Assessment of Tax Enforcement in Selected Small and Medium Enterprises (SMEs) in Kigali City, Rwanda.
Abstract
The purpose of this study was to assess the level of tax enforcement by the Rwanda Revenue Authority (RRA) among small and medium-sized enterprises (SMEs) in Kigali City. The indicators considered included the tax system, tax training, tax audits, tax rewards, and tax penalties. Data was collected using a structured questionnaire. The findings revealed that the tax system was generally appreciated at a moderate level (Mean = 2.67). The average level of training provided by RRA was low (Mean = 2.31), while the general level of tax audit practices was high (Mean = 3.72). The level of appreciation for tax rewards was moderate (Mean = 3.37), and the perception of tax penalties was also moderate (Mean = 2.53). Based on these findings, several recommendations are proposed. First, RRA should consider revising its tax system, given that the current level of taxpayer satisfaction is only moderate. Improvements could include allowing taxes to be paid only when profits are realized, supporting taxpayers in building the capacity to meet their tax obligations, and simplifying tax laws to be more user-friendly for SMEs. Second, RRA should enhance training efforts for SME taxpayers, as the findings indicated consistently low levels of training across all areas assessed. Third, the authority should increase the use of rewards for compliant taxpayers to encourage broader recognition of good tax practices. It is also recommended that the criteria for selecting rewarded taxpayers be made public to promote transparency, trust, and healthy competition in tax compliance. Fourth, RRA should revise its penalty system. Many SMEs reported that current tax penalties are discouraging. Penalties should be reduced, and alternative enforcement measures such as education, incentives, and audits should be strengthened. Lastly, taxpayers should actively seek information from various sources to better understand Rwanda’s tax system. This will help them comply with tax laws and avoid penalties.