research project submitted in partial fulfillment of the

i

TAXPAYER’S EDUCATION AND TAXES COMPLIANCE IN RUNDA

SECTOR, IN KAMONYI DISTRICT, RWANDA

MUKAMANA LEONILLE

MBA/3645/12

Research Project Submitted in Partial Fulfillment of

The Requirement for the Award of Master of Business Administration

(Accounting and Finance Option) Submitted to School of Business and

Economics of Mount Kenya University

MARCH, 2015

ii

DECLARATION

This research study is my original work and has not been presented to any other Institution.

No part of this research should be reproduced without the authors’ consent or that of Mount

Kenya University.

Name: MUKAMANA Léonille

Signature: ______________________ Date: ______________________

DECLARATION BY THE SUPERVISOR(S)

This research has been submitted with our approval as The Mount Kenya university

Supervisor(s).

Name: HODARI Jack

Signature: Date: _____________________

iii

DEDICATION

To my husband MUTABAZI Léopold and my parents Mr MURENZI Martin and Mrs

BENURUGO Immaculée who have always motivated me to achieve excellence in academic

life.

iv

ACKNOWLEDGEMENTS

After a long period of hard working which was punctuated by challenges and opportunities

and now successfully completed with fruitful results; I wish to express my gratitude to Mr

HODARI Jack for constant support and guidance he gave me during supervision of my

dissertation; My great thanks go to the administration of Mt Kenya University and all my

lecturers to their knowledge provision for the completion of this work; Special great thanks

go to my husband for the provision of moral and financial support during my studies.

v

ABSTRACT

The Government of Rwanda recognizes fiscal decentralization policy where Certain taxes which were formerly collected by the Central Government have been transferred to Local Government in order to increase local resource mobilization and to create opportunities for districts to expand steadily their sources of funds and some of the key challenges faced with this system include low tax paying culture among taxpayers; businesses are still largely done manually; large informal sector and ignorance of some taxpayers especially small and medium enterprises regarding tax information. General objective of this study is to investigate and analyze the effect of taxpayers’ education on taxes compliance while specific objectives are to identify taxpayers’ education methods used to provide necessary taxes knowledge; to examine problems faced by taxpayers; to identify tax authorities strategies to provide relative information to taxpayers complaints and to analyze the benefits from taxes compliance. This study targeted 1,602 registered taxpayers and tax officials in Runda Sector and the sample size was 94 to represent 1,602 taxpayers. Both primary and secondary data sources were used and data collection instruments were questionnaire addressed to Runda Sector taxpayers and interview conducted to Runda Sector tax officials. Random sampling technique was used where total population had an equal chance of being selected. Data analysis Package was the Statistical Packages for Social Sciences (SPSS) to present, analyze and interpret results. It was found that taxpayers’ education is done through tax mobilization in special tax meetings, after community work programs and on door to door campaign for traders at their business premises. Taxpayers lack of updated tax information; high taxes rates applied to them and suffer from unexpected penalties. Tax officials provide relative tax information to their complaints but always tax laws are used as references or source of information. Taxes paid contribute to build country as they can be used for building infrastructures, health centers, schools, paying public servants, among others, instead of looking to donors for everything. Runda Sector tax officials have to increase tax education campaign to allow taxpayers or prospective taxpayers to acquire necessary tax knowledge which can lead to their voluntary taxes compliance and taxpayers have to know that they have an obligation of acquiring necessary tax knowledge to comply with tax laws and regulations. Taxpayer’s education does not have an end but it still a process to be performed continuously.

vi

TABLE OF CONTENTS

DECLARATION..................................................................................................................... ii

DEDICATION........................................................................................................................ iii

ACKNOWLEDGEMENTS .................................................................................................. iv

ABSTRACT ............................................................................................................................. v

TABLE OF CONTENTS ...................................................................................................... vi

LIST OF TABLES .................................................................................................................. x

FIGURE .................................................................................................................................. xi

LIST OF ACRONYMS AND ABBREVIATIONS ............................................................ xii

OPERATIONAL DEFINITION OF KEY TERMS ............... .......................................... xiii

CHAPTER ONE: INTRODUCTION ................................................................................... 1

1.0 Introduction ................................................................................................................... 1

1.1 Background of the Study .............................................................................................. 1

1.2 Problem Statement ........................................................................................................ 2

1.3 Objectives of Study........................................................................................................ 3

1.3.1 General Objective ................................................................................................... 3

1.3.2 Specific Objectives .................................................................................................. 3

1.4 Research Questions ....................................................................................................... 3

1.5 Significance of the Study .............................................................................................. 4

vii

1.7 Scope of the Study ......................................................................................................... 4

1.8 Organization of the Study............................................................................................. 5

CHAPTER TWO: LITERATURE REVIEW ...................................................................... 6

2.0 Introduction ................................................................................................................... 6

2.1 Theoretical Review ........................................................................................................ 6

2.1.1 Taxpayers’ Education Methods .......................................................................... 15

2.1.2 Problems Faced by Taxpayers............................................................................. 19

2.1.3 Strategies to Address Taxpayers Complaints .................................................... 20

2.1.4 The Benefits from Taxes Compliance ................................................................. 21

2.2 Empirical Literature ................................................................................................... 22

2.3 Critical Literature and Gap ....................................................................................... 22

2.4 Conceptual and Theoretical Framework .................................................................. 24

2.5 Summary ...................................................................................................................... 25

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY .... ..................... 26

3.0 Introduction ................................................................................................................. 26

3.1 Research Design........................................................................................................... 26

3.2 Target Population ........................................................................................................ 26

3.3 Sample Design .............................................................................................................. 27

3.3.1 Sample Size ............................................................................................................ 27

3.3.2 Sampling procedure ............................................................................................. 27

viii

3.4 Data Collection Methods ............................................................................................ 28

3.4.1 Primary Data Sources .......................................................................................... 28

3.4.2 Secondary data sources ........................................................................................ 28

3.4.3 Reliability and Validity ........................................................................................ 29

3.5 Data analysis Procedure ............................................................................................. 29

3.5.1 Editing.................................................................................................................... 29

3.5.2 Tabulation ............................................................................................................. 30

3.6 Ethical Considerations ................................................................................................ 30

CHAPTER FOUR: RESEARCH FINDINGS AND DISCUSSION ................................ 31

4.0 Introduction ................................................................................................................. 31

4.1 Demographic Characteristics of Respondents .......................................................... 31

4.2 Presentation of Findings ............................................................................................. 32

4.2.1 Taxpayers’ Education Methods Used in Runda Sector .................................... 35

4.2.2 Problems Faced by Runda Sector Taxpayers .................................................... 37

4.2.3 The Ways Tax Authorities Provide tax Information to Taxpayers Complaints

......................................................................................................................................... 37

4.2.4 Benefits from Taxes Compliance ......................................................................... 38

4.3 Summary of Data Analysis ......................................................................................... 41

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS ...................................................................................................... 42

5.0 Introduction ................................................................................................................. 42

ix

5.1 Summary of Major Findings ...................................................................................... 42

5.1.1 Taxpayers ‘Education Methods .......................................................................... 43

5.1.2 Problems Faced by Runda Sector Taxpayers .................................................... 43

5.1.3 Strategies Used to Provide Tax Information to Taxpayers Complaints ......... 43

5.1.4 Benefits from Taxes Compliance ......................................................................... 44

5.2 Conclusions .................................................................................................................. 44

