By Nyesiga Dias
Rwanda hotels and real estate companies are reportedly causing excessive losses to government by evading taxes.
The country’s Revenue Authority (RRA) is moving in to clampdown on the two sub sectors with the aim of cutting down on revenue gaps.
“When you get to see the growth of these sectors, it is high but their contribution to tax is too low, it is in this regard we opted to take action,” said Richard Tusabe, Commissioner General of Rwanda Revenue Authority.
Tusabe says RRA collected only Rwf 11.4 billion from the construction sector while hotel industry contributed Rwf 8 billion out of the total Rwf 850 billion tax collections in the last fiscal year.
He said revenues from the two subsectors do not match their increasing growth. The RRA commissioner said along construction process, a lot of business transactions take place but are not declared causing losses in revenues the country collects.
The other challenge in both sectors is the evasion on tax on salary- Pay as You Earn (PAYE) which is an obligation for every person who earns more than Rwf 30,000.
“Employers in both sectors do not bother to declare their employees, be it part time or those on open ended contracts,” said Tusabe.
Making the matter worse is that employees themselves seem to appreciate this non-compliance.
For Laurent Havugimana, a construction engineer from Masoro in Gasabo district, “tax compliance is yet another uphill task.”
“You will include taxes in your quotation and the house owner will refuse it and instead opt for other person,” he said. “It will also be hard to get casual workers who will accept their daily wages to be reduced.”
RRA indicates that paying taxes is yet to become a culture in Rwanda. However, it is alleged that taxpayers do not have that trick to evade taxes by themselves, rather they are being instructed how to do it.
While announcing tax collection performance for the second half of 2015 in February this year, RRA indicated that they are facing a new trend of “experts” in tax evasion.
“There is a new trend of ‘experts’ in tax evasion,” Tusabe said. “Those are some accountants in the country, who seek the honest tax payers and show them a formula on how they can evade taxes.”
Drocella Mukashyaka, Deputy Commissioner General in charge of taxpayers at Rwanda Revenue Authority says that although there are no specific taxes levied on the building at any stage of construction, the law requires that constructors declare taxes that may arise in during the entire construction process.
For example, a constructor is required to keep records and declare taxes on every item that they buy to use during construction, where in an instance of the seller who is a registered taxpayer, the constructor declares the receipts indicating the tax deducted.
While for those who are not registered, the constructor is required to withhold 15 percent of the total price they are paying for the goods as tax.
Also, the constructor is also required to pay as you earn for the permanent staff, they may be employing whereas for the case of casual workers who may not get a monthly payment but earns more than Rwf 30,000, the constructor is required by the tax body to withhold 15 percent at tax, something the tax body says has not been done.
The law also requires a constructor to pay PAYE-Pay as You Earn Tax for workers with permanent contracts and are earning more than Rwf 30,000 a month with the percentage ranging from 15 percent to 30 percent depending on the amount earned, while for casual workers or hired workers who are not paid o a monthly basis, a constructor is required to withhold 15 percent as tax on each worker.
A case in point, a casual worker hired for Rwf 5000 on a daily basis and works for 15 days which is Rwf 75,000 , the constructor will be required to withhold 15 percent equivalent to Rwf 11,250 in taxes.
“So we said lets explain to them when they are starting the site so that they can know that it is their responsible to declare these taxes to Rwanda Revenue Authority,” she told Rwanda Eye in an interview.
Francine Havugimana Uwera, Vice chairperson of chamber of tourism in charge of hospitality says that they expect a dialogue between the operators and the tax body to look at some of the unique challenges the sector is facing especially when it comes to complying to taxes, but she added that the taxes talked about are not new and some hotel owners have been paying them.
“For example, the food we use is from the market and it is not taxed but we are required to pay a tax on each plate that we prepare,” said adding “and we feed our staff, even the plate they consume is also taxed-it is a big challenge we need to discuss with tax Authority to look for a solution.”
With these new initiatives, Rwanda Revenue Authority is hopeful its will hit its target of Rwf 1,084.4 billion both in tax and non-tax revenue collections equivalent to 55.6 percent of the national total budget (Rwf 1,949.4 billion) in this fiscal year, 2016-2017.
“We want to start an education approach to reach out to every construction site and start with them tax collection process,” said Tusabe.
The commissioner says the tax collectors will not wait until construction of buildings to be completed but will intervene at every stage of construction since there are several transactions that take place.
This, he said will prevent scenarios whereby a foreign investor for example start construction and at a certain stage escapes without paying any tax.