Rwanda has piloted a promising project that encourages more people to pay income tax. The venture boosted tax revenues in 2016 by $9m, according to a report on the project that was published in December. Rwanda was owed around RF122bn ($168m) in total outstanding taxes at the end of 2014, with the outstanding sums covering many years.
The study and trials were undertaken by the Rwanda Revenue Authority (RRA), the International Centre for Tax and Development (ICTD) and the African Tax Administration Forum, with funding from the British government. Presenting the results of the project, RRA commissioner general Richard Tusabe said: “Encouraging voluntary compliance is at the core of the RRA’s customer oriented approach.”
Various approaches were tried with different cohorts of taxpayers and then the most successful methods implemented in a trial. While tax agencies in the West generally find that warning messages about non-payment of tax are most effective, the trial in question found that Rwandans were most responsive to either gentle reminders or positive messages underlining the role of tax in funding public services.
Text and email messages proved particularly effective, with personalised letters sent to participants in English, French and Kinyarwanda. The study discovered that few taxpayers are currently audited, mainly because of a lack of resources. It also found that a massive 86% of all tax revenue came from taxpayers registered in Kigali, so there is clearly scope for a nationwide tax payment campaign.
The report concluded: “The effectiveness of non-deterrence strategies is good news for low-income countries, where enforcement is severely limited by a lack of financial and human resources. It is also very much in line with the RRA’s vision of a modern tax authority that encourages voluntary compliance and embraces a customer-oriented approach.”
Aside from providing governments with more money with which to operate, a higher tax take encourages taxpayers to hold their governments to account over how they use that money. The Millennium Development Goals included a target for all governments to collect at least 20% of GDP in tax by 2010. The average figure in Sub-Saharan Africa that year was just 15% but at least this was an increase on the 12% average recorded in 1990. In many cases, this was achieved through the introduction of VAT rather than improving rates of income and corporate tax collection.
The available data on tax collection in Africa improved with the publication of Revenue Statistics in Africa in April 2016, which collated the figures from eight countries. It found a tax-to-GDP ratio of just 16.1% in Rwanda, in comparison with an average of 34.4% in OECD countries.
In 2014, Tunisia had the highest tax-to-GDP ratio at 31.3%, while Somalia recorded the worst, at 1.6%. ICTD CEO Mick Moore said: “Governments are constantly experimenting with new measures to improve tax compliance, but often don’t know which ones work. This kind of research can help them answer those questions so they can adopt the most effective strategies.”
The Burundian experience
Burundi has not enjoyed the same level of economic growth and development as its northern neighbour Rwanda over the past 20 years. The unstable security and political situation, partly attached to President Pierre Nkurunziza’s decision to run for a third term in April last year, has affected the economy more recently. However, it has experienced a remarkable transformation in its tax revenue collection over the past five years.
A new tax revenue authority, Office Burundais des Recettes (OBR), was set up in 2009 with a great deal of independence from government. An official from the Irish revenue service, Kieran Holmes, was put in charge in 2010 and a new culture introduced. Tax payments were no longer a matter for negotiation with the OBR, the level of transparency increased and instances of corruption were quickly addressed. VAT was introduced for the first time and corporation tax cut from 35% to 30% to encourage payment.
The OBR collected 578bn Burundian francs in the first eleven months of 2016, the most recent period for which figures are available, up from BIF523bn for the same period in 2015. This is particularly surprising given that the IMF forecasts a 0.5% economic contraction for 2016.