5.3 Recommendations ....................................................................................................... 45

5.4 Suggestions for Further Study ................................................................................... 45

REFERENCES ...................................................................................................................... 46

APPENDICES ....................................................................................................................... 50

x

LIST OF TABLES

Table 2.1: Taxes Rates on Property Tax for Occupied Houses ................................................ 9

Table 2.2: Taxes Rates on Property Tax for Registered Land not yet Developed. ................. 10

Table 2.3: Tax Rates on Rental Tax........................................................................................ 12

Table 2.4: Taxes Rates of Trading License for Different Activities ....................................... 14

Table 4.1: Age of Respondents ............................................................................................... 31

Table 4.2: Gender of Respondents .......................................................................................... 32

Table 4.3: Types of Taxes Paid by Various Taxpayers .......................................................... 33

Table 4.4: Time Period of Tax Payments ............................................................................... 34

Table 4.5: Reasons for Tax Registration ................................................................................. 34

Table 4.6: Source of Information to Register ......................................................................... 35

Table 4.7: Ways for which Tax Information is Displayed...................................................... 36

Table 4.8: Problems Faced by taxpayers ................................................................................ 37

Table 4.9: Taxes Performance Evaluation .............................................................................. 40

xi

FIGURE

Figure 1: Conceptual Framework ......................................................................... 24

xii

LIST OF ACRONYMS AND ABBREVIATIONS

GoR : Government of Rwanda

IRS : Internal Revenue Services

MBA : Master of Business Administration

P : The basic License

RRA : Rwanda Revenue Authority

Rwf : Rwandan Francs

SAS : Self Assessment System

TAC : Tax Advisory Council

UK : United Kingdom.

UNDP : United National Development Program

URA : Uganda Revenue Authority

USA : United States of America

xiii

OPERATIONAL DEFINITION OF KEY TERMS

Tax

A compulsory contribution made to local government authorities by taxpayers.

Taxpayer

An individual or entity that is obligated to make payments of taxes to local government tax

officials.

Taxpayer Education

A method of providing knowledge to taxpayers about the whole process of taxation and why

they should pay taxes.

Tax Compliance

Being in conformity to laws, regulations, standards and other requirements that are concerned

with taxes.

1

CHAPTER ONE: INTRODUCTION

1.0 Introduction

This chapter covers the background of the study; the statement of the problem; objectives of

the study, research questions, significance of the study; limitations of the study and the scope

of the study.

1.1 Background of the Study

Strengthening sub national governments is high on the policy agenda of many developing

countries. From an economics perspective, the most important potential benefit from

decentralization is the increased efficiency (and consequent welfare gain) that comes from

moving governance closer to the people. To achieve this benefit, however, close attention

must be paid to the design and implementation of sub national tax systems (Bird, 2010).

Decentralization has, since 2000, been a key policy of the Government of Rwanda (GoR) for

promoting good governance, service delivery, and national development and the government

recognizes fiscal and financial management as the heart of decentralization, as ultimate

power to decide how and what services are delivered depends on the available means

(Ministry of Local Government and Socials Affairs, 2012).

Fiscal decentralization involves shifting some responsibilities for expenditures and/or

revenues to lower levels of government. One important factor in determining the type of

fiscal decentralization is the extent to which sub national entities are given autonomy to

determine the allocation of their expenditures (The Word Bank Group, 2001).

2

It is in this context that the law no 17/2002 of 10th May 2002 was adopted to authorize

districts to collect some types of taxes, namely property tax, trading license and rental taxes,

as well as other fees. (Official Gazette of the Repulic of Rwanda, 2002).

The fiscal decentralization policy was developed in order to increase local resource

mobilization and to create opportunities for districts to expand steadily their sources of funds.

Decentralized decision-making powers on financial resources allow local authorities to

effectively implement the duties and achieve missions assigned to them (Mpambara, 2013).

However, Akarere (district) can use the Imirenge (sectors) in collecting some local revenues

(Ministry of Local Government and Social Affairs, 2001).

1.2 Problem Statement

Certain taxes which were formerly collected by the Central Government have been

transferred to Local Governments and some of the keys challenges faced with this system

include low tax paying culture among taxpayers; businesses are still largely done manually;

large informal sector and ignorance of some taxpayers especially SMEs regarding tax

information (Kagarama, 2013).

This study is therefore to assess the effect of taxpayers’ education on taxes compliance to

ensure tax payment compliance in Runda Sector.

3

1.3 Objectives of Study

1.3.1 General Objective

To investigate and analyze the effect of taxpayers’ education on tax compliance in Runda

Sector, in Kamonyi District of Rwanda.

1.3.2 Specific Objectives

i) To identify methods used to provide necessary taxes knowledge;

ii) To examine problems faced by taxpayers in Runda Sector;

iii) To identify strategies to provide relative information to taxpayers complaints in

Runda Sector;

iv) To analyze the benefits from taxes compliance.

1.4 Research Questions

i) How do tax authorities provide taxes knowledge to taxpayers in Runda Sector?

ii) What are the problems faced by taxpayers in Runda Sector?

iii) How do tax authorities provide relative information to taxpayers’ complaints?

iv) What are the benefits from taxes compliance?

4

1.5 Significance of the Study

The study was beneficial to the researcher for attainment of the objectives given and

improving knowledge acquired by doing research; the study increased taxpayers’

understanding about tax system and then achieve voluntary taxes compliance and it also

helped local tax officials to take appropriate measures for better tax job collection, hence

increase in revenue to meet public expenditures.

1.6 Limitation of the Study

During this study the researcher faced with a problem of language barrier during data

collection where questionnaires were distributed to various taxpayers who are not familiar

with English language, to overcome this problem the researcher has translated questions for

better understanding to the respondents.

Another limitation faced by the researcher is that, some respondents tend to refuse disclosing

tax information. To overcome this, the researcher tried to ensure them that the information

provided will not be used for any other purpose and communicated to them.

1.7 Scope of the Study

The study was carried out in Runda Sector in Kamonyi District which is one of Local

government authority with the task of assessing, collecting and accounting for taxes

including Rental tax; Property tax and Trading license. This study covers the period of 2011

to 2013 as the current tax period for which persistent or new tax problems incurred in tax job

collection can be solved to contribute to the development of the country by eliminating the

barriers of success in tax payment.

5

1.8 Organization of the Study

This study is subdivided into five chapters:

Chapter one covers the background; the statement of the problem; objectives, research

questions, significance; limitations; the scope and organization of the study.

Chapter two shows a review of literature in term of Introduction, Theoretical review;

Empirical literature; Critical literature and Gap; Conceptual and Theoretical Framework.

Chapter three introduces the methodological approach that has been used in this research

including target population; sample design; Reliability and validity; data analysis procedure

and ethical consideration.

Chapter four presents the findings of the study from the fields and their analysis in relation to

the research objectives.

Chapter five presents the summary of findings, draws conclusion in relation to research

objectives and end up with recommendations for further studies.

6

CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction

This chapter shows a review of literature in term of Introduction, Theoretical review;

Empirical literature; Critical literature and Gap; Conceptual and Theoretical Framework.

