Taxpayers including businesses could get a relief if the proposed changes in the draft law establishing value added tax (VAT) are adopted by Parliament.
On June 9, Parliament approved the applicability of the bill tabled by the Ministry of Finance and Economic Planning (MINECOFIN). This bill will be scrutinised by the responsible parliamentary committee, being voted into law by the Lower House's plenary sitting.
The draft law has been prepared to address issues that were identified following the implementation of the law of November 9, 2012, establishing the value added tax, as amended to date, according to MINECOFIN.
The issues include the fact that the current law does not provide for tax exemption for some goods and services that should be exempted given their importance to the economy and population in general.
Also, though taxpayers can deduct VAT paid on imported services that are not available in Rwanda, it has been very challenging to determine services that are available in Rwanda and those that are not.
"We have also identified several forms of abuse in the method in place to determine locally available services," said Richard Tusabe, Minister of State in Charge of the National Treasury at MINECOFIN, while explaining the relevance of the bill to lawmakers.
1. Expansion exemption
The number of goods and services that must not be subject to increase, if the bill passed.
In an attempt to strengthen and promote investment in Rwanda's aviation sector, aircrafts, their spare parts and maintenance tools appearing on the list established by the Minister in charge of transport and approved by the Minister, were added on the list of VAT exempted goods under the bill.
Also, for affordability, health and sanitation purposes, sanitary pads and the service of transportation of household solid waste were added to the list of goods exempted from VAT.
Goods sold in customs - before entering Rwanda - for which no taxes have been paid, are exempted from VAT. This, according to MINECOFIN, is in line with taxation principles, in particular the territory principle.
Equipment for conservation of human remains of victims of the Genocide against the Tutsi and its related evidence were added on the list of goods exempted from VAT. The list of such equipment is established by the Ministry in charge of genocide memory and approved by the Ministry.
2. VAT-free services
As the list of exempted financial and insurance services may be constantly increasing due to economic dynamism, the bill has proposed that this list will be established by an order of the Minister in charge of finance.
3. Authorisation for import of services not available locally
Following the conclusion that it is almost practically difficult to determine whether a service is available in Rwanda or not, the taxpayer who wants to acquire a service not available in Rwanda must request for authorisation from the Minister of Finance and Economic Planning. An Order of the Minister determines modalities to apply for such an authorisation, the bill provides.
4. VAT reward to consumers
A new article was introduced in the bill to enable a reward to be given to the final consumer who requests for, and is given, an electronic invoice - or receipts issued by electronic billing machine (EBM). Meanwhile, the bill provides that a Ministerial Order will determine the value of the reward and the conditions for granting such a reward.
The development would address the current situation where there is no clear policy for encouraging the final consumer to request for electronic invoice in a bid to increase compliance with the obligation to issue the electronic invoice; while an ambiguity of the VAT law regarding whether some goods or services are taxable or not, on several occasions, leads to the Government going to court for dispute resolution.
5. VAT refund
The period to claim input VAT refund from the date of invoice issuance, has been reduced from two years to one year.
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On the reason for halving the period in question, the Government explained that in previous years, it was possible for a taxpayer to lose invoices and delay the period for input claim due to using a manual approach to invoicing and record keeping.
However, with new electronic invoicing in place, it said, the probability of losing the invoice is almost zero.
Input VAT is the amount of VAT that a business pays on the inputs or purchases it uses to produce goods or provide services. The amount can be used to offset VAT liabilities on sales or output VAT, which is charged on the goods and services that a business sells to its customers.
6. Big catch for startups
In a bid to facilitate start-up companies (newly registered companies with stock on the day of registration), Tusabe said "we have allowed them to claim the input tax paid while organising themselves to start the production and distribution before they even declare the output tax.
