EFFECT OF 2018 INCOME TAX REFORMS ON THE REVENUE COLLECTION PERFORMANCE AT RWANDA REVENUE AUTHORITY
Abstract
Rwanda Revenue Authority introduced income tax reforms in 2018 mainly to expand the tax base and eliminate the loopholes on the repealed law No 16/2005 of 18/08/2005. The main objective of this study was to establish the effect of 2018 income tax reforms on the revenue collection performance at Rwanda Revenue Authority. A special focus was done on reforms in Corporate Income Tax, Personal Income Tax and Withholding Taxes. To achieve this, the study described the key changes in the 2018 income tax reforms, assessed the determinants of Revenue collection performance at Rwanda Revenue Authority and relating the influence of key changes in the 2018 income tax reform on Revenue collection performance for the post reform period at Rwanda Revenue Authority. Considering various aspects of 2018 income reforms, and using various econometric methods based on ordinary least squares, instrumental variable two-stage least squares, and iteratively reweighted least squares, the study assesses whether reforms are important for increasing revenue. The study adopted descriptive research design and the study population comprised of 90 auditors from Tax audit department at RRA Headquarters. Stratified random sampling technique was used to select the respondents. Data was collected from both primary and secondary data using questionnaires and documentation. Data collected was analyzed using SPSS version 21. Data analysis involved statistical computations for averages, percentages, and correlation and regression analysis. Ordinary least squares (OLS) regression method of analysis was adopted to determine the inferential statistics. The findings showed that there is a strong positive relationship between tax reforms and revenue collection at RRA at a Pearson correlation coefficient r=0.681. Therefore, 2018 income tax reforms greatly affect revenue collection and this call for more effective tax reforms to be put in place in order to improve domestic revenue mobilization. From the regression equation, it was revealed that holding Corporate Income Tax, Personal Income Tax and Withholding Taxes to a constant zero, revenue collection would be at 0.347. A unit increase on Corporate Income Tax would lead to increase in revenue collection performance by a factor of 0.162, a unit increase in Personal Income Tax would lead to increase in revenue collection performance by a factor of 0.194 and unit increase in Withholding Taxes would lead to increase in revenue collection performances by a factor of 0.211. The results showed that 2018 income tax reforms contributed to significantly increased tax revenue performance. The study suggested the following recommendations. RRA should train its employees and taxpayers on the key changes brought by the 2018 income tax reforms especially on the requirements of transfer pricing since most of developing countries are suffering from loss of tax revenue from multinational entities. There should be continuous review and reforms in the Rwandan tax system to reflect the current realities of the modern economy since results of this study have shown that tax reforms have significant effect on revenue performance. More reforms in all types of taxes are needed to increase the amount of tax collected by RRA and to eliminate any loopholes in the existing tax laws that could lead to tax avoidance and loss of tax revenue. To increase Tax to GDP ratio, RRA should look on different ways to broaden the tax base, employees be regularly trained on modern revenue collection procedures and more qualified staff should be recruited. The study finally suggested further studies to be carried out to determine the impact of transfer pricing regulations on Revenue collection performance from MNEs operating in Rwanda.
Keywords: Taxation, Tax Reforms, Revenue Collection performances, Corporate Income Tax, Personal Income Tax and Withholding Taxes
CITATION: Rugarama, Z., Mpakaniye, J. P. (2022). Effect of 2018 income tax reforms on the revenue collection performance at Rwanda Revenue Authority. The Strategic Journal of Business & Change Management, 9 (1), 251 – 264.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i1.2178
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