Effectiveness of Rwandan Law of Tax Administration in addressing Tax Offences

KIGALI INDEPENDENT UNIVERSITY

(ULK)

FACULTY OF LAW

Effectiveness of Rwandan Law of Tax Administration in addressing Tax Offences

Presented as part of the requirements for the award of the Bachelors Degree in Law

Supervised by: ABIJURU Emmanuel

By: KABERA Charles

ID: 10016/2008

Email: [e-mail]

Tel: [phone]

Kigali, October 2008

TABLE OF CONTENTS

Declaration 6

Dedication 7

Acknowledgement 8

KABERA Charles 8

Acronyms 9

General Introduction 11

i. Background of the study 11

ii. Statement of the problem 11

iii. Research Methodology 12

iv. Objectives of the study 12

a. General objective 12

b. Specific objectives 12

v. Research questions 12

vi. Scope of the study 13

vii. Significance of the study 13

c. To the researcher 13

d. To ULK 13

e. To Taxpayers 13

CHAPTER I. An Overview of taxation 15

I.1. A history of Taxation 15

I.1.1 Ancient Times 15

I.1.2 Medieval Times 15

I.1.3 Historical evolution of taxation in Rwanda 16

I.2. Concept of tax 17

I.3. Justification of Taxation 19

I.4. Principles of Taxation 20

I.4.1 The principle of simplicity 20

I.4.2 The principle of convenience 20

I.4.3 The principle of certainty 20

I.4.4 The principle of Equality 21

I.4.5 The principle of Economy 21

I.4.6 The principle of Elasticity 21

I.4.7 The principle of Diversity 22

I.4.8 The principle of productivity 22

CHAPTER II. A critical Analysis of Tax offences 23

II.1. Tax customs offences 23

II.2. Tax Evasion, Tax Avoidance and Tax Fraud 23

II.2.1 Tax evasion 23

II.2.2 Tax avoidance 23

II.2.3 Distinction between tax evasion and tax avoidance 24

II.2.4 Tax Fraud 24

CHAPTER III. Types of tax evasion and methods used 26

III.1.1 Methods used by Tax offenders 26

III.1.2 General falsification and deception method 26

III.1.3 Accounting falsification method 26

III.1.4 Customs Evasions 27

III.1.5 VAT evasion 27

III.1.6 Excise tax evasion 27

III.2. Indicators of tax offences 27

III.3. Causes of tax offences 28

III.3.1 Limited resources and capacity tax administration 28

III.3.2 Complexity of the tax law and tax system 29

III.3.3 Government regulations and prohibitions 29

III.3.4 High tax and duty rates 30

III.3.5 Lack of publicity of tax offenders 30

III.3.6 Attitudes and perceptions towards taxation 30

III.3.7 Corruption among some tax officials 31

III.3.8 Low literacy and education 33

III.3.9 Poor economic development/poverty 33

III.3.10 Technological developments 33

III.4. Consequences of Tax offences 33

III.4.1 Cost of non compliance to evaders 33

III.4.2 Cost of investigation to authorities 34

III.4.3 Additional Compliance cost to honest tax payers 34

III.4.4 Honesty loses and evader wins 34

III.4.5 Increase in inequity 34

III.5. Type of Taxes mainly exposed to tax offences 34

III.5.1 Taxes on company profits 34

III.5.2 Tax on profits made by self-employed people 34

III.5.3 Professional tax on remuneration 35

III.5.4 Customs duties 35

III.5.5 Value Added Tax (VAT) 35

III.6. Taxpayer compliance 36

CHAPTER IV. Existing problems and appropriate strategy 37

IV.1. RRA dealing with tax fraud and investigation 37

IV.2. Legislative measures 38

IV.2.1 Simplifying and amending the law 38

IV.2.2 Strong investigative powers 40

IV.2.3 Powers to seize of remove materials 40

IV.2.4 Application of adequate penalties 40

IV.2.5 Prosecution, Sanctions and Penalties 41

IV.2.6 Tax amnesties 43

IV.2.7 Access to third party records and the power to issue summonses 44

IV.2.8 Indirect Methods of Assessment 44

IV.3. Application of Administrative sanctions 44

IV.3.1 Introducing invoicing/receipting requirements 45

IV.3.2 Introducing record keeping and accounting codes 46

IV.3.3 Taxpayer assistance and education 46

IV.3.4 Providing information, tools to help taxpayers 47

IV.3.5 Informing taxpayers of high risk areas 48

IV.3.6 Educating taxpayers to seek invoices from suppliers 48

IV.3.7 Publicising prosecution cases and penalties 49

IV.4. Providing opportunities for voluntary disclosure 49

IV.5. Using informants and tax evasion referral hotline 49

IV.5.1 Involving taxpayers in consultative forums 50

IV.5.2 Intermediary assistance and education 50

IV.5.3 Establishing task force of experts to advise tax RRA 51

IV.5.4 Cross border activity 52

IV.6. Stamping out corruption and tackling inefficiency 52

IV.7. Audit activities 55

Conclusion 57

Bibliography 59

Declaration

I, KABERA Charles, hereby declare that, to the best of my knowledge, the research work presented in this dissertation is original. No one has ever presented it at Kigali independent University or elsewhere for any academic award. Where the work of other individuals was consulted, references were made and indicated in the bibliography. I therefore declare that this work is mine and comes to contribute to the partial fulfilment of a bachelor's degree in Law.

Student's Name: KABERA Charles

Date:

Signature:

Supervisor's Name: ABIJURU Emmanuel

Date:

Signature: