1. 11/27/2018

2. VADA Workshop, Kigali, 16-19th May 2018
Effective implementation of EFDs and their impact on VAT administration
VADA Workshop, Kigali, 16-19th May 2018
By: Emmy MBERA
Head of EBM System, RRA
11/27/2018

3. Presentation outline EBM background and context
EBM System (IT, Legal and implementing Structure)
EBM implementation approach (Pilot phase, expansion & EBM2)
EBM and VAT administration (registration, filling, payment, accurate reporting, audit and refund)
Some figures (VAT and Income Tax)
Challenges faced
Strategies
11/27/2018

4. 1. Background & context
Paper-based invoicing (manual) weakness and limits:
Vulnerability aspect of the paper-based invoicing system (due to human and non-human action)
Forgery of invoices resulting into unreported sales and/or undue VAT refund claims
Parallel sales invoice books (especial large, medium or small family owned businesses)
Cost and time taken during tax audits
Inefficiency of tax administration
Difficult to determine the magnitude of evasion and fraud
11/27/2018

5. Background & context cont’d
Lack of transparency in business transactions and in the course of tax audits
Difficult of tax arears recovery
Lack of sales and stock information sharing between taxpayers and tax administrative
Limits of conventional and compliance tools such as comprehensive audits and penalty scheme
Lack of statistical-based decisions
11/27/2018

6. Background & context cont’d
The usage of EBM System is effective from 2013
It was introduced to improve Value Added Tax (VAT) compliance and contribute to easy doing business and promote transparency in business doing
The EBM is IT based tool, made for producing, recording and transferring business sales information to tax administration on real time
Sharing information on real time constitutes a long term solution to identified weaknesses of manual invoicing system
11/27/2018

7. Why VAT Main contributor to government revenues (33 to 36% )
Paid by consumers (final and non non-final) through purchases
Purchase operations happening dial and night
Need to engage consumers in the enforcement of VAT compliance
Need to be accountable to real payers of VAT
Correlation between income tax and VAT
11/27/2018

8. Benefits of EBM to taxpayers
EBM constitutes an internal control tool
EBM helps in stock taking
EBM data serve for accounting purposes
Information safely kept
A means for business transparency
A means of information for business stakeholders and partners
Real time sharing of information between Tax Administration and Taxpayers
Less time and financial audit costing
11/27/2018

9. Benefits to tax administration
Real time sharing of information between Tax Administration and Taxpayers, interaction with taxpayers
Information safely kept
Less time and financial audit costing
Improve transparency in tax audit process
Improve the VAT refund process
Improve the level of VAT collections
Involvement of consumers
EBM constitutes a management tool and an efficiency control mechanism
11/27/2018

10. Implementing Structure
EBM system:
IT environment
Legal provisions
Implementing Structure
11/27/2018

11. 2.1. IT components Component Illustration Certified EBM devices
EBM software

12. 2.1. IT components cont’d Certified private invoicing systems
Channel of information sharing
EBM Back office system

13. 2.1. IT components cont’d (coming soon)
Tablets and Smartphones
Online invoicing

14. How it works Server Machine Transaction
Client visits a shop, buys goods or services
Seller registers all items on the invoices using EBM
Transaction
Applies electronic signature
Prints the invoice
Send data to tax administration server
Machine
Manage the received data
Stores data in the database
Data management and report generation
Server

15. 2.2 Legal provisions Provisions of VAT law
Provisions of Ministerial order
Provisions of CG rules
11/27/2018

16. 2.2 Legal provisions cont’d
Provisions of VAT law
“VAT registered persons are obliged to use a certified EBM that generates invoices indicating the tax as agreed by the tax administration. An Order of the Minister shall determine the design of these machines as well as modalities and conditions to be met in the use of those machines”.
11/27/2018

17. 2.2 Legal provisions cont’d
Provisions of VAT law
“Any person required to use EBM who sells goods or services without issuing an electronic invoice is liable to an administrative fine of ten (10) or twenty (20) times the value of the evaded VAT”.
“Any person who fails to comply with other EBM obligations is liable to an administrative fine of FRW 200,000 or RWF 400,000
“Any person who makes a taxable transaction and delivers an electronic invoice with undervalued price or quantity of goods or services is liable to an administrative fine of 10 times the value of the evaded VAT”
11/27/2018

18. 2.2 Legal provisions cont’d
Provisions of Ministerial order
Obligations of a user of a certified EBM (30)
Registration as an electronic billing machine user
Exemption from the obligations
Inspection of a certified electronic billing machine
CIS Features
Receipt data requirements
Electronic billing machines accreditation
Obligations of a supplier of CIS or SDC
Maintenance of a certified electronic billing machine
Licensing of CIS and SDC supplier and its distributors
Approval of SDC manufacturer
11/27/2018

