Tax Body, Finance Ministry ‘Overstating’ Tax Collections – Auditor General

The Auditor General has found that the national revenue collector and the Finance Ministry have been including tax refunds meant to be given back to taxpayers, into the total annual revenue collections – giving false impression of increasing revenue.

Taxpayers are entitled to Value Added Tax (VAT) refund when input VAT exceeds output VAT. For this purpose, the Rwanda Revenue Authority (RRA) retains 12% on VAT collections to settle relevant taxpayer claims.

However, instead of giving that money back to taxpayers, RRA includes those refunds in its revenue performance – a show of how much it has collected for government to spend.

The annual audit by Auditor General Obadia Biraro for the period June 2019-June 2010 notes that inclusion of VAT refund claims resulted into overstating the revenue performance reported by RRA.

Last year in November, the tax body released its report for the fiscal year 2019/2020. Contrary to all previous years, it showed revenue collection had been significantly affected due to the COVID-19 pandemic with a revenue collection of Rwf 1,516.3 billion contrary to the target of 1,589.0 billion, representing 95.4% of the achievement.

RRA said it had missed the target by 72.8 billion, there was an increase of 6.6% on the total revenues collections as compared to the previous fiscal year of 2018/2019. 

Now, according to the country’s Auditor General, from 2016 to 2020, taxpayer claims for VAT refund exceeded amount retained by Rwf 80,968,936,988. This amount has been included in revenue performance yet that amount of money is supposed to be refundable to taxpayers.

The AG presented a summarized version of his report to Parliament virtually this week. The Chronicles has obtained the full voluminous report with all the nitty-gritty details of the audit on many different government agencies.

The audit also noted that payments done by the Finance Ministry (MINECOFIN) in form of Treasury Credit Cheques (TCCs) on imported automobiles and other imported goods are not included in revenue targets. While appraising target achieved, over the last five years RRA included TCCs totaling Frw 26,596,075,528 in the revenue performance used as basis to compute performance bonus for RRA staff.

“Inclusion of VAT refund claims and TCCs overstate the revenue performance reported by RRA and the basis of computing performance bonus for RRA staff,” says the AG in his report.

The AG also uncovered a rather bizarre state of affairs; RRA does not record all taxes assessed into taxpayers’ tax accounts in E-tax system. Tax account reports have different information (tax amount due to or from RRA) on taxpayer.

Basically, the reports from E-tax system indicates that there is no single tax account that can provide complete and accurate tax information on a taxpayer. There are four sources of information with different balances on same taxpayer such as tax balance details report, stock of arrears report, tax account summary report and single taxpayer tax account statement.

“This affects accuracy, relevance and [decision-making] process regarding taxpayers’ tax information,” noted the AG.

Taxes assessed by RRA through comprehensive or desk audits of the taxpayers are managed manually outside E-tax system. Consequently, results of audits of five sampled taxpayers amounting to Rwf 12,114,110,526 have not been recorded in respective tax accounts.

In essence, RRA has many serious loopholes that are causing it to lose revenue, mis-state or leave out what should be otherwise included. This is happening at the same time as government is under increasing pressure from international lenders like the World Bank and IMF to dig deeper to increase the tax base (number of taxpapers).

The AG found that tax arrears recoverable from nineteen taxpayers as per garnishment letters differ from records maintained in respective tax accounts in E-tax system.

VAT refund amounting to Rwf 7,542,758,054 made by RRA to taxpayers are not reflected in the respective tax accounts in e-tax system.

Taxes amounting to Frw 1,208,754,729 recovered from auctioned properties were not recorded in taxpayers’ individual accounts to offset the debts owed to RRA.

The AG notes; “This practice exposes RRA to risk of potential loss of tax revenues associated to manipulation of tax accounts resulting in errors and fraudulent cancellation of tax liabilities.”