2.1 Theoretical Review

Taxpayers’ education can be described as a method of educating the people about the whole

process of taxation and why they should pay tax. Taxpayer education assists taxpayers in

meeting their tax obligations to the government. The primary existence of taxpayer education

is to encourage voluntary compliance amongst taxpayers. Voluntary compliance amongst

taxpayers is heightened when taxpayer education and enforcement functions are balanced to

achieve the desired output in tax compliance (Misra, 2004).

Tax compliance can be described as the process of fulfilling the taxpayer’s civil obligation

for tax payment and filing of tax returns including the provision of necessary documents and

explanations required by the tax authority in a timely manner (Oyedele, 2009).

Overview of Taxation System

Tax is a compulsory levy which a government imposes on its citizens to enable it to obtain

the required revenue to finance its activities (Adesola, 1986). It is generally considered as a

civic duty. On the other hand, taxation is the process of imposing, assessing, collecting and

accounting for taxes (Agbetunde, 2010).

7

Tax is defined as ‘a compulsory levy, imposed by government or other tax raising body, on

income, expenditure, or capital assets, for which the taxpayer receives nothing specific in

return’ (Lymer, 2009).

Taxation is one of the important elements in managing national income, especially in

developed countries and has played an important role in civilized societies since their birth

thousands of years ago (Lymer, 2009). However, not all payments to government are

considered tax payments: for example, charges, tolls and other levies are paid to obtain a

specific service and are not strictly tax payments (Palil, 2010).

Adam Smith in his book ‘The Wealth of Nations’ which was published in 1776 suggested

that a tax system is based on certain basic principles, namely equity, certainty, convenience

and efficiency.

Equity means a tax system should be fair among individuals and taxes should be levied based

on taxpayers’ capacity. Horizontal equity means that taxpayers with the same income or

wealth should pay the same amount of tax (tax burden).While vertical equity means that

taxpayers with high income (capacity) should pay higher tax (tax burden).

Certainty is defined as a taxpayer knowing his or her tax liability and when and where to pay

the tax. It relates to the simplicity of the tax systems so that the taxpayers easily understand

and capable of calculating their tax liability.

Convenience relates to how people pay their taxes or engage with the tax system. For

example, people more conveniently pay tax by it being deducted at source rather than paying

a large amount of tax annually.

8

Efficiency refers to how the tax authority collects the tax revenues and can be divided into

two subsections: administrative efficiency and economic efficiency. Administrative

efficiency refers to the costs involved when collecting tax revenues. The more a tax costs to

administer, the less of the money raised is available to the government to spend. The

administrative cost should be as small as possible to achieve desirable economic efficiency.

Taxation Background in Rwanda

Taxation in Rwanda dates way back in 1912 when property tax was introduced; after

independence, taxes were formally introduced in Rwanda by the law of the 2nd June 1964

concerning Profit Tax; Customs and Excise duties were also introduced by the law of 17th

July 1968; Law on profit tax and law on tax procedures were introduced 1997 and in 2001

VAT law was introduced requiring taxpayers to start paying Value Added Tax. The Central

Government through the Ministry of Finance was responsible for tax collection. The Rwanda

Revenue Authority was established under the law n°15/97 of 8 November 1997 as a quasi-

autonomous body with the mission of assessing, collecting, and accounting for tax, customs

duties and other specified revenues (Kagarama, 2013).

Local Government Revenue Collection

As provided for by the law, District and Town are administrative structures with financial

autonomy. For that autonomy to be possible, the District and Town have their own budget

and resources. Certain taxes which were formerly collected by the Central government have

been transferred to Local Governments.

9

They include:

a) The property tax

b) The trading license tax

c) The rental income tax

Property Tax

Property tax is a tax levied on immovable property: parcels of land, buildings and

improvements. Currently, the property tax is the single most important local tax in

developing countries.

Taxes rates 1st base: Occupied houses

The tax on the floor of houses is fixed per square meter.

Table 2.1: Taxes Rates on Property Tax for Occupied Houses

Location Rates of tax/ square meter

Kigali 50Frw < 210 Frw

Other urban areas 50 Frw < 130 Frw

Trading centers 25 Frw < 96 Frw

Other places 5 Frw < 55 Frw

Source: Official Gazette of the Republic of Rwanda no 13 of 01/07/2002

10

Under article 15 of the above law, if one builds a storied house, he/she will have his/her tax

rate rates reduced by 50% for the 1st floor constructed and from the 2nd floor upwards,

his/her tax will be reduced by 75% while for each additional floor built upwards his/her tax

will be reduced by 100%. If one builds an underground house, he/she is exempted from the

tax. The District, town or city Council fixes the actual tax rate in accordance with the

provisions of article 6 of the above law.

2nd base: Registered Land not yet developed.

Tax on unused registered or unregistered plots whether being subject to a long term bail

contract, rental contract or leased is calculated on the basis of square meters. Tax on inbuilt

plots is fixed by the District, Town or City of Kigali as follows.

Table 2.2: Taxes Rates on Property Tax for Registered Land not yet Developed.

Location Rates of tax/ square meter

Kigali City 20 Frw < 50 Frw

Other urban areas 10 Frw < 20Frw

Trading centers 1 Frw < 10 Frw


Rural areas the tax is determined by the district or town council but it should not exceed 1000

Frw per hectare.

11

If the taxpayer owns more than 20 hectares, he/she is taxed at a rate ranging from 1001 Frw

to 2000 Frw for every additional hectare, the first being exempted from tax and fractions of

hectares being not considered.

Under article 18 of law No.17/2002 of 10/05/02, the following are exempted from the

fixed asset tax:

i. Land that is exclusively used for educational, medical, research and sporting activities

which are proved not to be profit driven;

ii. Land on which Government, District and town infrastructure are affected or are to be

affected;

iii. Land used by diplomatic missions in Rwanda if their countries do not levy tax on

land used by Rwandan diplomatic missions;

iv. Land used for charitable activities.

Rental Income Tax

Rental Income Tax is a tax for individual persons, who earn income from rented immovable

properties located in Rwanda. Currently, this type of tax is a potential source of revenue for

urban authorities where the demand for accommodation and commercial activities will

always be higher than supply.

Those liable to pay tax are:

i) The owner of the goods, possessor of the fixed assets;

ii) The beneficiary of the net profit from rental income of land and buildings

12

Those exempted are:

i) Houses or buildings of the Government, province/ city of Kigali, Districts or towns and

public institutes with exception of those meant for commercial activity;

ii) Interests on rent obtained from any income generating activity on corporate tax that is

exempted to rent interest.

Tax Rates

Table 2.3: Tax Rates on Rental Tax

Amount of income in Rwf Rate

From 0 to 60,000 0%

From 60,001 to 180,000 10%

From 180,001 to 300,000 15%

From 300,001 to 600,000 20%

Above 1,000,000 30%


Note that a copy of rent contract is submitted to district or town Administration in the same

time with the income tax declaration. (Official Gazette of the Repulic of Rwanda, 2002).

13

Trading License Tax

Trading license Tax is a tax paid every year by the individuals who has decided to undertake

any profit-oriented activity in Rwanda. Legally registered organizations or companies which

are liable to the corporate tax should also pay the trading license tax annually.

However, there are exemptions from trading License requirement including the

following:

i) The State of Rwanda, its provinces and districts and towns when they carry out none-

profit making activities;

ii) Corporate persons or organization that are exempt from corporate taxes in accordance

with articles 5 of the law on the code of direct taxes on various profits and

professional income;

iii) Natural or corporate persons who are engaged in agricultural or livestock activity.

