Tax and EAC
Under EAC Law, business people will continue to pay VAT, Consumption Tax and Withholding Tax on goods originating from EAC Partner States. East African Community (EAC) Member states have begun implementing the Common Market Protocol. This means that Rwanda, Uganda, Kenya, Tanzania and Burundi have entered into a single market with free movement of factors of production based on the principles of non-discrimination, most favoured nation status and transparency.
These rights include the free movement of goods, persons and labour.
EAC citizens also have rights of establishment and residence as well as the free movement of services and capital.
There has been some misconception among the public that under the Common Market regulations, all goods imported into Rwanda or other member states are exempted from taxes. This is not the case however, as taxes on international trade will remain safe from import duty which remains at 0% on all goods from the community that comply with the rules of origin criteria.
If a trader for example imports iron sheets or soap that are manufactured in Kenya (an EAC member state) and has a valid certificate of origin, the RRA will not collect import duty (a tax levied on goods imported into the country) on such goods as long as it is proved the goods are originating from that region.
In Rwanda, the issuance of certificates of origin has been decentralized to the RRA Gikondo Customs department and all border posts including those at Gatuna (on the Rwanda-Uganda border) and Rusumo (on the Rwanda-Tanzania border). While import duty is abolished for qualifying goods, traders will continue to pay other domestic taxes due on goods including Value Added Tax (VAT) of 18 percent, consumption tax (excise duty) as well as a withholding tax of 5 percent.
However, the withholding tax mentioned above is exempt for those who have a tax clearance certificate (“Quitus Fiscale” – this is a certificate widely used within the French legal system which has now been incorporated into Rwandan law).
Free movement of goods under the Common Market rules
The Common Market Protocol stipulates that “The free movement of goods between the Partner States shall be governed by the Customs Law of the Community as specified in Article 39 of the Protocol on the Establishment of the East African Community Customs Union”.
On 1st July, 2009, Rwanda commenced the implementation of the EAC Customs Union rules and began levying zero percent import duty tariffs on goods originating from the Partner States, applying the Common External Tariff and the East African Customs Management Act and Regulations. This was part of a progressive implementation process. Internal tariff elimination on intra-regional trade was introduced progressively between 1st January 2005 and 31st December 2009.
The removal of VAT, Consumption tax (excise duty) and Withholding tax will be effected upon realization of a fully fledged customs union which is yet to materialize. If such a union were to come about, the following might be envisaged; The shifting of borders between Partner States to the periphery of the EAC;
- The collection of duties and taxes at the point of entry into the Customs Union Territory;
- Agreements on the revenue sharing mechanisms to be adopted;
- Establishment of a regional authority to administer the Customs Union
- The elimination of rules of origin on intra-regional trade. In a fully-fledged Customs Union, goods shipped from Nairobi to Kigali for example will not attract any duties and taxes will be considered in the same way as if the goods were between Huye, Southern Province and Musanze, Northern Province for example.
Harmonization of tax policies and laws
The EAC Common Market Protocol provides that “The Partner States undertake to progressively harmonize their tax policies and laws to remove tax distortions in order to facilitate the free movement of goods, services and capital and to promote investment within the Community”.
Harmonization of domestic taxes is being handled under the EAC Framework by the Fiscal
Affairs Committee (in particular the Technical Committee on tax harmonization) and the Fiscal Affairs Committee has established Technical Working Groups on Value Added Tax, Excise Tax and Income Tax with the aim of developing a harmonized legal framework on tax laws and a roadmap for the harmonization process.
It should also be noted that double taxation agreements and the prevention of fiscal evasion with respect to taxes on income (DTA) was agreed upon by the Partner States and is awaiting legal input from the Attorney Generals before approval by the (The Customs Co-operation Council).
RRA emphasizes that the implementation of the EAC Common Market has not changed the existing fiscal regime and the anticipated changes will progressively be realised as partner states enter into a fully-fledged Customs Union and the harmonisation of tax policies and laws is finalised.
EAST AFRICAN COMMUNITY
The East African Community Customs Management Act, 2004
This Edition of the East African Community Customs Management Act, 2004
incorporates all amendments up to 8th December, 2008 and is printed under the authority of Section 12 of the Acts of the East African Community Act, 2004
The student is encouraged to read this act plus amendments and especial reference should be made to:
Part 1 defines terms and develops the valuation of goods being transferred across borders and is quoted below..
The second schedule sub-sections (ss. 18, 19, and 20) Prohibited and restricted imports generally
Third schedule (ss. 70, 71, and 72) prohibited and restricted exports generally – a table of prohibited and restricted goods is tabled.
