9 February 2018

Rwanda: Businesses Tipped on New Income Tax Law

The business community has been urged to study and understand the new income tax law to be able to fully-benefit from it when it is implemented, Angello Musinguzi, a senior tax manager at KPMG Rwanda, has said.

Musinguzi said it is imperative that businesses properly transfer pricing procedures and other proposed changes in the law passed by Parliament recently to avoid any inconveniences.

The new income tax law also provides for tax incentives to companies that will list on the country's capital market and discourages transfer of earnings abroad.

Once gazetted, the new legislation will replace law no.16/2005 of 18/08/2005 on direct income taxes. The legislation governs four types of taxes on income, including personal income tax, corporate income tax, withholding tax, and capital gain tax.

Increased scrutiny

Musinguzi told The New Times that scrutiny of taxpayers will go up "than ever before, making it essential for the business community to understand the new procedures."

Rwanda Revenue Authority (RRA) will require taxpayers to comply with certain requirements and the tax returns of March 2018 because of e-payment and e-filing, he added.

He said the tax body has introduced stringent compliance measures while streamlining the taxation law and policies.

"It is, therefore, essential for business operators to enhance their understanding of the changes in tax laws and the new reforms in the taxation regime to plan ahead accordingly and ensure compliance as prescribed by law," Musinguzi told this publication in an interview on Wednesday. Transfer pricing documentation is one of the requirements that multinationals will present during filing tax returns, he added.

"With Rwanda looking to become an investment hub, transactions between investing foreign entities and the incorporated subsidiaries in Rwanda will be watched keenly and scrutinised by RRA," the official from KPMG, a global audit and tax advisory services firm, said.

The tax body will likely emphasise its tax audits on transfer pricing policies and related party transactions of multinationals rather than focusing on the routine verification or audits, he added.

Jonathan Kwizera, a tax expert in Kigali, believes that understanding the new changes in the income tax law will "help to address different challenges that businesses could encounter when it is finally implemented".

"If the new changes are designed to prevent local companies that are subsidiaries of multinationals from transferring most of their earnings to their parent companies, investors need to know how the move may affect their businesses and prepare accordingly," he said.

Good for businesses

In a recent interview with The New Times, Pierre-Celestin Rwabukumba, the Rwanda Stock exchange (RSE) chief executive, said the new law will greatly benefit entrepreneurs that come to the market.

"You save on income tax at only one cost; opening up and disclosing on business as well as ensuring good governance and accountability," he noted.

What taxpayers say

Patrick Mukunzi, a Kigali-based trader, said the new changes are welcome "as long as they are business-friendly and don't compromise the ease of doing business in the country".

"As business community, we want a tax regime that is easy to understand, progressive in nature and business-friendly," he noted.

Mukunzi added that the implementation of the income tax has always been complex, especially when trying to regulate the rich and corporations.


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