Fixing Trading License

The trading License is determined by the basic License “P” which may vary as specified by

article 47 of law No.17/2002 by taking into account the type of activity and where it is

operated. The basic trading license is fixed every year by the council of the district, town or

Kigali city where taxpayers are based but it can not exceed 2000 Frw. The District, Town or

Kigali City specifies each year the location to be taken as rural or urban area.

14

The duty sticker issued shall be posted in plain view at the entrance to the establishment

where the operations to which it relates are carried on or on the vehicle for which it is issued

or worn, in plain view by the person responsible for collecting receipts.

Trade license is charged on activities as follows: Each district or town fixes the rate of the

tax on rent in accordance with the provisions of this article. The estimated rates can not

exceed these shown in the scale below

Table 2.4: Taxes Rates of Trading License for Different Activities

Type of activity Base P Rural Area Town City of Kigali

A)Vendors without shops, small scale technicians who

do not use machines, transporters of people and

property on motorcycle

PA 1PA 2PA 2PA

B)Traders and technicians who use machines PB 5PB 10PB 20PB

C)Any transporter not mentioned under A PC 10PC on

each car

10PC

on

each

car

10PC on each car

D)Hotel business self employed PD 5PD 30PD 100PD

E)Professional taxpayer services rendered to others and

the like PE 10PE 20PE 20PE

F)Industries, imports and export business PF 120PF 120PF 120PF

G)Insurance, banking and the like PG 30PG 100PG 100PG


15

The basic trading license is fixed each year by the Council of the District or Town where

taxpayers are based (Kagarama, 2013).

The Collection of Local Revenue

Local revenues are collected at Akarere level (District). However, Akarere can use the

Imirenge (Sectors) in collecting some local revenues (Ministry of Local Government and

Social Affairs, 2001).

2.1.1 Taxpayers’ Education Methods

Tax administration is a key public sector responsibility that touches the lives of citizens and

their businesses on a daily basis. Failure to understand the taxation system leads to less

compliance since most people will avoid it because they do not know what they should pay

as and why they should pay tax.

Specific tax education programmes for taxpayers have been implemented in most SAS (Self

assessment system) countries including the US (United States of America) (including via

online education22), Canada and the UK (United Kingdom) (Eriksen, 1996).

Taxpayers' education and services is one of the new developments in tax administration

aimed at softening enforcement of tax laws and regulations.

The objective is to enlighten taxpayers on their rights and obligations in order to enhance

voluntary compliance.

This function is implemented at the URA through establishment of taxpayers' service desks,

which are charged with handling taxpayer inquiries and complaints.

16

The desk makes sure that tax information is available to taxpayers through telephone, tax

leaflets, tax booklets and through verbal explanations. They disseminate tax information

about the tax heads administered by the URA, which the taxpayers are expected to know and

do as far as tax affairs are concerned. They educate them on various tax forms and returns to

fill, when to fill them and various due dates for payment of taxes (Annah, 2006).

Tax administrations can try to send messages that stress the importance of compliance to

educate taxpayers and build up positive personal norms. Engagement by tax administrations

with young people (early working age or younger) can influence their personal norms and

this benefits tax compliance in the long-term (Walsh, 2012). The rationale for providing

quality taxpayer services is to raise tax awareness and enhance the level of voluntary tax

compliance. This is done by providing the taxpayers and their agents with clear precise and

timely tax information, simplifying the tax forms and tax laws, translating the laws into local

understood dialects by the taxpayers, ensuring courtesy and considerate treatment is extended

unconditionally to all taxpayers, responding expeditiously to every taxpayer's enquiry,

compliant or request, explaining the grounds for derivation of every tax assessment,

providing proper technical advice to the taxpayer requests about tax implications, assisting

new taxpayers to register, educating the taxpayers and the general community about tax

obligations and rights (Jenkins, 2000).

2.1.1.1 Tax Evasion and Tax Avoidance

Tax evasion is a deliberate and willful practice of not disclosing full taxable income in order

to pay less tax. It i s a violation of tax laws and a general term for efforts by individuals,

companies, trusts and other entities to evade taxes by illegal means.

17

Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true

state of their affairs to the tax authorities to reduce their tax liability.

It also includes, in particular, dishonest tax reporting such as declaring less income/profits or

gains than actually earned or overstating deductions (Olowookere, 2013). Tax avoidance, on

the other hand, is the active means by which the taxpayer seeks to reduce or remove

altogether his tax liability to tax without actually breaking the law. It is the means by which

tax liability is minimized or avoided by exploiting the loopholes in the law. (Adegbile, 2011)

James and Alley define tax evasion as ‘the attempt to reduce tax liability by illegal means’

while tax avoidance is defined as ‘reducing taxation by legal means’ (James, 2004), tax

evasion is also perceived as ‘any legal method of reducing one’s tax bill’ and it is ‘illegal tax

dodging’ (Lewis, 1982). Similarly, tax evasion is perceived as actions which result in lower

taxes than are actually owed while tax avoidance, denotes the taxpayers’ creativity to arrange

his tax affairs in a proper manner based on law and regulation (any provision not violated) so

as to reduce his tax bill, and this is (or should be) acceptable in view of the tax administrator

(Kasipillai, 2003).

2.1.1.2 Tax Education

Better educated taxpayers are supposed to know more about tax laws and fiscal connections

and thus would be in a better position to assess the degree of compliance. More educated

taxpayers have in general more sympathetic fiscal preferences than those with a lower

education. They are better aware of the benefits and services the state provides for the

citizens from the revenues (Olowookere, 2013).

18

Tax education can constitute any informal or formal programme organized by the tax

authority or independent agencies by which to facilitate taxpayers in completing tax returns

correctly and also to cultivate awareness of their responsibilities in respect of the tax system

(Eriksen, 1996).

2.1.1.3 Tax Compliance

Standard models of tax compliance assume that taxpayers are fully informed of all the

aspects that cover the tax reporting process. The degree of knowledge and information might

be an important factor in the way taxpayers behave.

Taxation literature confirms that taxpayer’s compliance is determined by the government

fiscal policy, tax enforcement systems, perceptions of taxpayers, fairness of the tax system

and the services provided by the government in return (Olowookere, 2013).

Tax morale, the intrinsic motivation to pay taxes, is a key determinant to explain the high

degree of tax compliance, taking into consideration the low level of deterrence.

An increasing number of researchers point out that there must be a certain degree of tax

morale or social norms to explain the high degree of tax compliance. Many researchers have

argued that tax morale helps to explain the high degree of tax compliance. Contrary to tax

evasion, tax morale does not measure individual’s behavior, but individuals’ attitude.

(Torgler, 1999)

Many researchers find that a considerable portion of taxpayers are always honest. Some

taxpayers are “simply predisposed not to evade” (Long, 1991).

19

The experimental results provide evidence that tax compliance is higher when individuals

can vote on the use of their taxes than when there is no voting over alternatives. Individuals

are more likely to comply with the requirement to pay their taxes when they are able to select

the public sector expenditure program.

On the other hand, tax compliance is lower when subjects cannot control the use of their tax

payments. Thus, the way people are treated by the authorities affects their evaluation of these

authorities and their willingness to co-operate (Tyler, 1989).