Fourth schedule (ss. 37 and 122.) Determination of value of imported goods liable to Ad valorem import duty
Extracts from the Act amended and published in 2008 PART I
In this Schedule—
“customs value of imported goods” means the value of goods for the purposes of levying ad valorem duties of customs on imported goods;
“identical goods” means goods which are same in all respects, including physical characteristics, quality and reputation. Minor differences in appearance shall not preclude goods otherwise conforming to the definition from being regarded as identical;
“similar goods” means goods which, although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. The quality of the goods, their reputation and the existence of a trademark are among the factors to be considered in determining whether goods are similar.
“identical goods” and “similar goods” do not include, as the case may be, goods which incorporate or reflect engineering, development, artwork, design work, and plans and sketches for which no adjustment has been made under subparagraph (1) (b) (iv) or paragraph 9 because such elements were undertaken in the Partner States; “produced” includes grown, manufactured and mined.
- For the purposes of this Schedule—
- goods shall not be regarded as “identical goods” or “similar goods” unless they were produced in the same country as the goods being valued;
- goods produced by different persons shall be taken into account only when there are no identical goods or similar goods, as the case may be, produced by the same person as the goods being valued.
- For the purpose of this Schedule, persons shall be deemed to be related only if:
- they are officers or directors of one another’s businesses;
- they are legally recognised partners in business;
- they have an employer and employee relationship;
- any person directly or indirectly owns, controls or holds five percent or more of the outstanding voting stock or shares of both of them;
- one of them directly or indirectly controls the other;
- both of them are directly or indirectly controlled by a third person; (f) together they directly control a third person; or (g) they are members of the same family.
- A person who associates with another person in business, such that one is the sole agent, distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purposes of this Schedule if they fall within the criteria of sub-paragraph 3.
The customs value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods when sold for export to the Partner State adjusted in accordance with the provisions of Paragraph 9, but where—
- there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which:
- are imposed or required by law or by the public authorities in the Partner State;
- limit the geographical area in which the goods may be resold; or
- do not substantially affect the value of the goods;
- the sale or price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued;
- no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of Paragraph 9; and
- the buyer and seller are not related, or where the buyer and seller are related, that the transaction value is acceptable for customs purposes under the provisions of subparagraph (2).
In determining whether the transaction value is acceptable for the purposes of subparagraph (1), the fact that the buyer and the seller are related within the meaning of Paragraph (1) shall not in itself be a ground for regarding the transaction value as unacceptable. In such case the circumstances surrounding the sale shall be examined and transaction value shall be accepted provided that the relationship did not influence the price. If, in light of information provided by the importer or otherwise, the proper officer has grounds for considering that the relationship influenced the price, he shall communicate his grounds to the importer and such importer shall be given reasonable opportunity to respond and where the importer so requests, the communication of the grounds shall be in writing;
In the sale between related persons, the transaction value shall be accepted and the goods valued in accordance with the provisions of subparagraph (1) whenever the importer demonstrates that such value closely approximates to one of the following accruing at or about the same time.
- the transaction value in sales to unrelated buyers of identical or similar goods for export to the Partner State;
- the customs value of identical or similar goods as determined under the provisions of Paragraph 6;
- the customs value of identical or similar goods as determined under the provisions of Paragraph 7.
Provided that, in applying the provisions under subparagraph (2) (a) and (b) of this Paragraph, due account shall be taken of demonstrated differences in commercial levels, quantity levels, the elements enumerated in paragraph 9 and costs incurred by the seller in sales in which the seller and the buyer are not related that are not incurred by the seller in sales in which the seller and the buyer are related.
The tests set forth in subparagraph (2) (b) are to be used at the initiative of the importer and only for comparison purposes. Substitute values may not be established under the provisions of subparagraph (2) (b).
TRANSACTION VALUE OF IDENTICAL GOODS
Where the customs value of the imported goods cannot be determined under the provisions of paragraph 2, the customs value shall be the transaction value of identical goods sold for export to the Partner State and exported at or about the same time as the goods being valued:
In applying the provisions of this paragraph, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the customs value and where no such sale is found, the transaction value of identical goods sold at the different commercial level or in different quantities, adjusted to take account of differences attributable to commercial level or to quantity, shall be used, provided that such adjustments can be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustment, whether the adjustment leads to an increase or decrease in the value;
- Where the costs and charges referred to in Paragraph 9 (2) are included in the transaction value, an adjustment shall be made to take account of significant differences in such costs and charges between the imported goods and the identical goods in question arising from differences in distances and modes of transport.
