AFRICA: Innovative Research Helps Rwanda Raise $9m in Tax Revenue
Recent Gauteng Business News
In North America and Europe, substantial research has been conducted to evaluate the effectiveness of various communication strategies for improving the compliance of taxpayers. For the first time, a similar study has been carried out in Africa, generating important research findings and helping to raise an additional $9 million USD in tax revenue for Rwanda.
On the whole, studies in the West have found deterrence messages about the penalties taxpayers will face if they do not declare or under-declare their income to be the most effective. In contrast, the new study reveals that Rwandan taxpayers are generally more responsive to friendly messages, either gentle reminders of deadlines or information related to the importance of tax revenues for funding public services.
The effectiveness of non-deterrence strategies is good news for low-income countries, where enforcement is severely limited by lack of financial and human resources. It also fits with the Rwanda Revenue Authority (RRA)’s vision of a modern tax administration, as Commissioner General Richard Tusabe said at the research presentation in Kigali on Monday, “Encouraging voluntary compliance is at the core of the RRA’s customer-oriented approach.”
The study also found that non-traditional and low-cost channels of communication, such as emails and SMS messages, were very effective in the Rwandan context. This is also an important finding for low-income countries, which must find cost-effective ways of generating revenue.
The study was conducted by the International Centre for Tax and Development in partnership with the African Tax Administration Forum, and in collaboration with the RRA. It was largely funded by UK Aid from the UK government, which highlighted the project as “high impact” in a recent Research Review. Not only did the project help raise additional revenue, it also catalysed innovations in the RRA’s operations (such as automatically personalising communications and expanding the functionality of its SMS platform), helped build research capacity within the RRA, and provided practical policy recommendations.
By using the RRA’s administrative data and experimental methods, the project is not only ground-breaking, but also highlights the importance of embedding rigorous evaluation in the design and implementation of new policies. As Mick Moore, the CEO of ICTD said, “Governments are constantly experimenting with new measures to improve tax compliance, but often don’t know which ones work. This kind of research can help them answer those questions so they can adopt the most effective strategies.”
Business News Sector Tags: Africa|