2.1.2 Problems Faced by Taxpayers

The absence of information and enlightenment for taxpayers is a major problem as they are

not sufficiently educated and enlightened on the provisions of the various tax laws in the

country (Azubike, 2009).

A complexity of the tax system: A good tax system should be simple and easy to understand.

Complexity may result in unintentional non-compliance if taxpayers have problems in filling

out the tax form (Torgler, 1999).

Aksnes (2011) discussed some reasons why taxpayers may be non-compliant and these

include flexible tax morale; low education; rules that are too complicated to follow; taxable

activities that are manipulated to avoid tax; a perception that the risk of being caught is low;

aversion towards the public sector; and a culture of corruption.

The challenges facing tax payers include lack of taxpayers’ education on tax payment and

procedures, failure to understand the relevance of paying taxes and higher tax rate imposed

compared with taxpayer’s business capacity (Mpambara, 2013).

20

2.1.3 Strategies to Address Taxpayers Complaints

RRA has invested in tax education across all sectors, using seminars, dialogues with

stakeholders and media to address taxpayer problems related to tax matters. This has strongly

helped in tax mobilization, reducing errors committed by taxpayers that brings about

uncalled for penalties; reducing tax evasion and increasing compliance (Kagarama, 2013).

Kagarama (2013) Rwanda Revenue Authority Strategies to mobilize tax revenues uses

Online Tax Calculator: This online facility assists taxpayers in minimizing arithmetical errors

that might occur when calculating taxes. It also simplifies work and saves time that would be

taken if one decided to do it manually

• Recruitment of Tax consultants and Tax Advisors: It is very important to have these two

experienced groups of people in order to advise taxpayers regarding tax matters. They

sensitize them on how to keep proper books of accounts for their businesses, how and when

to file their due taxes in order to promote professionalism in doing business. Dialogues with

Taxpayers:

• Tax Issues Forum: RRA in collaboration with the Private Sector Federation conduct

quarterly meetings where members from the private sector and RRA meet and discuss

pertinent issues regarding tax matters. This includes seeking joint solutions for challenges

faced by the business community.

• Tax advisory council (TAC): A forum where RRA meets with provincial and district local

authorities to discuss about tax issues and come up with strategies to increase tax base and

revenue collection.

21

2.1.4 The Benefits from Taxes Compliance

The primary goal for subnational government taxation is to raise revenues to meet assigned

expenditure needs. if tax base that cannot yield adequate revenues at reasonable rates are

assigned, the result is likely to be both deficient public services and a haphazard gap-filling

strategy that includes the imposition of variety of undesirable and distortionary fees, levies

and informal charges (Bahl, 2010). A majority of small business taxpayers recognized that

tax compliance activities led to better record keeping and to an improved knowledge of their

financial affairs. However, there seemed to be a general reluctance by respondents to accept

the idea that benefits could be derived as a result of complying with tax (Lignier, 2009).

The advantage of smaller structures in tax policy is that citizens� preferences are able to be

better served than in a framework where a uniform tax system is designed for a population

with heterogeneous preferences. Moreover, there is an intensive everyday interaction

between taxpayers and local politicians and bureaucrats. This closeness between taxpayers,

the tax administration and the local government may induce trust and thus enhance tax

morale.

Politicians and members of the administration are better informed about the preferences of

the local population. Furthermore, there is a politico-institutional aspect: if politicians are

elected at the local level, they have an incentive to take the preferences of their constituency

into account and thus to spend the local tax revenues according to local preferences (Frey,

1999).

22

Local government revenues fulfill multiple functions like building accountability; Increasing

citizen engagement with public affairs; stabilizing the economy; incentivizing /discouraging

particular types of investment; regulating economic activity; redistributing wealth;

discouraging dangerous/undesirable activity and decreasing dependence on aid/increasing

autonomy (Kagarama, 2013).

2.2 Empirical Literature

Olowookere (2013), found that Taxpayer education is an important ingredient in any efficient

tax administration; it enhances the level of tax knowledge to taxpayers and the level of

voluntary tax compliance and reduces tax evasion; also Misra (2004), found that due to the

existence of a sophisticated industrial economy alongside an informal sector that is not

properly regulated and as a result of poor and delayed compliance from the taxpaying

population, there is a need arose to educate society on their social responsibility to pay their

taxes. While Palil (2010), found that tax knowledge is important because it affects

significantly tax compliance (in a positive direction) meaning that developing tax knowledge

further would probably help to increase tax compliance.

2.3 Critical Literature and Gap

Olowookere (2013), found that tax education program focused on enlightening taxpayers’ on

socio-economic implications of tax evasion opportunities and the transparent and accountable

use of tax proceeds have significant influence on taxpayers’ voluntary compliance in Lagos

State, Nigeria. On this basis, the study proffered that there is need for tax education to be

offered to students pursuing non-accounting courses and not restricted to accounting students

23

at all levels. Also, government and other stakeholders should work together to reduce tax

complexity and compliance cost in order to encourage voluntary compliance. This study

examined taxpayers’ education as a key strategy in achieving voluntary compliance and it

indicates that taxpayer’s education supported by public services provided by the government

impact positively the level of tax compliance and reduces tax evasion among taxpayers.

Palil (2010), found that tax knowledge has a significant impact on tax compliance even

though the level of tax knowledge varies significantly among respondents.

The results also indicate that tax compliance is influenced specifically by probability of being

audited, perceptions of government spending, penalties, personal financial constraints, and

the influence of referent groups. This study emphasizes on taxpayers’ responsibility to report

their income and the need for them to determine their own tax liability. This requires the

development of public awareness of tax laws, and improvements in voluntary compliance.

Misra (2004), found that voluntary compliance amongst taxpayers is heightened when

taxpayer education and enforcement functions are balanced to achieve the desired output in

tax compliance. This study is aimed at identifying the impact of tax education on tax

compliance. The study emphasizes that by balancing the education and enforcement

functions, tax compliance is achieved. According to these studies done by different

researchers, none have been done on taxpayers’ education and tax compliance in Rwanda; a

case study of Runda Sector in Kamonyi District.

24

2.4 Conceptual and Theoretical Framework

Figure 1: Conceptual Framework

INDEPENDENT VARIABLE DEPENDENT VARIABLE

INTERVENING VARIABLES

Source: Researcher, 2014

TAXES COMPLIANCE:

• Pay required taxes and

pay on time;

• Submission of required

documents;

• Acquire necessary and

updated information.

TAXPAYERS’ EDUCATION :

• Organizing tax

seminars;

• Examining taxpayers

complaints and

provide relative

information;

• Organizing campaign.

• Audit probability

• tax rates

• tax moral

• Penalty rates

• Income level

25

This study investigates and analyzes the effect of taxpayers’ education on taxes compliance.

Taxpayers’ education can be done by identifying target groups to receive tax

seminars; Examining taxpayers complaints and provide relative information and organizing

campaign. All those keys points will increase taxpayers’ knowledge thus taxes compliance.

The taxpayers’ education will have an effect on payment of required taxes and pay on time;

submission of required documents and acquiring necessary and updated information on tax

issues.

The above key points under taxpayers’ education are not the only factors which influencing

taxes compliance; there are other moderated variables that the researcher can consider to

influence taxes compliance like audit probability which help taxpayers to pay required taxes;

tax moral also affect positively taxes compliance; low tax rates increase compliance; penalty

rates also increase compliance level and income level when it is high taxpayers comply with

taxes and vice versa.

