Effectiveness of Rwandan Law of Tax Administration in addressing Tax Offences

IV.2.5 Prosecution, Sanctions and Penalties

Since the goal of the tax system is overall tax compliance, the penalties are properly viewed as incentives for compliance or, alternatively, disincentives for non-compliance. The tax system imposes civil (monetary) penalties for non-compliance and criminal (incarceration, fine and other punishments) penalties for non-compliance. On a scale of culpability, the criminal penalties are viewed as the punishment for conduct deemed more offensive to the tax system^35(*).

The government's objective in tax prosecutions is to get the maximum deterrent value from the cases prosecuted. To achieve this objective, the government's tax enforcement activities must reflect uniform enforcement of the tax laws^36(*).

The criminal tax enforcement system must be understood in the context of the role it plays in the overall tax system. The tax system raises revenue for the Government. The Government could not function if it could not raise revenue^37(*).

It is possible, in theory, to prosecute an offender for evasion of any amount of tax or duty. However, there is an obligation of tax administration not to waste Government money on prosecuting cases where the revenue evaded is likely to be less than the cost of prosecuting. It is important to bear this in mind when selecting cases for prosecution.

Another important aspect of improving compliance is the provision of effective sanctions for failure to comply. Typically, sanctions can be of a civil or a criminal nature, and most jurisdictions provide for both, although in some jurisdictions criminal sanctions would be included in a separate criminal code^38(*).

Penalties should be applied to tax offenders in an escalating nature and range from the administrative and criminal penalties, to imprisonment for the most serious of cases based on taxation law.

The effective application of penalties needs to be coupled with firm and timely prosecution of cases. The high cost and lengthy duration of prosecutions minimises the deterring effect of sanctions and leads to negative taxpayer perceptions.

To help achieve more efficient and effective prosecutions, the Tax administration should set up an independent and purpose-built prosecution liaison unit. This unit should be fully equipped with the expertise to successfully investigate cases for prosecution and also execute care in the cases they select for prosecution to ensure sufficient return on investment and positive impact on wider taxpayer perceptions.

To put it broadly, society needs the reassurance that serious tax evasion is viewed with the utmost gravity and that all tax paying citizens are expected to comply with what is a principal obligation of citizenship, the payment of tax due. The prosecution of an accused tax-evader in a criminal court is by no means the only serious sanction which may be imposed, yet it is the most visible and formal way in which society can show its disapproval for such anti-social and illegal conduct. Furthermore, it is likely (although not quantifiable due to lack of data) that an increase in prosecutions will lead to increased tax compliance which in the long run should result in an increase in the amount of revenue collected^39(*).

Unfortunately, some judges do not see tax evasion as a serious crime and perpetrators are often let off with lenient penalties or sentences, which further encourage Tax offences behaviours. Hence, Tax Administration should look to form stronger links to Prosecution Department and include education initiatives aimed at that segment to help them recognise the detrimental effects weak enforcement can have on Tax offences behaviours.

The prosecution of any particular tax crime has the purpose of not only punishing the offender, but more importantly of sending a message to the entire population of taxpayers (or should be taxpayers) to give them the incentive to get right on their taxes^40(*)

`Appropriate sanctions should be consistently applied to taxpayers who falsely claim refunds, or do not comply with record-keeping requirements. Refund-related fraud should be prosecuted through the criminal justice system^41(*)'.

* ³⁵ Federal Tax Crimes, John A. Townsend, Houston Law School, 2007 ed

* ³⁶ Federal Tax Crimes, John A. Townsend, Houston Law School, 2007 ed

* ³⁷ Federal Tax Crimes, John A. Townsend, Houston Law School, 2007 ed.

* ³⁸ Tax Law Design and Drafting (volume 1; International Monetary Fund: 1996; Victor Thuronyi, ed.)

Chapter 4, Law of Tax Administration and Procedure

* ³⁹ The Ireland Law Reform commission, Report on a Fiscal prosecutor and Revenue Court, 2004

* ⁴⁰ Federal Tax Crimes, John A. Townsend, Houston Law School, 2007 ed

* ⁴¹ IMF Report 2007, Next Steps in RRA Modernisation, p. 63.