctions and Penalties 54

III.1.6 Tax amnesties 58

III.1.7 Access to third party records and the power to issue summonses 60

III.1.8 Indirect Methods of Assessment 60

III.1.9 Introducing invoicing/receipting requirements 60

III.1.10 Introducing record keeping and accounting codes 61

III.1.11 Taxpayer assistance and education 61

III.1.12 Providing information, tools to help taxpayers 62

III.1.13 Informing taxpayers of high risk areas 64

III.1.14 Educating taxpayers to seek invoices from suppliers 65

III.1.15 Publicising prosecution cases and penalties 65

III.2. Providing opportunities for voluntary disclosure 66

III.3. Using informants and tax evasion referral hotline 67

III.3.1 Involving taxpayers in consultative forums 67

III.3.2 Intermediary assistance and education 68

III.3.3 Establishing task force of experts to advise tax RRA 69

III.3.4 Cross border activity 69

III.4. Stamping out corruption and tackling inefficiency 70

Conclusion 76