2.5 Summary

Taxpayers’ education can be described as a method of educating the people about the whole

process of taxation and why they should pay tax. The primary existence of taxpayers’

education is to encourage voluntary compliance amongst taxpayers. Better educated

taxpayers are supposed to know more about tax laws and fiscal connections and thus would

be in a better position to assess the degree of tax compliance.

26

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY

3.0 Introduction

This chapter introduces the methodological approach that has been used in this research. It

highlights the methods and techniques used as per the researcher under coverage. It clarifies

the population with its sample size, data collection and analyzes techniques used.

3.1 Research Design

Research design can be defined as a plan, structure and strategy of a research to find out

alternative tools to solve the problems and to minimize the variances (Kothari, 2004). Both

qualitative and quantitative research has been used to analyze the effect of taxpayers

‘education on taxes compliance.

Runda Sector was selected as one of local government Authority in charge of collecting

rental tax; property tax and trading license and based on its location and subdivision it

represents both urban and rural areas on tax issues locally collected.

3.2 Target Population

The population under the present study was Runda Sector taxpayers and Runda sector tax

officials in charge of collecting rental tax; property tax and trading license.

The total number of population under coverage was 1602 taxpayers and one tax official.

Source: Runda Sector tax officials.

27

3.3 Sample Design

3.3.1 Sample Size

Determining an appropriate sample size is one of the key aspects that influence both accuracy

and precision of the results.

(Yamane, 1967) has provided a simplified formula to calculate sample sizes as illustrated

below:

( )21 eN

Nn

+=

Whereby n is the sample size, N is the population size, and e is the level of precision

estimated at 10%.

The population of interest to represent Runda Sector taxpayers was determined as follows:

( )21.016021

1602

+=n = 94

The minimum sample size using Yamane formula was 94 to represent 1602 Runda sector

taxpayers.

3.3.2 Sampling procedure

The sampling procedure is the technique or act of selecting a suitable sample and time

allocation. The researcher used random sampling technique where each member of the total

population had an equal chance of being selected.

28

3.4 Data Collection Methods

During this research, both primary and secondary sources of data were used to get

meaningful results.

3.4.1 Primary Data Sources

i. Questionnaire

The researcher used questionnaires to collect the required data from Runda sector taxpayers

where open-ended questions were used to allow respondents answering by using their own

words and closed-ended questions which to allow them to choose among multiple answers

predetermined by the researcher.

ii. Interview

An interview guide also was conducted to Runda Sector tax officials to obtain relevant data

to the way tax information are provided to taxpayers and how they get support from tax

officials in case of complaints to influence taxes payment compliance. With this method,

questions asked were concerned on what they do, think and feel about taxpayers’ education

to influence the level of taxes compliance in Runda Sector.

3.4.2 Secondary data sources

Documentary sources

The researcher reviewed the existing literature of the previous researchers, scholars and

academicians on the concerned issue for proper understanding of the problem and other

theoretical issues concerning to the study.

29

3.4.3 Reliability and Validity

Under the study questionnaires were addressed to Runda sector taxpayers and to ensure the

accuracy and consistency of the data, the researcher conducted a sample survey to ensure that

questions asked are clearly established and understandable by the respondents to provide

needed information to research questions and also considering time taken to answer

questionnaire. Based on results from sample survey, corrections have been made by the

researcher.

3.5 Data analysis Procedure

Data collection is not an end in itself, unless the data can be processed, analyzed and

converted into information in a format that can be helpful to the user.

The analysis has been done based on research finding from various taxpayers and tax

officials in relation to the research objectives. For easy analysis and interpretation of findings

the researcher used SPSS while coding responses provided by various respondents. This was

done through editing and tabulation.

3.5.1 Editing

Editing refers to the inspection and correction, if necessary of each questionnaire or

observation form. The collected raw data was examined to detect errors and omissions and

corrections have been made where possible.

30

3.5.2 Tabulation

Tabulation refers to the orderly arrangement of data in a table or other summary format

achieved by counting the frequency of responses to each question.

Tabulation was considered in this study by putting data collected into statistical tables using

the Statistical package for social sciences (SPSS) to produce results that have been presented,

analyzed and interpreted in chapter four.

3.6 Ethical Considerations

To allow taxpayers and tax officials being aware in provision of needed information, the

researcher has research authorization from the school and was given authorization from

Runda Sector authorities to deal with Runda Sector tax officials and various taxpayers that

operating in Runda Sector. These help the researcher acquiring trusted information about the

issue concerned.

31

CHAPTER FOUR: RESEARCH FINDINGS AND DISCUSSION

4.0 Introduction

This chapter presents the findings of the study from the fields and their analysis in relation to

the research objectives. The analysis has been done on primary data collected from Runda

sector taxpayers and Runda Sector tax officials; this study cover the period of three years

from 2011 to 2013 . For easy analysis and interpretation of findings the researcher used SPSS

while coding responses provided by various respondents. Tables have been used based on

different research questions for easy interpretation and analysis.

The distributed questionnaires to taxpayers amounted to 94. The participation rate was 100%.

As the researcher deals with two categories of respondents, it proceeded with taxpayers first

and, second with tax officials. The analysis was done in respect to the profile of respondents,

the types of tax collected, the challenges faced by taxpayers and the strategies to overcome

such problems.

4.1 Demographic Characteristics of Respondents

Table 4.1: Age of Respondents

Ages Frequency Percent

Between 18-35 years 26 27.7

Between35-55 years 61 64.9

Above 55 7 7.4

Total 94 100.0

Source: Primary data

32

From the results shown in table 4.1, it is clear that the majority of respondents representing

64.9% are between 35-55 years as indicator of family representative who own their personal

properties for which they pay for taxes or carry out business activities for the welfare of their

family, the youngest people represent 27.7% of 18-35 years and the oldest people represent

7.4 % of sample size.

Table 4.2: Gender of Respondents

Sex Frequency Percent

Male 58 61.7

Female 36 38.3

Total 94 100.0


Table 4.2 reveals that 61.7% of respondents are men and 38.3 % respondents are women.

This implies that due to the Rwandan cultural, women are not well engaged in various

activities that lead to accumulation of wealth for which they have to pay for taxes.

4.2 Presentation of Findings

Types of Taxes Collected in Runda Sector

The first question addressed to Runda sector tax officials was concerned on various taxes

collected at Runda sector and respond that taxes collected at sector level include rental tax

from the property and income generated from rented property of taxpayers and trading

33

license tax from taxpayers’ profitable business activities and there is no property tax in

Runda sector. All the above taxes are collected through cash payment on the bank account

and then taxpayers present cash deposit slip to Runda sector tax officials.

Table 4.3: Types of Taxes Paid by Various Taxpayers

Types of taxes Frequency Percent

Property tax 0 0.0

Rental tax 21 22.3

Trading license tax / Patent 73 77.7

Total 94 100.0


According to the table 4.3, the percentage show that a greater number of respondents

represent 77.7% of taxpayers who are registered for trading license. That kind of taxes is paid

by business person; 22.3% registered for Rental taxes. It was also found that there is no

property tax in Runda sector.

