◄UNIT 2: WITHHOLDING TAXESUNIT 4: CUSTOMS AND 4 CONSUMPTION TAX►

UNIT 3:TAXES AND FEES OF 3 DECENTRALIZED ENTITIES

  • UNIT 3:TAXES AND FEES OF 3 DECENTRALIZED ENTITIES

    Key unit competence: To compute taxes and fees collected by
    decentralized entities


    Q1. Describe the role of that person in the photo? 
    Q2. Are there any taxable activities in those areas?
    3.1: Definition of key terms used in decentralized taxes and fees
    Learning Activity 3.1
    A person having houses in one of urban area in Rwanda and rents one of
    the houses to another person in the year 2022. He receives a gross rental
    income of FRW 4,800,000 during the tax year. On the above scenario who
    is liable to pay tax.
    3.1.1. Key terms used in decentralized taxes and fees
    The Rwandan tax structure is categorised into two that is, the decentralised tax
    structure and the centralised tax structure. The centralised tax structure is the
    one that is collected by the central government whereas the decentralised tax
    structure is the one that is collected by the local administration.
    In this unit three, the following terms shall have the following meanings:
    1. Market value: amount of money for which property would be sold on

    the market on a given date;

    2. Small and medium enterprises: businesses which include micro, small
    and medium enterprises that fulfil at least two of three conditions based

    on net capital investments, annual turnover and number of employees,
    as follows:
    a) Micro enterprise: business having less than five hundred thousand
    Rwandan francs (FRW 500,000) as net capital investments, less than

    three hundred thousand Rwandan francs (FRW 300,000) as annual
    turnover and having between one (1) and three (3) employees;
    b) Small enterprise: such business having from five hundred thousand
    Rwandan francs (FRW 500,000) to fifteen million Rwandan francs
    (FRW 15,000,000) as net capital investments, from three hundred
    thousand Rwandan francs (FRW 300,000) to twelve million Rwandan
    francs (FRW 12,000,000) as annual turnover and having from four (4)
    to thirty (30) employees;
    c) Medium enterprise: business having from fifteen million Rwandan
    francs (FRW 15,000,000) to seventy million Rwandan francs (FRW
    70,000,000) as net capital investments, from twelve million Rwandan
    francs (FRW 12,000,000) to fifty million Rwandan francs (FRW
    50,000,000) as annual turnover and having from thirty-one (31) to one
    hundred (100) employees.
    3. Basic infrastructure: activities that are made available to the population
    by the government for the purposes of boosting their social development,
    including roads, schools, health facilities, water, electricity, etc…
    4. Improvements: immovable structures or amenities that are not
    buildings but increase the actual value of a plot of land or a building;
    5. Title deed: a written legal document confirming a person’s right to
    property which is delivered by the competent authority in accordance
    with the law;
    6. Assessment cycle: a repetitive period of five (5) years that commences
    on 01 January of the first year after the commencement of this Law for
    which assessment of tax is done;
    7. Plot of land: a registered piece of land with clear boundaries owned by
    one or several persons;
    8. Public institution: Government-owned commercial or non-commercial
    entity having legal personality and enjoying financial and administrative
    autonomy and which is established by a specific law;
    9. Building: a house or other similar structure used on a permanent or
    temporary basis;
    10. Residential building: a house intended for occupancy for dwelling
    purposes;
    11. Industrial building: a house for which the competent authority has
    authorized the construction for industrial purposes; 
    12. Commercial building: a house for which the competent authority has
    authorized the construction for commercial purposes;
    13. Decentralized entities: local administrative entities having legal
    personality and enjoying administrative and financial autonomy;
    14. Owner of a property: a person registered as owner of an immovable
    property or a holder of other rights on the property and whoever is
    considered to be the owner of the property thereof in accordance with
    Rwandan law;
    15. Usufruct: right to use and benefit from the proceeds from property of
    another person in the same way as its owner on conditions of preserving
    its substance; 
     16. Undeveloped land: land that is not utilized for the intended purpose as
    provided for by laws governing land use and management;
    17. Person: any individual, entity, government institution, company or any
    other association;

    18. Taxpayer: any person who is subject to tax in accordance with this Law;
    19. Immovable property tax: tax levied on property that has a fixed

    location and cannot be moved elsewhere and improvements thereto;
    20. Rental income tax: tax levied on income derived from rented immovable
    property;

    21. Trading license tax: a tax levied on business activities carried out in
    defined boundaries of decentralized entities;

    22. Tax administration: institution in charge of assessment and collection

    of taxes on behalf of decentralized entities. 

    Application activity 3.1

    1. With examples, differentiate
    a) Micro enterprise and Medium enterprise

    b) Commercial building and Residential building

    2. What do you think is the purpose of decentralized entities?

    3.2: Sources of revenue and property of decentralized entities

    Learning Activity 3.2

    A general/fiscal/revenue tax is levied to raise public funds for government service. Therefore, property tax is based on the value of property such as land, houses, shopping centers and factories. This tax is imposed by municipalities on owners of property within their jurisdiction based on the value of such property. In Rwanda, local government taxes were collected by the districts but in 2014 this task was delegated to the RRA.


    In this context, which revenues are collected by RRA on behalf of local 

    government entity?

