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

General Introduction

i. Background of the study

With the growth and increasing globalisation of businesses (including the increased mobility of capital and rise of e-commerce), the opportunities for taxpayers to commit tax offences are expanding, prompting the need for the tax administration to continually update and broaden the strategies it uses to deal with these offences.

Rwanda has had a tax system since the earliest days of colonial settlement. Today, the government collects over RFR 252.584^1(*) billion in taxes and duties. These taxes fund vital public services, like hospitals, the police, and our schools, to mention but a few. Taxes also have powerful effects on the size and shape of the Rwandan economy. They make an impact directly and indirectly on how, where and when Rwandans save, work and invest. Yet, we realize that every year a lot of revenue escapes national treasury due to tax evasion and related offences. A good tax system needs to be robust and efficient in terms of revenue collection, compliance improvement and control of tax offences.

Indeed over forty percent (40%) of the country's budget is financed by «foreign partners». This tends to put undue pressures on the government when the expected foreign funds are not forthcoming. To minimize the foreign dependency, it is imperative for the government and the Tax Administration to redouble their efforts in domestic tax revenue maximization.

Before 1997, Tax and customs in Rwanda used to be managed by two different and under-staffed departments in the Ministry of Finance. Within these departments, the same people were responsible for both generating tax policy and organizing the collection of taxes. This gave rise to problems such as tax evasion and the special treatment of friends of senior officials and ministers. In addition, unqualified and corrupt revenue officers, and out of date systems, meant that taxes were not being collected efficiently enough.

Rwanda has made a substantial effort to adjust all its laws and regulations to best serve its national interests and to respect international priorities. Since 1997, many new laws have been enacted to meet the contemporary need of public regulation. One of the most cumbersome and problematic issues Rwanda has been consistently working on is the tax legislation of this country.

This research paper addresses the issues connected with the current problems in Rwanda tax legislation, especially in the area of tax offences and the legal responsibility for related unlawful activity. The paper critically analyzes the notion of how tax obligation and tax offence are currently interpreted as well as how the tax authority and other state authorities address any breach of tax law. Further, the paper briefly discusses different types of legal responsibility for tax offences and legal punishment foreseen in various laws of Rwanda.

One difficulty encountered with research analysis is that the relevant provisions concerning responsibility and punishment for tax offences are distributed throughout different legislative acts, i.e. in Criminal Code, Administrative Code as well as in other Financial and Tax laws and bylaws. A second difficulty lies in determining the necessity for rigorous penalties that ensure effective prosecution of committed tax related offences and their adequacy to the type of tax infringements. This paper attempts to ascertain whether it is feasible to reach a compromise between the above-mentioned conflicts of interest.

This paper first of all, attempts to determine what the notions `tax obligation' and `tax offence' entail and what are the most recurrently committed tax offences. Secondly, this paper scrutinizes what Criminal, Administrative and Civil-Financial liabilities are envisaged for the infringement of tax legislation in Rwanda.

Finally, the paper discusses the effectiveness and acceptability of these types of punishments and attempts to offer some recommendations towards their improvement.

* ¹ RRA Annual Report, 2007