Money Markets
How far can Rwanda go in expanding tax bracket?
Mr Paul Kagame: Rwanda president and chairman of the EAC summit. Photo/FILE
“Over 40 per cent of Rwanda’s dealers are in the informal economy,” says Gerald Nkusi Mukubu, director of the Taxpayer Services Department at the Rwanda Revenue Authority. “Every year we have a target for tax collection and it depends on the situation of the country’s economy. If all of those people in the informal sector pay taxes, there is no doubt that we can finance the whole budget of the country.”
Explaining the importance of paying taxes
Gustave Tombola, the Director of Research and Consultancy at Kigali Independent University, recently led a three-year research project into taxing small and medium businesses.
He says if the government is to successfully collect tax from the informal sector it will have many hurdles to overcome.
“The biggest challenge of taxing the informal sector is to locate where its businesses are working from,” he said.
Mr Tombola, who defines the informal sector in Rwanda as any business with no clear accounting records, adds that the second challenge is a lack of knowledge about the tax system by informal sector workers.
Because they do not always understand the system, and cannot afford to hire an accountant, they can end up paying higher taxes than they need to.
The study calls on the Rwanda Revenue Authority to train small and medium enterprises on fiscal laws and visit them to explain the importance of paying taxes.
Sells vegetables
In Nyamirambo market, just a few metres from where Mr Ndahimana hawks his socks, Julienne Mukarugambwa, a 56-year-old mother of six children has a different story to tell.
Mrs Mukarugambwa sells vegetables from a small, one metre square space that she rents for Rwf 3,600 every month.
This fee covers Rwf 2,000 as a tax for the district, while the remainder pays towards cleaning and guarding the market.
With an outlay of around Rwf 15,000 ($26) on vegetables for resale, Mrs Mukarugambwa can make a profit of Rwf 4,000 ($7) in two days.
She says that she is happy to pay tax as it is good for her country. However, more importantly, she says, it means she no longer faces any hassle from the police.
“I am happy today because no one threatens me,” she said. “I would have died from police beatings and efforts to escape arrest if I hadn’t come here,” she says, gesturing to her stall. “I also think that the taxes we pay help to support the country’s many orphans, widows, and AIDS patients.”
RSS