- Where in applying the provisions of this paragraph, more than one transaction value of identical goods is found, the lowest such value shall be used to determine the customs value of the imported goods.
TRANSACTION VALUE OF SIMILAR GOODS
Where the customs value of the imported goods cannot be determined under the provisions of Paragraph 2 and 3, the customs value shall be the transaction value of similar goods sold for export to the Partner State and exported at or about the same time as the goods being valued;
In applying this Paragraph, the transaction value of similar goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the customs value. Where no such sale is found, the transaction value of similar goods sold at a different commercial level and/or in different quantities, adjusted to take account of differences attributable to commercial level and/or to quantity, shall be used, provided that such adjustments can be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustment, whether the adjustment leads to an increase or a decrease in the value.
- Where the costs and charges referred to in subparagraph (2) of Paragraph 9 are included in the transaction value, an adjustment shall be made to take account of significant differences in such costs and charges between the imported goods and the similar goods in question arising from differences in distances and modes of transport.
- Where, in applying the provisions of this paragraph, more than one transaction value of similar goods is found, the lowest such value shall be used to determine the customs value of the imported goods.
REVERSAL OF ORDER OF APPLICATION OF DEDUCTIVE VALUE AND
Where the customs value of the imported goods cannot be determined under the provisions of paragraphs 2, 3 and 4, the customs value shall be determined under the provisions of paragraph 6 or, when the customs value cannot be determined under that paragraph, under the provisions of paragraph 7 save that, at the request of the importer, the order of application of paragraphs 6 and 7 shall be reversed.
Where the imported goods or identical or similar imported goods are sold in the Partner State in the condition as imported, the customs value of the imported goods under the provisions of this paragraph shall be based on the unit price at which the imported goods or identical or similar imported goods are so sold in the greatest aggregate quantity, at or about the time of the importation of the goods being valued, to persons who are not related to the persons from whom they buy such goods, subject to deductions for the following:
- either the commissions usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with the sales in such country of imported goods of the same class or kind;
- the usual costs of transport and insurance and associated costs incurred within the Partner State;
- where appropriate, the costs and charges referred to in Paragraph 9 (2); and
- the customs duties and other national taxes payable in the Partner State by reason of importation or sale of the goods.
Where neither the imported goods nor identical nor similar imported goods are sold
at or about the time of importation of the goods being valued, the customs value shall, subject to the provisions of subparagraph (1) (a), be based on the unit price at which the imported goods or identical or similar imported goods are sold in the Partner State in the condition as imported at the earliest date after the importation of the goods being valued but before the expiration of 90 days after such importation.
(Where neither the imported goods nor identical nor similar imported are sold in the Partner State in the condition as imported, then, if the importer so requests, the customs value shall be based on the unit price at which the imported goods, after further processing, are sold in the greatest aggregate quantity to persons in the Partner State who are not related to the persons from whom they buy such goods, due allowance being made for the value added by such processing and the deductions provided for in subparagraph
(1) The customs value of imported goods under the provisions of this Paragraph shall be based on a computed value which shall consist of the sum of:
- the cost or value of materials and fabrication or other processing employed in producing the imported goods;
- an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by
producers in the country of exportation for export to the Partner State;
- the cost or value of all other expenses necessary to reflect the costs added under Paragraph 9 (2).
( A person who is not resident in the Partner State may be required to, or compelled to produce for examination, or to allow access to, any account or other record for the purposes of determining a computed value. However, information supplied by the producer of the goods for the purposes of determining the customs value under the provisions of this Paragraph may be verified in another country by a proper officer with the agreement of the producer and provided sufficient advance notice is given to the government of the country in question and the latter does not object to the investigation.
FALL BACK VALUE
(1) Where the customs value of the imported goods cannot be determined under the provisions of Paragraphs 2, 3, 4, 5, 6 and 7, inclusive, the customs value shall be determined using reasonable means consistent with the principles and general provisions of this Schedule and on the basis of data available in the Partner State.
- Customs value shall not be determined under the provisions of this paragraph on the basis of:
- the selling price in the Partner State of goods produced in the Partner State;
- a system which provides for the acceptance for customs purposes of the higher of two alternative values;
- the price of goods on the domestic market of the country of exportation;
- the cost of production other than computed values which have been deter- mined for identical or similar goods in accordance with the provisions of Paragraph 7;
- the price of the goods for export to a country other than the Partner State; (f) minimum customs values; or
arbitrary or fictitious values.
- Where the importer so requests, he or she shall be informed in writing of the customs value determined under the provisions of this paragraph and the method used to determine such value.