19. 2.2 Legal provisions cont’d
Provisions of CG rules
Certified EBM functionalities
Certified Invoicing System functions
Sales Data Controller functions
EBM documents
Reports
Journal records
Certification (obligations of suppliers)
CIS Registration
SDC Registration
Exemption requirements
11/27/2018

20. 2.3. Implementing structure
Back office monitoring officers
Field monitoring operations
Communication and marketing
11/27/2018

21. 2.3. Implementing structure
Back office monitoring
Monitors the adoption rate of EBM
Monitors the status of data reporting for every device
Monitors the EBM receipts issuance trend
Monitors the sales, VAT output and VAT input trend
Monitors EBM receipts cancellation
Monitors exempted sales as compared to taxable ones
Reminds taxpayers by SMS, warning letters and other communication channels, on their EBM obligations
Run EBM risk rules to inform field monitoring operations
11/27/2018

22. 2.3. Implementing structure
Field monitoring operations
Carry out education and sensitization campaigns
Check the invoice issuance in area of deployment (Kigali and outside Kigali)
Apply penalties to non-compliance behaviors
Monitor induvial taxpayers for a period of one week/month in order to assess real trend of EBM invoices
Plan, organize and conduct EBM field operations
Conduct mystery shopping activities
Search and seizure of manual
Implement recommendations from back office monitoring
11/27/2018

23. 2.3. Implementing structure
Communication and marketing strategy
Carry out educational campaigns on radio and TV (private and public)
Carry out publicity in newspapers, TV, radio, social media
Work closely with media houses (radio, newspapers, TV…)
Hold meetings with taxpayers by business sectors, location and category
Held meetings with consumers, university students, religious leaders
Conduct EBM lottery and rewarded cars, motorcycle, flat screen, smart phones and cash
Attend any taxpayers’ query and timely respond to every correspondence from taxpayers
11/27/2018

24. 3. Implementation approaches
Pilot phase
Carried out from March to September 2013
800 machines were distributed for free to taxpayers
Education and enforcement campaign
Adoption and usage
Positive impact on VAT collections
Evaluated the impact of EBM and found 6.5% increase in VAT collections
Extension to all VAT users
11/27/2018

25. Implementation approaches
Expansion phase to all VRTs
Vigorous field operations (door to door)
Application of penalties for non-compliance behavior
Education campaign
EBM lottery implementation
All governments tenders to be awarded to only EBM users
VAT input not allowed unless if presented an EBM receipt
NGOs to be refunded only if they present EBM receipt
Recruitment of interns to support the existing staff in field monitoring activities
Input-controls (validation) mechanism
11/27/2018

26. Implementation approaches
Upgraded EBM (EBM2)
Reasons of upgrading:
Under reporting of sales in EBM (price and quantity)
Lack of communication between devices
SDC weakness in reporting to RRA server
Service delivery which required users to physically come to RRA
Updates shared as they happen (by RRA)
Stock movement taking into account
More transparence in sales transactions (quantity and value)
Possibility of new development
Purchases data automatically loaded into the stock of the user
Details of transactions for both users and RRA
11/27/2018

27. EBM and VAT Administration
VAT registry
VAT filling
VAT payment
Accurate reporting
VAT refund
11/27/2018

28. VAT Administration VAT registry
Taxpayers having a turnover of RW 20 millions RWF/ year or RW 5 million/quarter
Challenge of mastering the sales
Using data from EBM and other RRA legacy systems
EBM invoice indicate the buyer TIN
Possibility of determining the VAT registration threshold through analysis of purchases (local and importations)
Enforcement of EBM identifies taxpayers who should register for VAT
Supply chain analysis to identify potential VAT taxpayers
11/27/2018

29. Supply chain analysis # of taxpayers Valid TIN 34,296
# of taxpayers
Valid TIN
34,296
A. VAT Registered with EBM
10,985
B. No EBM nor VAT but registered to other taxes
15,502
B.1. Eligible for VAT(Turnover >= 10M)
991
B.2. Not Eligible for VAT (Turnover < 10M)
14,511
C. No active tax account
5,496
C.1. Eligible for VAT(Turnover >= 10M)
177
C.2. Not Eligible for VAT (Turnover < 10M)
5,319
11/27/2018