34

Table 4.4: Time Period of Tax Payments

Time period Frequency Percent

Less than one year 1 1.1

One year 6 6.4

More than one year 87 92.6

Total 94 100.0


Table 4.4 shows that a very big number of respondents represent 92.6% have more than one

year experience as taxpayers, 6.4% represents taxpayers with one year experience in taxes

payment and 1.1 % for less than one year experience.

Table 4.5: Reasons for Tax Registration

Reasons Frequency Percent

To get trading license 63 67.0

To avoid penalties 31 33.0

Total 94 100.0


Table 4.5, taxpayers representing 67% said that they pay taxes in order to get authorisation to

carry out their business activities and avoid the risk of closing their business activities as

their occupation and 33% said that they are registered because it a compulsory levy and the

failure to pay lead to penalties and interests.

35

Table 4.6: Source of Information to Register

Source of information Frequency Percent

From experienced taxpayers 31 33.0

From land registration certificate 7 7.4

From specific tax meetings 35 37.2

On door to door campaign 21 22.3

Total 94 100.0


Table 4.6 indicates that 33% have received information from experienced taxpayers, 7.4%

said that they have received land registration certificate that require them to pay rental tax,

37.2% said that information have been received from special tax meetings while 22.3 have

been informed when tax officials request them to pay taxes when they were at their business

premises.

4.2.1 Taxpayers’ Education Methods Used in Runda Sector

The researcher tends to know various taxpayers’ education methods used to provide

necessary taxes knowledge and it was found that taxpayers’ education in Runda sector is

done through tax mobilization in special tax meetings or some time after community work

programs like Umuganda as it is a regular community work monthly done in Rwanda and

sometime on door to door campaign especially for businesses at their premises.

36

Table 4.7: Ways for which Tax Information is Displayed

Ways Frequency Percent

Through specific tax meetings 10 10.6

Through Advertisements 3 3.2

Through Public meetings or Community work programs 30 31.9

By use of communication 8 8.5

All the above 34 36.2

None of them 9 9.6

Total 94 100.0


From the table 4.7, taxpayers representing 10.6 % said that tax information is displayed to

them through specific tax meetings; 3.2% by use of advertisements while 31.9% receive tax

information through public meetings and community work programs; 8.5% by use of

communication through their churches; 36% argue that those ways are used to make them

informed on tax issues and 9.6% said that no tax education campaign provided to them,

always they get tax information from other taxpayers.

37

4.2.2 Problems Faced by Runda Sector Taxpayers

Table 4.8: Problems Faced by taxpayers

Problems Frequency Percent

Lack of updated tax information 14 14.9

High tax rates 6 6.4

Unexpected penalties 12 12.8

All the above 62 66.0

Total 94 100.0


Runda Sector taxpayers are faced with various problems as shown in table 4.8 whereby

14.9% said that they lack of updated tax information and this can lead to unpredictable

expenses for them; 6.4% said that higher tax rates are applied to them in relation to their

capacity to pay for while 12.8% they suffer from unexpected penalties applied to them for

example in case delay in tax payment caused by a big number of taxpayers who usually pay

taxes due at deadline date and low capacity of tax officials and banks through which tax

payment is made and the other representing 66% said that they are faced by all the above

taxpayers problems.

4.2.3 The Ways Tax Authorities Provide tax Information to Taxpayers Complaints

Taxpayers emphasize that in case of any complaints, they are assisted by Runda sector tax

officials by giving them explanation in relation to their complaints but the problem is that in

case the complaints come after being penalized due to any error committed by taxpayers

irrespective of the cause, this will not cancel those penalties already applied to them but will

38

help the claimer avoiding repetitive errors. Some traders said that they can address their

complaints to their committee and that committee follow up and then give them answer to the

problem declared.

Tax officials said that in case of any complaint of taxpayers , tax information is provided to

them in relation to the problem declared but always tax laws are used as references or source

of information given by tax officials. But taxpayers have to know that once different laws are

published whatever kind of laws, there is no any reasonable argument to present in case of

some misconduct contrary to those laws.

4.2.4 Benefits from Taxes Compliance

From an interview conducted to Runda Sector Tax officials; they highlighted that taxpayers

benefit from paying taxes required on time because they contribute themselves to

development of country, they can also compete to execute public tender as they comply with

tax laws, getting loans from financial institutions by giving their property as security for loan

requested for and also traders carry out their business without any problems.

For tax collectors, when taxpayers comply with taxes, this makes easy their tasks of tax job

collection and reduces tax offenses that make taxpayers unhappy. And generally all citizens

beneficiate from taxes compliance as those taxes are collected with the view of providing

various services to the citizenry ranging from; road infrastructure, internal security,

protection against external aggression, disaster management, etc for the welfare of citizens.

39

4.2.4.1 Benefits of Compliant Taxpayers

As they are in conformity with the law, taxpayers said that they are aware of their day to day

running of the business especially for traders or other profitable businesses like rented houses

while those who are registered for rental tax said that they can use their property in case of

loan requesting from the bank. Others said that there are no benefits except that of avoiding

paying more in case of later payment when they are taken as law breakers hence fines,

penalties and interests are applied to them.

4.2.4.2 Rwandan Benefits from Taxes Compliance|

Taxpayers said that even if some time fail to meet their tax obligations but they know that

taxes paid contribute to build country as they can be used for building infrastructures, health

centers, schools, paying public servants, among others, other than looking to donors for

everything.

Taxpayers Suggestion to Various Problems Incurred in Tax Payment Procedures

For better tax job collection, taxpayers require tax officials to reduce tax rates applied to

them proportionately to their income and also advice traders on how they can improve their

business to generate more income hence increase of their purchasing power and tax

compliance, to develop at sector level electronic means of tax payment to avoid delay in tax

payment caused by a big number of taxpayers who actually pay taxes due at deadline date.

They also require improved tax education methods to allow them easy access of necessary

and updated information to meet their tax obligation and contribute to development of the

country.

40

Taxpayer Compliance Performance Evaluation

The researcher tends to know whether taxpayer comply with taxes at a desirable level, and it

was found that it is difficulty to measure the level of taxes compliance because it is a

continuous process but if all registered taxpayers comply at 100% by means of taxes payment

on time they may appreciate taxes compliance level or if there is an increase in number of

taxpayer’s registration or increase in taxes collected.

Based on annual report of the years 2011, 2012 and 2013; Runda sector recognises an

increase in taxes collected from different kind of taxes as it is illustrated in table below.

Table 4.9: Taxes Performance Evaluation

Period Amount of taxes An increase Increase in %

2011 77,094,620 0 0

2012 89,129,500 12,034,880 15.6

2013 111,611,787 22,482,287 25.2

Source: Runda sector annual report for the year 2011, 2012 and 2013

Challenges Faced by Runda Sector Tax Officials

The challenges facing tax collectors included poor taxpayers’ perception on the relevance of

tax payment, taxpayers’ culture to evade and avoid taxes, social disapproval among taxpayers

against tax offences, taxpayers’ delay in tax declaration, starting business activity without

trading license, and lack of means or facilities for easy reach of taxpayers for tax collection.

