Rwanda, in 2023, adopted changes to its tax legislation to ease the burden on taxpayers, improve compliance, and widen the tax base, according to information from the Rwanda Revenue Authority (RRA).
On January 9, 2023, President Paul Kagame said that, overall, the then-tax rates were high and overwhelming taxpayers - citing complaints from the latter.
The President directed entities in charge of taxation to look at ways to review tax regimes to get the revenues needed for the country's development, but also ease the tax burden for residents.
According to RRA, a survey was conducted to explore challenges faced by taxpayers while trying to meet their tax obligations.
Following the exercise, some laws were repealed or amended. Here is a look at five laws that changed in this regard in 2023, and their key provisions:
1. Law on tax procedures
Rwanda enacted a law of March 31, 2023, which repealed the law of September 18, 2019, relating to tax procedures.
The reform intends to create an attractive ecosystem for investment in Rwanda, to comply with international standards, and to address some challenges/loopholes that were identified during the implementation of the previous legislation, RRA indicated.
Regarding the seizure of the property of a taxpayer in case he/she fails to meet tax obligations on time, the Tax Administration (an entity in charge of tax collection, such as RRA) may seize any movable or immovable property of the taxpayer, held by the taxpayer or a third person. It can also sell it - by auction - to enforce due tax payment.
Contrary to the previous law, the new one introduced a provision allowing taxpayers to apply to the Tax Administration, within a period not exceeding 15 days running from the day of seizure of the property, for authorisation to sell the seized property by themselves to clear tax due.
The taxpayer is granted 90 days running from the day of the feedback on their application, to sell the property and settle up.
Reduction of interest rates for non-declaration of tax
Again, the new tax procedure law reduced the applicable interest rates in case taxpayers declare taxes on the due date but fail to timely pay the amount in question.
As a result, the applicable interest rates were set at 0.5 per cent when the due taxes were not paid for a period not exceeding six months, 1 per cent for a period between six and 12 months, and 1.5 per cent for more than 12 months. Previously the interest rates for the late payment were fixed at 1.5 per cent and calculated monthly, as per information from RRA.
Further still, an administrative fine imposed on micro enterprises (whose annual turnover is more than Rwf2 million but less than Rwf20 million) was reduced by half - from Rwf100,000 to Rwf50,000, for any person who fails to provide information on time, one who does not provide information or who provides incomplete, incorrect or misleading information following a request of the Tax Administration.
Meanwhile, taxpayers below Rwf2 million annual turnover are not subject to non-declaration penalties. This is in line with the provision of the current income tax law which does not oblige such taxpayers to file their tax declarations.
2. Law establishing value-added tax
To address issues that were identified during the implementation of the law of December 9, 2012, establishing value-added tax as amended at different times, Rwanda enacted the law of September 5, 2023, to repeal the former.
The issues include the fact that the 2012 law did not provide for tax exemption for some goods and services that should be exempted, given their importance to the economy and population in general, as per information from the Ministry of Finance and Economic Planning.
Key changes effected under the new law include new VAT tax exemptions, such as sanitary pads and the service of transportation of household solid waste, goods sold in customs for which no taxes have been paid; aircraft, their spare parts and maintenance tools, to promote the transport industry, and equipment for the conservation of human remains of victims of the 1994 Genocide against the Tutsi and its related evidence.
Processed maize and rice were also VAT-exempted to enhance access to essential foodstuff.
3. Excise duty law
Intending to encourage the importation of high-quality products, such as wines and liquors in line with the strategy to promote tourism in Rwanda under the Meetings, Incentives, Conferences, and Exhibitions (MICE) strategy, Rwanda amended the law of September 2019, establishing excise duty. Excise duty is a tax imposed on the production, sale, or consumption of selected products.
In this regard, the country promulgated the law of September 5, 2023, establishing excise duty.
Additionally, the reform aims to support local manufacturing by exempting powdered milk and industrially packed water from taxation, according to RRA.
Meanwhile, it is expected that the law will also contribute to discouraging the consumption of products with harmful effects on health, such as those containing tobacco.
Under the new law, wines are subject to an excise duty equal to 70 per cent of the value of a litre, but that cannot exceed Rwf40,000. Overall, such tax amount is lower than the 70 per cent tax rate that was imposed on wines based on their value, without setting a limit.
For brandies and liquors whose local raw material content, excluding water, is at least 70 per cent by weight of its constituents, the tax was lowered by 10 percentage points, from the previous 70 per cent to 60 per cent.
Other brandies, liquors, and whisky are charged a 70 per cent of the value of a litre as tax, but it cannot exceed Rwf150,000.
Cigars and similar products containing tobacco or tobacco substitutes attracted a new tax of 160 per cent of their value, while industrial packed water and powdered milk were exempted from a 10 per cent excise duty.
4. Immovable property tax law
The law of September 5, 2023, determining the sources of revenue and property of decentralised entities - also referred to as immovable property tax law - introduced key changes aimed at reducing tax burden while expanding the tax base, and have been assessed based on the twin principles of "benefits received" and "ability to pay", according to RRA. It amended the law of 2018.
Changes also respond to the request of taxpayers for a review of the tax on immovable property and trading license paid by any person that opens a business activity within a District, RRA added.
Key changes include that land tax rates set between zero to Rwf80 (as a ceiling or maximum rate) per square metre of the surface of the plot of land - and varies depending on factors mainly location - with plots in urban areas charged a higher rate than those in rural ones.
The new ceiling (Rwf80) is almost four times lower than that set in the previous law - Rwf300 per square metre.
Again, the tax on immovable property is calculated on the market value of both the building and the related plot of land if the two are subject to tax - contrary to the previous law whereby a building and a plot on which it is constructed were taxed separately.
The tax rate on residential buildings is set at 0.5 per cent of the market value of both the building and related plot of land instead of 1 per cent of the market value of a residential building; the tax rate on commercial buildings is fixed at 0.3 per cent for the market value of both the building and related plot of land instead of 0.5 per cent of the market value of a commercial building.
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A new tax on the sale of immovable property set at 2 per cent on the sale value of an immovable property for commercial use if the seller is a taxpayer registered for income tax, and at 2.5 per cent on the sale value of an immovable property sold by a person not registered for income tax has been introduced, while immovable property transactions not exceeding 5 million shall be exempted.
A business owner with more than one branch will pay the trading license tax for only one branch in each district, instead of every branch.
Sanction (a Rwf10,000 fine) regarding failure to present the trading license tax certificate was removed as, currently, trading licenses are issued electronically.
5. Law related to taxes on income
The law of September 5, 2023, amending the law of October 20, 2022, establishing taxes on income, mainly provides for a reduction of Corporate Income Tax (CIT) - a tax levied on the profits made by a company - from 30 per cent introduced back in 2005 to 28 per cent.
RRA pointed out that the development was intended to ease the tax burden on all taxpayers, expand the tax base, encourage reinvestment, and hence boost the tax collection.
It indicated that the previous CIT rate was relatively high compared to many other African countries - with CIT global average (excluding Africa) standing at 21.83 per cent.
The high rate, it added, was exacerbated by a narrow CIT base on account of a large number of tax incentives in the form of preferential rates, tax holidays, and accelerated depreciation, as well as interest deductibility.