ADJUSTMENTS TO VALUE
- (1) In determining the customs value under the provisions of Paragraph 2, there shall be added to the price actually paid or payable for the imported goods as follows:
- to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods:
- the commissions and brokerage, except buying commissions;
- the cost of containers which are treated as being one for customs purposes with the goods in question;
- the cost of packing whether for labour or materials;
- the value, apportioned as appropriate, of the goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable as follows:
- materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the imported goods;
- materials consumed in the production of the imported goods;
- engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the Partner State and necessary for the production of the imported goods;
- royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable;
- the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller.
- In determining the value for duty purposes of any imported goods, there shall be added to the price actually paid or payable for the goods:-
- the cost of transport of the imported goods to the port or place of importation into the Partner State; provided that in case of imports by air no freight costs shall be added to the price paid or payable;
- loading, unloading and handling charges associated with the transport of the imported goods to the port or place of importation into the Partner State; and (c) the cost of insurance.
- Additions to the price actually paid or payable shall be made under this paragraph only on the basis of objective and quantifiable data.
- Additions shall not be made to the price actually paid or payable in determining the customs value except as provided in this paragraph.
RRA Business Plan 2011-2012
The current RRA medium-term strategy covers the period from July 2010 to June 2013. Major activities to be performed by the authority remain aligned to the three year period strategy. RRA s strategic directions for the said period are as follows:
- Maximisation of revenue mobilisation;
- Service delivery;
- Encourage voluntary compliance and broaden tax base;
- Further strengthen the capacity of the organisation.
This however, means that every year, a business plan must be prepared, that is in line with this medium term strategy.
The 2011/2012 RRA business plan sets out the major activities and strategies to achieve those activities and indicators upon which success will be measured. This plan is embedded in the 2010/2013 RRA’s Medium Term Strategy framework.
Part one of the 2011/2012 business plan reflects RRA’s major Corporate Statements that include: the overall mission, vision, core values and SWOT analysis. Part two of the plan deals with the priorities as well as key indicators by which performance against objectives and planned activities during the year 2011/2012 will be monitored.
RRA s corporate statements remain unchanged for the 2011/2012 business plan; priorities are aligned to the following RRA s vision, mission and core values: Mission is:
“Mobilise revenue for national development through efficient and equitable services that promote business growth.”
RRA s Vision is:
To become a world-class efficient and modern revenue agency, fully financing national needs.
- Customer focus;
- Professional Service delivery; Teamwork.
RRA SWOT ANALYSIS
- Strong commitment of RRA staff;
- Improved planning processes;
- Taxpayers education strategy;
- Computerization of core business functions and availability of good IT
- infrastructure leading to efficient service delivery and enhanced revenue collection;
- Operational block management system in every district of Kigali City;
- Collection of National Social Security Fund contributions with associated benefits for PAYE compliance;
- Licensing of tax advisors that streamlines tax profession and increases taxpayer s compliance;
- Effective implementation of EAC Customs Union Management Act and Common Market Protocols;
- Enhanced trade facilitation in domestic and cross border operations;
- Existence of sophisticated equipment to detect and prevent smuggling;
- ISO 9001 2008 certified;
- Existence of a fully fledged in house training institute;
- Flexible management of financial resources; Decentralized services.
- Slowness to adopt change management;
- Some cases of poor customer care and service delivery;
- Inadequate skills in ICT among staff and limited integration of IT systems;
- Limited skills in some technical areas (e.g. risk management, transfer pricing, mining taxation, e-commerce and cross border transactions);
- Lack of proper management of tax expenditures;
- Staff shortage as a result of more responsibilities to RRA and continued staff turnover due to comparatively better remuneration by the private sector;
- Low response levels and ineffective communication;
- Weak audit function and refund processes;
- Delays in revenue data reconciliation exercise;
- Low quality data from the point of data capture up to dissemination point;
- Poor document and data management;
- Corruption practices amongst some RRA officers;
- Lack of a sound welfare scheme;
- Lack of an effective monitoring and evaluation mechanism for monitoring corporate priorities and projects;
- Poor reading and research culture among RRA staff;
- Slow payment process of suppliers;
- Failure to implement procurement plan well; Poor working environment for some RRA offices.
