RWANDAS VAT REFUND CHALENGES AND MECHANISMS TO MITIGATE

RWANDA’S VAT REFUND CHALENGES AND MECHANISMS TO MITIGATE OR WAYS OF SOLVING THEM

CONTENT Background MECHANISMS TO MITIGATE VAT REFUND CHALENGES Other VAT issues pertaining to refund

1. BACKGROUND According to the VAT Law a taxpayer whose VAT input tax exceeds VAT output tax should be refunded within a period of three (3) months, while investors are refunded within 15 days as per investment code; On contrary to the above, before June 2018, some VAT refund claims were not paid on time due to: Ø Resources to audit both VAT refund backlog and current refund claims. Ø Cash flow insufficient amount to refund VAT claims

BACKGROUND (cont. ) Refund status by office by June 2018 NUMBER OF TAXPAYERS AMOUNT LTO 157 12, 083, 399, 976 MEDIUM 417 5, 474, 675, 071 SMALL 3, 853 20, 149, 331, 679 REGIONS 1, 602 6, 382, 392, 284 - 948, 277, 594 6, 029 45, 038, 076, 604 OFFICE PRIVILEGED TOTAL

2. PROPOSED SOLUTIONS a) To request MINECOFIN to increase retention rate. from 10% to 15% to pay the current refund claims; b) To request to Ministry of Finance & Economic Planning to provide fund to clear VAT backlog; c) To draft VAT refund manual management of VAT refund claims. for efficient

3. REFUND MANUAL 3. 1 Categorization of taxpayers 3. 2 Type of refund 3. 3 Approval levels

3. 1 Category : a) Low risk taxpayers (Green) • Exporters; Banks; • special persons (diplomats and embassies); • Taxpayers under “Authorized Economic Operator Regime”; • Taxpayers who will sign agreements with RRA ; • Taxpayers who have been audited and allowed VAT refund with adjustment not exceeding 5% for the last five audits.

3. 1 Category : b) Medium risk taxpayers (yellow) • Insurance companies; special persons ( projects financed by donors); Petroleum sector that deals in taxable products; • Taxpayers in gold card scheme according to the Customs Department annual classification; • Taxpayers who have been audited and allowed VAT refund with adjustment of 5% to 10% for the last five audits;

3. 1 Category : c) High risk taxpayers (red) The sectors with high risks will be identified by Corporate Risk Compliance Improvement Plan at the beginning of the year.

3. 2 Types of refund : a) Carry forward Under the refund manual the threshold for carry forward has been increased as follows: Size SMALL MEDIUM LARGE Current status Proposal Up to 50, 000 frw Up to 100, 000 frw Up to 200, 000 frw Up to 500, 000 frw Up to 2, 000 frw Up to 5, 000 frw Small taxpayers who carry forward total amount above 3 million within a fiscal year will be audited; Medium taxpayers who carry forward total amount above 10 million within a fiscal year will be audited ; Large taxpayers who carry forward total amount above 20 million within a semester of a fiscal year will be audited;

3. 2 Types of refund : b) Immediate refund is applied to the category of : - low risk taxpayers (green category); and - refund claim not exceeding 1. 000 frw from 1 rst January 2017 where EBM validation control were implemented up to the date of approval of this refund manual. Note: • The list of taxpayers concerned by Immediate refund will be presented to DTD risk committee for approval. • Desk audit will be done for taxpayers under automatic refund if necessary.

Types of of refund : : c) c) desk audit & & field audit Types Desk audit is applied to the category of Medium risk taxpayers as defined above. Field audit refund is applied to the category of high risk taxpayers as defined above

3. 3 Approval levels Size of the taxpayer Current status Proposal small taxpayers Up to 500, 000 approved by Head of division Up to 20 million will be approved by Head of division /Regional Coordinator medium taxpayers Up to 1 million approved by Head of division Up to 30 million will be approved by Head of division /Regional Coordinator large taxpayers Up to 2 million approved by Head of division Up to 50 million will be approved by Head of division privileged pers. All refunds approved by DC LTO Up to 50 million will be approved by Head of division

OTHER VAT REFUND ISSUES • Wrong VAT REVERSE CHARGE claimed • Wrong claim of the amount retained by public institutions • Wrong claim of VAT invoices that have been cancelled in EBM; • Inputs claimed when the corresponding output is not paid for previous month • Inputs clamed when the supplier have not declared them ; • Non issuance of EBM invoices or under pricing by some taxpayers. • Inputs claimed in the wrong tax period

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