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

III.4. Stamping out corruption and tackling inefficiency90(*)

As long as the revenue departments remained in the public sector, it was felt that the myriad problems of Rwanda's tax system were unlikely to be solved. Tax policy needed to be separated from tax administration, employees required incentives for improving their performance (and penalties for misconduct), and more investment had to be put into equipment and infrastructure.

Integrity is a key requirement for revenue administration and considerable effort is needed to tackle the challenges encountered. These challenges relate to (1) the external environment, (2) staff management, (3) facilities and equipment for staff, (4) business procedures, and (5) internal investigation. What follows are some examples of practical steps that can be taken to combat corruption:

Salaries: Personnel policies have a bearing on the propensity of staff to engage in corrupt behaviour. Obviously salaries are a factor. If staff is paid a wage that they cannot live on, they will, almost certainly, `help themselves' to survive. If the wages within the revenue administration are substantially lower than in comparable positions outside, yet little staff turnover occurs, that should be reason for management concern.

Welfare: Addressing staff welfare is also important in reducing staff's inclination to corrupt practices. One practical step is to recognise that staff may experience periods of financial difficulty, for instance caused by family medical bills. An accessible staff loan facility may help overcome this. Staff welfare is a particular issue in customs, as officers are often required to work either during anti-social hours (shift work), or at remote stations away from their families where offices are often rudimentary with poor living accommodation and harsh conditions.

Codes of conduct: RRA should be adamant to its code of code of conduct. This might include rules about and declarations of outside business activities that present a possible conflict of interests, including those of close family members. Likewise, regular declarations of assets should be emphasised and regularly cross-checked. Gifts and hospitality are a common issue of concern for revenue collectors, as they, by definition, have regular dealings with clients. Practices vary widely between countries and cultures, but the key is to define clearly what is permitted and what is not. A gift register should be introduced to record gifts received by tax officials.

Management: Managers can obviously have a marked influence on corruption. Staff may tend to follow the good or bad examples set by managers. Managers should be encouraged to design and institutionalise checks and balances so that individual lapses are both more difficult to perpetrate and easier to detect. They should also require record-keeping of decisions, particularly in exercising discretion. The deployment of staff needs to be actively managed. Staff should not be permitted to switch shifts, alter days off, or change their work location without the agreement of management. Managers must be alert to staff seeking to be `in the right place at the right time' in order to facilitate illegal acts (e.g. smuggling by arriving friends or relatives).

Work relations: At a practical level, there are many steps that can be taken to `disrupt' corruption, such as the regular rotation of staff from risky locations and posts. In the office, access control systems (e.g. key pads or swipe cards) can be introduced to prevent staff from visiting areas where they do not work. Restricting the access of unofficial visitors is also good practice. It is important to channel interactions between the client and the officer and to have designated contact points for enquiries. Importers and customs clearing agents should

Submit customs entries electronically (Direct Trader Input). Risk assessment methodologies should be used to modify procedures so that staff sees only those documents that they need to review. In customs, such selection methods can be employed either to identify goods for checking or to specify the checks that are to be carried out. It is also effective to have random selections or reselections for quality control purposes.

Payment mechanisms: Payment mechanisms should be transparent and made public. If possible, officers should not be permitted to accept cash tax payment in the field. Ideally, all payments should be made by taxpayers directly to banks or by electronic means. Where cash payments are accepted, they should be made to a dedicated cash office. Where cheques are accepted as payment, they should be marked immediately upon receipt in order to avoid recycling (stating the client's name as well as the tax identification number or customs entry number).

Information: Many internal frauds rely on taking the correct payment from the taxpayer or importer and only banking part of the remittance, typically in collusion with company employees, bank officers, and/or a revenue accountant. To make this harder to perpetrate, secure receipts are required. A further measure is to send electronic confirmations (or periodic account statements) directly to clients to verify the amount of remittance received. IT systems are becoming more prevalent in revenue administration and require careful design to help reduce the opportunities for corruption. Systems must have facilities for retrieving or monitoring records of queries made by individual members of staff. Information held by the administration, whether on paper or electronically, must be safeguarded. Managers should be aware of the possibility that information on business competitors might be sold to taxpayers or misused in other ways. Access to information should be controlled and records kept showing who accessed the information and when.

Service delivery: Opportunities for malpractice are likely to be reduced by publishing procedures, rules, costs, and charges for services, by establishing service charters, and by making help-line facilities and enquiry centres available, as well as by establishing appeal procedures in case of complaints. Simplification of payment procedures and greater efforts on educating those involved in the transactions (taxpayers, importers, agents) are also important.

If clients know what is required, and can do it unaided, they will be less motivated to pay revenue officers for assistance. An accessible and well-publicised channel for handling complaints on revenue administration is also important - this may be an independent adjudicator or ombudsman outside the administration, or a designated office within the administration itself.

Audits: Fertile ground for the payment of bribes is provided when irregularities are discovered by auditors. It is important for managers to deploy teams to undertake specified tasks rather than to allow staff to select their `targets'. For customs, there should be a programme of post-importation audits by staff not involved in entry processing, with audit cases being assigned at random. Further, there must be risk-based management controls over the conduct of the work, including accompanied or follow-up visits, and thorough checking of reports. It may also be necessary to have a programme of follow-up visits by an effective, risk-based, internal audit team supported by external audit controls.

Important anti-corruption measures within the tax administration include updating and modernizing tax administration procedures; restructuring the internal organization based on function (identification, assessment, billing, etc.) rather than by type of tax; limiting the discretionary power of tax officials; reducing number of clearances that are required from taxpayers to complete the compliance process (i.e., the number of forms, certifications, signatures, stamps, etc.), exploring the use of electronic filing and tax liability self-assessment.

Tax officials must therefore be adequately compensated, so that they do not need to steal to live. They should be professionally trained, promoted by merit, and judged by their adherence to the strictest standards of legality and morality. To remove temptation, the money should be kept out of the tax administration and channelled through banks. Officials should have relatively little direct contact with taxpayers and even less discretion in deciding how to treat them. How they behave in such contacts must be monitored in some way^91(*).

* ⁹⁰ www.dfid.gov.uk/casestudies/files/rwanda-tax.asp, 23/09/2008

* ⁹¹ Administrative dimensions of Tax Reform, Richard M. Bird, April 2003