- Strong government support;
- Strong partnership with both internal and external stakeholders;
- Stable political and economic environment;
- Certification of taxpayers financial statements;
- Existing forum and good relations with the private sector;
- Planned new initiatives to facilitate trade and improve service delivery e.g. etax, electronic cargo tracking equipment, construction of more One-Stop- Border posts;
- Introduction of electronic tax registry to manage VAT;
- Regional and international cooperation agreements (EARAs, HMRC, and SARS);
- Membership to African Tax Administration Forum (ATAF); All-inclusive national ICT strategy
- Low level of record-keeping and accounting skills within business community;
- Illiteracy of majority of small taxpayers negatively impacts on the accuracy of tax returns filed;
- Tax base erosion due to increasing tax-incentives and exemptions demands;
- Informal sector growth;
- Smuggling and tax evasion on the increase;
- Tax planning activities by some taxpayers to avoid payment of taxes;
- Continued low level of compliance by taxpayers to pay tax arrears;
- Globalization challenges petroleum prices, food prices, e-commerce & trade facilitation demands.
- Low commitment of some stakeholders towards the implementation of shared projects leading to failure of these projects kicking off;
- Failure by some suppliers to honour the provision of services causing unnecessary delays in projects implementation;
- Loopholes existing in taxation laws;
- IT security threats;
- Network failures that negatively affect service delivery and work productivity;
PRIORITIES FOR 2011/2012
Having examined the environment in which we work and our organisational capabilities, we have set the following priorities with the corresponding activities to orient the organisation towards realising the strategic objectives over the period of this plan.
5.1 Maximization of revenue mobilisation
- Achieve revenue targets Rwf 515.5 billion.
- Furnish operational functions with appropriate resources to handle tasks before them.
- Identify measures to cover loopholes in the process of granting incentives.
- Analyse different options to improve efficiency of major tax heads (PAYE, VAT). Prepare a proposal to retake some decentralised taxes.
5.2 Service delivery
- Establish more revenue collection and service centres.
- Upgrade the CSR system to streamline its administration.
- Implement electronic services to improve delivery.
- Commence construction of One Stop Border Posts.
- Initiate pre-arrival request for exemptions.
- Implement Authorised Economic Operator Program.
- Implement Regional Customs Transit Bond Guarantee Scheme.
- Conduct EAC regional time release study.
- Extend simplified trade regime at borders with Burundi, Tanzania and DRC.
- Carry out a feasibility study to increase border posts threshold.
- Test and implement RADDEX interconnectivity with TRA and OBR.
- Conduct focused taxpayers training programs by sector of activities and by category of taxpayers.
5.3 Encourage voluntary compliance and broaden the tax base
- Develop a simplified tax declaration and accounting system for SMEs, translated in Kinyarwanda language.
- Draft a new tax regime for the identified SME category.
- Identify loopholes existing in tax laws and administrative procedures and recommend amendments.
- Introduce electronic transaction devices (ETD) to improve VAT productivity.
- Integrate CSR software with the tax system and harmonise PAYE and CSR declaration forms.
- Acquire and implement electronic cargo tracking system.
- Establish and implement a name and shame mechanism for non-compliant taxpayers.
- Enhance SIGTAS to deliver a single view taxpayer account.
- Waive off/suspend old and enforce recoverable tax arrears.
- Participate in a study aimed at widening the tax base. Connect RRA system to national ID registry office.
5.4 Further strengthen the capacity of the organization
- Carry out a study on current RRA performance and propose reform initiatives to improve efficiency.
- Train staff in areas that will impact revenue mobilization, customer service and management functions.
- Streamline customs process and procedures as well as customs work environment for the acquisition of CSD ISO certification.
- Organise benchmarking and attachment programs for staff in revenue collection operations in best performing revenue administrations.
- Conduct a study on establishing electronic filing and archive management system.
- Carry out a study for the expansion of RRA Training Institute.
- Replace RRA servers and install new ones to ensure business continuity.
- Enhance RRA networking system.
- Upgrade SAGE to include document management modules.
- Acquire and use new HR management software.
- Connect RRA to RITA Government network. Prepare RRA s data by sector of activity.
CASCADING KEY OBJECTIVES PROCESS
The above key activities set out what the organisation will do to achieve the set strategic objectives and how these will be measured. In order to ensure that we remain on course and ensure that RRA staff perform activities aligned to the corporate goals, a cascading process that involves further breaking down of the corporate level activities was done at the departmental level.
Each department has developed a detailed business plan indicating schedule of activities and timeline guided by the corporate level priorities as reflected in this plan.
Each activity to be performed shows the responsible department as well as the timeline. This will help in ensuring effective implementation of this business plan and making reviews to avoid any possible slippages. This will keep the entire organisation focused towards achieving the vision.
 East African Revenue Authorities
 Her Majesties Revenue and Customs of UK
 South African Revenue Service