The Latest Rwanda Revenue Authority’s Annual Report Should Humble You – Open Letter To President Kagame

Dear Mr. President, I listened to your speeches today regarding the productive ability in Rwanda with great interest. For example you said that “it is not acceptable that we import low quality goods when we have the ability to produce high quality products in Rwanda.” You further proclaimed that “we have to ensure that the investments made here benefit the investors, but most importantly it must benefit Rwandans.”

These are wonderful words Mr. President. But what is your role in all of this as Rwanda CEO? Speaking of which, have you read the recently released 2015/2016 Rwanda Revenue Authority (RRA) Annual Report? The report has some harsh lessons for you – it indicates that you are still stuck on the drawing board in building a viable economy after 23 years in power.

President Kagame, the report is timely. It comes as you begin your next 17 year rule, as per constitutional amendment last year. So now that you are in total control, what will you do that you have not done in nearly two decades and half?

That is why I strongly recommend that you read and study carefully the RRA 2015/2016 Annual Report. I dare say the content will humble you. Rwanda’s tax base remains tiny due the persisting inability to expand the number of taxpayers and the size of enterprises.

And when reading the report, Mr. President, do not be misled by the self-praise tone adopted by its authors. It seems that it has become standard practice in your government to give glowing accounts of achievement. Sadly, factual reporting by appealing to evidence is out of fashion in your government.

RRA is no different – in this case the tax agency grants itself 103.9% achievement for having exceeded tax collection targets by Rwf 37 billion or US$44.9 million. Additionally, RRA claims success in increasing tax collection year after year since 2013/2014 (as indicated in RRA graphic above).

A closer scrutiny of the RRA report, however, reveals a far more sobering picture and harsher realities in Rwanda. To begin with, the country’s tax base remains minuscule thus trapping Rwanda into aid-dependence. Let us go into detail here to illustrate this.

In 2015/2016, total collected tax excluding local government taxes and fees reached Rwf 986.7 billion, equivalent to US$1.1 billion. Mr. President, here is the first of your many problems. Your budget for 2015/16, adopted in June 2015 was Rwf 1,768.2 billion, which is equivalent to US$2.1 billion. In other words, your tax collection was half the money you spent.

So where did you get US$1 billion to fill the gap of your budget shortfall? Mr. President, it was foreign donors that came to your aid. As we all know, you have been receiving an average of US$1 billion annually in foreign aid in the past five years. The exception was 2013 when you faced aid cuts and suspensions due to your adventures in the DRC.

So, were you serious when you called upon your compatriots, in December 2016, to set a timeframe for ending Rwanda’s aid-dependence? These were your words at 14th National Umushyikirano Council:

“…among decisions of this dialogue, we should resolve to set a deadline which should come sooner rather than later after which Rwanda will no longer be waiting for what others have handed out to us.”

Was the deadline set? I never heard the end of this.

Now Sir, let us return to RRA report and take a closer look the three main sources of tax in Rwanda: 1) Direct tax was Rwf 392.5 billion equivalent to US$477 million; 2) Tax on goods and services: amounted to Rwf 510.3 Billion equivalent to US$620 million; while 3) International trade taxes totalled Rwf 84 Billion or US$102 million.

Well Sir, surely you would agree that raising a mere US$120 million taxes from international trade is downright pathetic. You should I think reconsider your frequent trips to foreign capitals to court trade because this statistic indicates you are not reaping any benefits.

As for direct taxes, this is a disaster. By direct tax Sir, we mean tax levied on income or profits of every taxpayer, rather than on goods or services. Evidently, direct tax remains minuscule, fetching US$477 million in 2015/2016. This tells us Mr. President that Rwanda’s tax base remains pitiful, which becomes clearer when we consider the number of taxpayers, and how they are classified. Take a look at this reality as illustrated in RRA’s graphic (below):

• 12,498 taxpayers comprising individuals, companies, and government entities employing between 0 and 99 workers, paid taxes totalling Rwf 80.1 billion – equivalent to US$97 million.
• 399 taxpayers including wealthy individuals, companies, and government entities employing 100 or more workers, paid taxes amounting to Rwf 134.7 billion – equivalent to US$164 million.

Mr. President, it is evident from these figures that only 399 large taxpayers are the ones mainly sustaining the Rwandan economy. Besides paying most taxes, these enterprises and public entities employ 201,362 workers. The 12,498 smaller taxpayers employ a mere 101,188 workers, which is half of the employees of the 399 larger private and public entities.

Perhaps the most humbling data from RRA’s 2015/2016 Annual Report, Mr. President, is about your favourite sector – ICT. Corporate income and personal income “payments from the information and communication were Rwf 6.7 billion in 2015/16.” This is equivalent to US$8.5 million.

This is most embarrassing – especially for you who goes around the world claiming that ICT is transforming Rwanda into a knowledge-based economy. Your Excellency, even taxes collected by local government are larger that those from ICT sector – local taxes contributed to the treasury Rwf 41 billion, or US$49 million in 2015/2016.

Mr. President, on a more positive note, I am very pleased to compliment you on being a good corporate citizen. Of course, besides being head of state, you are the chairman of the ruling party, the Rwandan Patriotic Front (RPF), and by extension its conglomerate, Crystal Ventures Ltd (CVL). You have apparently built a business empire – this is how CVL describes itself:

“The company currently has in excess of 12,000 employees spanning over various industries within Rwanda and other markets.”

The RRA report shows that CVL’s two companies, namely, NPD Cotraco SARL, and Real Contractors, paid taxes amounting to Rwf 0.4 billion and ‘Rwf 0.2 billion, respectively. This translates into a combined tax payment of US$729,483 which is great news. I used to suspect that your companies do not pay taxes. As you know CVL discloses little or no financial details about its operations. Look at this mysterious description of CVL ownership on its website for example:

“The founders were among the pioneers of Rwanda’s private sector…Having made a few good investments, the company earned decent returns that were reinvested to create what is now the biggest investment company in the country…”

The CVL “founders” are mostly you, Mr. Kagame, since almost all your former RPF colleagues have been cast aside.

In conclusion, Mr. President, so now that you have power for the next 17 years, what will you do that you have not done in the last 23 years? Please tone down the rhetoric about importing low quality goods when you supposedly “have the ability to produce high quality products in Rwanda.” Who prevents you from producing high quality products – are you not the one in charge of government and policy-making? And are you not the one in charge of the largest investment group in the country – your conglomerate, Crystal Ventures Ltd? Might not your dual roles – referee and player – be the reason why Rwanda has an embarrassingly tiny number of large taxpayers at 399?

Yours Sincerely,

David Himbara