Date Published: July 28, 2017, 2:42 p.m.
he case study shows how the Rwanda Revenue Authority worked closely with the Rwanda Association of Local Government Authorities (RALGA) to improve local governments' revenue collection and administration thanks to the use of Information and Communication Technologies. The initiative launched in 2014 has already resulted in increased efficiency and revenue collection by 55,5%.
Rwanda is one of Africa’s most densely populated countries with 12.5 million people living in 26,000 km². Its economy is mostly rural, with at least two thirds of the national workforce engaged in agricultural activities. In 2015, 28.8% of the Rwandese population lived in urban areas, out of which 53,2% lived in slum areas. In 2001, the national government launched its decentralization policy by establishing democratically elected structures at the local level and creating territorial administrations. The country has been divided into 4 provinces plus the city of Kigali, 30 Districts, 416 Sectors, 2150 Cells and 14,953 villages. The 2006 government’s Fiscal and financial decentralization policy accorded local governments a greater role for service delivery across all sectors. It also transferred the responsibility to collect an assortment of local revenue sources, including taxes (fixed asset tax, rental income tax and trading license tax, property tax) and fees (public cleaning services, market fees, land lease fees, parking fees, etc.). Despite this progress, local governments are still struggling to build institutional and financial autonomy. For instance, districts are very dependent from the central government as transfers averaged 71% of their revenue sources in 2015, while endogenous sources of revenue are averaging 11%. The other 18% include grants from donors and, in a small degree, borrowings.
Revenue collection and administration in the Districts was manual until recently. This prevented the administration from having an updated taxpayers’ database; municipal officials lacked the training and knowledge about the taxation regulatory framework, among other difficulties. The lack of capacity to engage in substantial broad-based revenue mobilization resulted in a low level of enforcement of tax legislation. Some fees were not even collected as the cost of the collection was higher than the revenue collected. From the citizen’s point of view, besides the lack of culture of paying revenue, long distances between district offices and banks and long queues at counters discouraged people from paying their taxes.
The Rwanda Revenue Authority (RRA) is well known for its advancements in using IT to improve tax collection: among other initiatives, it adopted, in 2011 an Electronic Billing Machine system and in 2012 a system to improve financial reporting by automating accounting for local governments. In 2013, the RRA signed an agreement with local governments to transfer the mandate to collect taxes on their behalf. As such, the RRA was tasked with the responsibility of collecting all necessary taxes and duties for districts and undertaking key functions in the revenue management process, such as registration of taxpayers and properties, declaration, audit, enforcement, tax appeals and arrears management. With the goal of automating and improving the decentralized tax collection and administration system, the Ministry of Finance and the RRA launched the Rwanda Automated Local Government Revenue Management System (RALGRMS) in 2015, an automated software system composed of two main measures to ensure regular and stable tax revenue for local governments:
While the e-tax is particularly important for large taxpayers (330 large firms with an annual turnover of over $1million USD contribute to 70% of all domestic tax revenues), the m-declaration project is customized for small entrepreneurs and informal businesses (estimated to be around 90,000 in the country).
The Rwanda Association of Local Government Authorities (RALGA) is a non-governmental organization established in 2003 that brings together all the 30 Districts of the country and the city of Kigali. RALGA’s mandate is to represent, advocate for and build the capacity of local governments addressing the current issues they face and particularly regarding effective implementation of the decentralization policy, increasing revenue, encouraging local economic development and social development. In 2016 RALGA launched the Local Governance Institute (LGI) in collaboration with the Commonwealth Local Government Forum and the UK’s Local Government Information Unit, to offer capacity building activities to local officers and elected representatives to help improve financial management capacity and provide policy guidance and support for local economic development.
RALGA has had a very important role in building local governments and citizens’ capacity to use ICT in revenue management and collection, and the process of improving decentralized revenue management with ICT: it has led strong advocacy alongside the RRA for automation of revenue processes in Rwandan local governments; it has negotiated and signed the Memorandum of Understanding that gave the RRA the mandate to collect revenue on behalf of local governments; and it is part of a Steering Committee alongside concerned ministries that ensures the smooth implementation of the Rwanda Automated Local Government Revenue Management System. In addition, it has lead sensitization campaigns and organizing training sessions to local governments’ officials to promote the use of ICT in revenue management. RALGA also worked closely with public officials to explain to the population how the new tax system relates to improved service delivery. Local governments have capitalized on traditional collective actions to sensitize the population. Examples of meetings include: Ubudehe (to engage community to solve common problems); Umuganda (a monthly mandatory community service); and Imihigo (an annual activity to engage the community in planning, accountability and monitoring of local governments’ activities). In addition, the government has also created a “tax week campaign” and “the annual budget and accountability day”, where local leaders present to the community what they have achieved compared to what was planned.
From the citizen point of view, implementing the e-tax and the m-declaration system allows tax payment from anywhere at any time, increasing customer compliance. It has also contributed to increase financial inclusion: the number of Rwandan citizens having a bank account rose from 21 % in 2012 to 42 % in 2015. From the local government point of view, the automation of tax revenue and administration has increased transparency and accountability; reduced corruption and tax fraud; improved enforcement; strengthened capacity to forecast revenue and expenses; it has also increased tax base and reduced informality. The digitalization of tax processes led to a reduction of transaction cost thanks to reduced office paper and the need to deploy less staff to support tax collection in all districts (reduced from 900 to 173 staff). An increase of 55,5% in revenue has occurred: according to the RRA, the total revenue collected for local governments nationally increased from $28 million USD in 2011 to $68million USD in 2015.
According to Enock Arinda Bwatete, Finance and Administration Unit Manager at RALGA, the following elements were key to ensure the success of the automation process of decentralized revenue and administration: