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

I.4. Causes of tax offences

There are many causes of tax offences to the extent that one can not cite them all. It would, therefore, be difficult to establish the causes which are more significant than others. I will however, cite some of the causes of tax offences as follows.

I.4.1 Historical

Rwanda, like Most of other developing countries was colony of European powers. Their independence was preceded by a struggle for liberation from the foreign rulers. In this struggle, people were politically taught to disobey the laws to fail the foreign government. Not paying taxes was one of such measures. Habits are easy to form but difficult to give up especially when these are beneficial for one's own interest.

I.4.2 Lack of civic sense

In Rwanda, like any other developing world, people lack civic sense. Laws have no sanctity in their eyes. People are all the time thinking about their rights and privileges. Little attention is paid to the obligations. In this frame of mind, parting with money becomes much more difficult.

I.4.3 Cash economy

In an economy like Rwanda, which is predominantly cash based, it is not only easy but also safe to conceal income. In such economies, evasion has a very conducive atmosphere to thrive on. It, therefore, spreads very rapidly.

I.4.4 Complexity of laws

It is well known that tax laws are often complex, confusing, and arbitrary^20(*). To some degree this complexity is probably unavoidable since tax laws deal with commercial transactions and has to cover a very wide variety of transactions. This complexity provides ample justification for the ordinary people to evade it.

At the same time, complexity of the tax law also encourages large companies, high wealth individuals and their advisors to look for ways to minimise their tax. In such a case, the government may react by resorting to the retrospective patching up of loopholes in the law and this can create even more inconsistencies and more advantages for them to take advantage of. This has resulted into taxpayer being with an upper hand to evade taxes, and at times, through the help of some individuals that are expelled from the tax administration organ.

I.4.5 Complexity of tax system

A highly complex tax system also makes the taxpayer compliance burden and costs high, so taxpayers have less (or even no) incentive to comply with the laws. For example, there is a high cost of compliance due to the different kinds of forms to fill and uncoordinated due dates. If taxpayers do not understand how their taxes are calculated and when these should be paid, they will not be comfortable in paying them! This may also prevent the expansion of overseas companies in Rwanda and restrict capital investment.

In addition, in some countries, the penalties for delaying the payment of taxes are so ridiculously low that the taxpayers simply do not bother to send the tax payments at the time they fall due, thus creating tax arrears and administrative problems. For them borrowing from the government becomes the cheapest source of credit^21(*)

* ²⁰ Tax Law Design and Drafting (volume 1; International Monetary Fund: 1996; Victor Thuronyi, ed.)

Chapter 4, Law of Tax Administration and Procedure, p. 96

* ²¹ The Reform of Tax Administration, Vito Tanzi and Anthony Pellechio, IMF, Feb 1995 P. 2