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

III.2. Providing opportunities for voluntary disclosure

In some cases, taxpayers may not pay their tax on time because of severe personal circumstance or have unintentionally provided incorrect information or made an honest mistake on their tax return. In these situations, if the tax administration came down heavily on the taxpayers with punishments and penalties, the taxpayers are likely to `rebel' and lose respect for the tax authority - this is likely to have an impact on future compliance behaviour as well. Therefore, the tax administration should provide taxpayers with the opportunity to voluntarily disclose. For example, RRA Voluntary Disclosures Policy allows taxpayers to come forward and correct inaccurate or incomplete information or disclose material they did not report during previous dealings with the RRA, without penalty or prosecution.

A valid disclosure must meet four conditions. These conditions require that the disclosure be voluntary, complete, involve the application or potential application of a penalty, and generally include information that is more than one year overdue. If the tax administration accepts the disclosure, the taxpayer will have to pay the taxes or charges owing, plus interest. However, the taxpayer should not be subject to penalty or prosecution for those amounts accepted as a valid disclosure^88(*).

III.3. Using informants and tax evasion referral hotline

RRA provides avenues for taxpayers to report incidents of tax evasion (usually anonymously), with a number offering rewards in cases where information provided leads to a legitimate discovery of tax evasion.

Article 4 of the Ministerial order No 002/07 of 09/05/2007 governing the implementation of the law No 25/2005 of 04/12/2005 on tax procedure states that «an amount equivalent to ten percent (10%) of the value of fines and penalties prescribed in Chapter XI of law No 25/2005 of 04/12/2005 on Tax Procedures should be given as an award to any person who denounces a taxpayer who engages in the tax fraud.»

Also Article 143 of the Ministerial decree No 003/07 of 09/05/2007 implementing the law No 21/2006 of 28/04/2006 establishing the Customs System provides that «persons providing information outside their areas of responsibility that contributes to establishing customs offences that leads to subsequent recovery of duties and taxes should be granted a reward equivalent to ten percent (10%) of duties and taxes recovered.»

III.3.1 Involving taxpayers in consultative forums

By consulting with taxpayers, RRA designs processes, systems and legislation that are likely to be better accepted by taxpayers, hence increasing voluntary compliance. RRA should provide opportunity for taxpayers to voice their opinion on any changes and new initiatives. Also RRA should, or regular basis, conduct formal taxpayer surveys to gather taxpayer feedback.

III.3.2 Intermediary assistance and education

The tax administration should acknowledge the important contribution that intermediaries make in assisting the tax authority to combat Tax offences and encourage voluntary compliance. Intermediaries do not only include tax practitioners (i.e. accountants, tax and clearing agents, book-keepers) but also lawyers, auditors, banks, post offices, transporters, industry associations, professional bodies, etc. Intermediaries can be used to:

· Identify new areas of risk (e.g. by reporting suspicious transactions or practices)

· Act as distribution channels for the tax administration (e.g. taxpayers can make payments via banks; tax practitioners can disseminate information on new legislation or new initiatives to their clients)

· Help inform or test new policy/legislation or initiatives to ensure they will resonate with the proposed target audiences - intermediaries are often in a better position to understand the business realities faced by operators

· Identify new ways or options for dealing with emerging issues or better meeting the needs of client groups

· Help promote and encourage compliant behaviour (e.g. tax agents may advise their clients of areas of risk).

Given the importance of intermediaries, it is important that RRA should pursue measures to ease the burden on them, particularly for tax advisors and tax and clearing agents who frequently liaise with the tax office. Many of the customer service initiatives that RRA is currently pursuing for taxpayers, such as the development of electronic services and provision of information, can also be undertaken for intermediaries.

* ⁸⁸ http://www.cra-arc.gc.ca/voluntarydisclosures/index.html, 7/10/2008