41

4.3 Summary of Data Analysis

Based on responses from taxpayers the results shown tax information have been receive from

experienced taxpayers; from land registration certificate; from special tax meetings while

other said that they have been informed when tax officials request them to pay taxes when

they were at their business premises. Problems faced by taxpayers include lack of updated

tax information and this can lead to unpredictable expenses for them; higher tax rates are

applied to them in relation to their capacity to pay for and suffering from unexpected

penalties. In case of any complaints, taxpayers are assisted by Runda sector tax officials by

giving them explanation in relation to their complaints and this helps the claimer avoiding

repetitive errors. Some traders said that they can address their complaints to their committee

and that committee follow up and then give them answer to the problem declared. About the

Rwandan benefits from taxes compliance taxpayers said that taxes paid contribute to build

country as they can be used for building infrastructures, health centers, schools, paying

public servants, among others, other than looking to donors for everything.

From an interview conducted to Runda sector tax officials, taxpayers’ education in Runda

sector is done through tax mobilization in special tax meetings or after community work

programs like Umuganda and sometime on door to door campaign especially for traders at

their premises.

For tax collectors, taxes compliance makes easy their tasks of tax job collection and reduces

tax offenses that make taxpayers unhappy and all citizens beneficiate from taxes compliance

as those taxes are collected with the view of providing varied services for the welfare of

citizens.

42

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS

5.0 Introduction

This chapter presents the summary of findings, draws conclusion in relation to research

objectives and end up with recommendations for further studies.

5.1 Summary of Major Findings

It was found that the majority of respondents vary between 35-55 years as indicator of family

representative who own their personal properties for which they pay for taxes or carry out

business activities for the welfare of their family, they represent also a big number of men

and this means that due to the Rwandan cultural, women are not well engaged in various

activities that lead to accumulation of wealth for which they have to pay for taxes. According

to various taxes paid in Runda sector; 77.7% of taxpayers who are registered for trading

license and 22.3% are registered for Rental taxes. Based on their experiences as taxpayers, a

big number of 92.6% is more experienced in tax payment because they have more than one

year experience as taxpayers. Two reasons for tax registration have been given by taxpayers

where 67% of taxpayers said that they pay taxes in order to get authorisation to carry out

their business activities and avoid the risk of closing their business activities as their

occupation and the other 33% said that they are registered because it a an obligation and the

failure to do so lead to penalties and interests.

43

The major findings in relation to the objectives are summarized below:

5.1.1 Taxpayers ‘Education Methods

From an interview conducted to Runda sector tax officials to know various taxpayers’

education methods used to provide necessary taxes knowledge, it was found that taxpayers’

education in Runda sector is done through tax mobilization in special tax meetings or some

time after community work programs like Umuganda as it is a regular community work

monthly done in Rwanda and sometime on door to door campaign especially for businesses

at their premises.

5.1.2 Problems Faced by Runda Sector Taxpayers

To examine problems faced by Runda sector taxpayers, It was found that they are faced with

various problems whereby 14.9% said that they lack of updated tax information and this can

lead to unpredictable expenses for them; 6.4% said that higher tax rates are applied to them

in relation to their capacity to pay for while 12.8% they suffer from unexpected penalties

applied to them and the other representing 66% said that they are faced by all the above

taxpayers problems.

5.1.3 Strategies Used to Provide Tax Information to Taxpayers Complaints

In case of any complaint of taxpayers to tax officials, tax information is provided to them in

relation to the problem declared but always tax laws are used as references or source of

information given by tax officials. But taxpayers have to know that once different laws are

published whatever kind of laws, there is no any reasonable argument to present in case of

some misconduct contrary to those laws.

44

5.1.4 Benefits from Taxes Compliance

The benefits of compliant taxpayers compared to noncompliant taxpayers are the following:

they are aware of their business especially for traders and others can use their property in

case of loan requesting from the bank and said that there is no tax offenses applied to them.

Taxpayers said that taxes paid contribute to build country as they can be used for building

infrastructures, health centers, schools, paying public servants, among others, other than

looking to donors for everything while tax officials highlighted that the business community

are aware of their day to day running of the business they also contribute themselves to

development of country, they can also compete to execute public tender as they comply with

tax laws, getting loans from financial institutions by giving their property as security for loan

requested for and also traders carry out their business without any problems. For tax

collectors, when taxpayers comply with taxes, this makes easy their tasks of tax job

collection and reduces tax offenses that make taxpayers unhappy. And it is known that taxes

are collected with the view of providing a variety of services for the welfare of citizens.

5.2 Conclusions

Our research work is carried out to investigate and analyze the effect of taxpayers’ education

on taxes compliance. By analyzing our results, whereby taxpayers still have complaints on

tax offences applied to them and the high taxes rate they have to pay and also as tax officials

highlighted theirs challenges of poor taxpayers’ perception on the relevance of tax payment,

social disapproval among taxpayers against tax offences, taxpayers’ delay in tax declaration,

starting business activity without trading license, and lack of means of facilities for easy

reach of taxpayers for tax collection.

45

We conclude that taxes compliance level is still low according to the above research findings

and there is a need for more sensitization to increase compliance level. Taxpayer’s education

is one way through which tax information can be displayed to improve taxpayers’

compliance. If they are compliant, they contribute voluntarily to better tax job collection.

5.3 Recommendations

Strengthening taxpayers’ education in enhancing taxes compliance level, Runda sector tax

officials have to increase tax education campaign and enforcement of other tax education

programs like organizing tax seminars, on door to door campaign, Sending messages to

taxpayers mobile phone; the use of brochures in manner that allows Runda sector taxpayers

or prospectus taxpayers to acquire necessary tax knowledge which can leads to their

voluntary contributions to better tax job collection and improved taxes compliance level and

taxpayers have to know that they have an obligation of acquiring necessary knowledge and

updated tax information to comply with tax laws and regulations and built their country. But

taxpayer’s education does not have an end but it still a process to be performed accordingly.

5.4 Suggestions for Further Study

This study was done on taxpayers’ education and taxes compliance in Rwanda and the

researcher tends to go for investigating and analyzing the effect of taxpayers’ education on

taxes compliance in Rwanda, a case study of Runda sector in Kamonyi district. The

researcher was only limited to the issues related to the subject matter and as a researcher; I

suggest further research on taxes compliance and self reliance country.

46

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APPENDICES

1

QUESTIONNAIRE RESERVED TO RUNDA SECTOR TAXPAYERS

Dear respondents, I am Léonille MUKAMANA, a final student at Mount Kenya University

(MKU) and I am doing my final research project for the award of Master’s degree in Business

Administration, Accounting and finance.

The topic of my research study is “Taxpayers’ Education and Taxes Compliance in Runda

Sector, in Kamonyi District, Rwanda”.

I will be grateful if you answer the questions asked and I ensure you that all the information given

will be confidential and will not be passed on to other parties or used for any other purpose.

1. Age of respondent

Between 18-35

Between 35-55

Above 55

2. Gender of respondents

Male

Female

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3. What kind of taxes are you registered for?

Property tax

Rental tax

Trading license tax

4. When did you register as a taxpayer?

Less than one year

One year

More than one year

5. Why are you registered for that kind of taxes?

To get trading license

To avoid penalties because it is a legal

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6. How do you get information related to taxes issues?

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7. What are the problems faced by Runda sector taxpayers? Please specify if any.

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8. In case of any complaints, how do you get support?

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9. What are the advantages of being a compliant taxpayer?

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10. What are the Rwandan benefits from taxes compliance?

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11. As a taxpayer, what can you suggest as the best answer to various problems incurred in

tax payment procedures?

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THANK YOU FOR YOUR COOPERATION

research project submitted in partial fulfillment of the

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