30. VAT filling
Compliance of VAT filing (Nil, Non, payment or refund) is closely monitored through data matching
EBM data and VAT declaration data in e-tax
SMS sent to taxpayers
Call taxpayers to remind them to fulfill their tax obligations
Issue tax assessment
Conduct desk audit
Conduct oriented issue audits
11/27/2018

31. VAT filling analysis Period Status # T/P Sales amount
Dec 2017 to Feb 2018
NIL
478
95 billions
February 2018
142
06 billions
August 2017
Under declared
218
03 billions
11/27/2018

32. Accurate reporting Issuance of EBM invoices
Taxpayers want to report less VAT than they actually collected on sales during a given period
Taxpayers increase the input VAT claims
Taxpayers decide not to report VAT collected through VAT declaration (Nil filers or non-filers)
Taxpayers create ghosts companies to help them claim VAT inputs
11/27/2018

33. Figures EBM adoption EBM invoices VAT collected on sales
VAT payable on declaration
VAT registered taxpayers
VAT collected vs target
Revenue performances
11/27/2018

34. II. EBM adoption

35. EBM invoices issued

36. VAT collected on sales

37. VAT payable on declaration

38. VAT registered taxpayers

39. VAT actual vs target
11/27/2018

40. Revenue Performance July-March 2017/2018
Achievement (%)
Collection (bn)
Target (bn)
Variance
(bn)
Growth (%)
Tax Revenue
102.0%
898.2
880.6
17.6
13.6%
Non Tax
112.3%
12.3
11.0
1.4
3.6%
LG Taxes & Fees
99.3%
43.3
43.6
- 0.3
11.7%

41. Tax revenue performance by tax heads
Target
Jul-Mar
2017/18
Actual
Variance %
Achievement
2016/17
change
PAYE
208.3
207.3
-1.0
99.5%
188.4
10.0%
PROFIT TAX (CIT, PIT, WHT)
151.3
162.4
11.0
107.3%
138.3
17.4%
VAT
284.3
299.6
15.3
105.4%
252.8
18.5%
EXCISE TAX
113.7
107.0
-6.7
94.1%
100.4
6.6%
MINING ROYALTIES
2.7
3.7
1.0
135.4%
2.4
51.0%
IMPORT DUTY
60.9
60.7
-0.2
99.6%
54.8
10.6%
ROAD FUND
36.1
35.4
-0.7
98.0%
33.2
STRATEGIC RESERVES LEVY
8.5
7.5
88.6%
7.8
-2.8%
INFRASTR. DEVPT LEVY
8.3
0.2
102.1%
7.7
10.5%
OTHER TAXES
6.27
6.11
97.4%
5.00
22.3%
TOTAL TAX
880.6
898.2
17.6
102.0%
790.8
13.6%

42. Revenue performance April 2018
Department
April 2018 Target
April 2018 Collection
Variance %
achieved
CUSTOMS
27.9
25.9
- 2.0
92.8%
SMTO
16.8
21.7
4.9
129.4%
LTO
41.24
53.7
12.4
130.2%
Road fund
3.7
3.5
- 0.2
94.6%
TOTAL TAX RRA
89.7
104.8
15.1
116.8%
Non-tax
1.16
1.26
0.1
108.6%
LG tax & fees
2.78
3.76
0.98
135.2%

43. Revenue Performance July-April 2018
Department
Jul-Apr 2017/18 Target
Jul-Apr 2017/18 Collection
Variance %
achieved
CUSTOMS
281.0
275.47
- 5.5
98.0%
SMTO
201.6
215.6
14.0
106.9%
LTO
447.7
474.1
26.4
105.9%
Road fund
39.9
38.9
-1.0
97.5%
TOTAL TAX RRA
970.2
1,004.1
33.9
103.5%
Non-tax
12.1
13.57
1.47
112.1%
LG tax & fees
28.0
29.2
1.2
104.3%

44. Challenges Low culture of requesting for an invoice
EBM users not issuing EBM invoices (they issue manual invoices, delivery notes or simply nothing)
EBM users issue an invoice with the price lower than the actual money received
Misusage of tax rates (taxable goods considered as exempted ones)
Price distortion and unfair competition observed between VAT registered and non VAT registered taxpayers
11/27/2018

45. Strategies Monitoring and enforcement of EBM usage
Education and sensitization of consumers
Sensitization of university, secondary schools students, religious leaders, private and public institutions…
Consumer motivation “EBM lottery scheme”
Introduction of Supply Chain Management software
Mystery shopping
Understanding of price structure for some commodities
Extension of EBM usage to non VAT registered taxpayers
11/27/2018

46. Click to add text
11/27/2018