    3.2.1. Sources of revenue and property of decentralized entities

    The revenue and property of decentralized entities come from the following

     sources:

    i. Taxes and fees paid in accordance with the decentralized tax structure
    ii. Funds obtained from issuance of certificates and their extension by
    decentralized entities;
    iii. Profits from investment of decentralized entities and interests from their
    own shares and income-generating activities;
    iv. Administrative fines;
    v. Loans;
    vi. Government subsidies;
    vii. Donations and bequests;
    viii. Fees from partners;
    ix. Fees from the value of immovable property sold by auction;
    x. Funds obtained from rent and sale of land of decentralized entities;
    xi. All other fees and administrative fines that can be collected by decentralized
    entities according to any other Rwandan law

    Application activity 3.2

    Burera District has a project plan of building a football stadium that will
    cost 4 billion, Ministry of Finance has allocated 3 billion under Burera
    District Budget
    Burera district need other revenue to increase the budget for all planned

    district activities.

    Question:

    Apart from the budget from Ministry of Finance, what are other Sources of

    revenues for Burera District?

    3.3: Types of Taxes to be paid to Decentralized Entities

    Learning Activity 3.3

    Mr Robert rent a house owned by three siblings who are orphans, that
    house was left by their parents
    On 31st January 2023 is the deadline of property tax.
    Both Robert and those siblings do not know about Property tax.
    Suggest them who is liable to pay property tax among Robert and siblings.

    3.3.1: Immovable property tax

    Immovable Property Tax is a tax levied on the market value of a building and
    the surface of a plot of land. The land and buildings are referred to as the
    ‘Immovable Property’. In order to facilitate taxpayers, the market value of the
    building only needs to be assessed every five years, unless major changes in the
    building and structures occur. 
    1. Tax payers of immovable property tax

    According to Article 6 of Law 75/2018, the immovable property tax is assessed
    and paid by the owner, the usufructuary or any other person considered being
    the owner. The owner who lives abroad can have a proxy in Rwanda. Such
    a proxy must fulfil the tax liability that this Law requires from the owner.
    Misrepresentation is considered as if it is done by the owner. The tax liability on
    immovable property is not terminated or deferred by the disappearance of an
    owner of immovable property, or if the owner has disappeared without leaving
    behind a proxy or other person to manage the immovable property on his or
    her behalf.
    2. Commencement of the Tax Liability for the Usufructuary

    Article 7 of Law 75/2018 stipulates that the tax liability for the usufructuary
    runs from the date of commencement of the usufruct.
    3. Co-ownership of Immovable Property

    According to Article 8 of Law 75/2018, if immovable property is owned by
    more than one (1) co-owner, the co-owners appoint and authorize one of them

    or any other person to represent them jointly as a group of taxpayers. 

    If co-owners of immovable property have not appointed a co-owner or a proxy
    to represent them jointly as a group of taxpayers, the tax obligations related to

    the immovable property will be settled in accordance with laws regulating coowned property

    4. Persons considered being Owners of Property

    According to Article 9 of Law 44/2018, the following persons are considered to
    be owners of property:
    i. The holder of immovable property where the property title deed has not
    yet been transferred in his/her own name;
    ii. A person who occupies or who has used the immovable property for a
    period of at least two (2) years as if he/she is the owner as long as the
    identity of the legally recognized owner of such property is not known;
    iii.A proxy who represents an owner of property who lives abroad;
    iv. A usufructuary;
    v. An administrator of an abandoned property.

    5. Change of Ownership of Property

    Article 10 of Law 75/2018 stipulates that in case there is a transfer of ownership
    of an immovable property for any reason within the tax period, the acquirer of
    immovable property is liable for tax from the date of the transfer. If the former
    owner of the immovable property fails to meet his/her tax obligations, he/she
    is liable for payment of the fines and late payment interests in accordance with

    the provisions of the decentralized tax Law.

    6. Immovable Property Tax Base

    According to Article 11 of Law 75 2018, the immovable property tax is levied
    on the market value of a building and surface of a plot of land. If the immovable
    property consists of a plot of land that is not built, the tax on immovable
    property is calculated on each square meter of the whole surface of the plot of
    land. Where the immovable property consists of a plot of land, a building and
    its improvements, the tax on immovable property for a plot of land is calculated
    separately in accordance with the provisions of Paragraph 2 of Article 11, while

    the tax on the building and its improvements is based on the market value. 

    7. Immovable Property Exempted from Immovable Property Tax
    The following immovable properties are exempted from the immovable
    property tax as per Article 12 of Law 75/2018
    i. One building whose owner intends for occupancy for dwelling purposes
    and its annex buildings located in a residential plot for one family. That
    building remains considered as his/her dwelling even when he/she does
    not occupy it for various reasons;
    ii. Immovable property determined by the District Council and donated to
    vulnerable groups;
    iii.Immovable property belonging to the State, Province, decentralized
    entities as well as public institutions except if they are used for profitmaking activities or for leasing;
    iv. Immovable property belonging to foreign diplomatic missions in Rwanda
    if their countries do not levy tax on immovable property of Rwanda’s
    diplomatic missions;
    v. Land used for agricultural and livestock activities which area is equal to
    or less than two hectares (2ha);
    vi. Land reserved for construction of houses in rural areas but where no

    basic infrastructure has been erected; 

    The exemption referred to under item 1 of Paragraph One of this section equally
    applies to each individually owned portion of a condominium. All owners in
    condominium are commonly liable for the tax on commonly owned portions
    of plots of land on which a condominium is built. However, commonly owned

    portions of the building are totally exempted from the tax. 

    8. Period of Immovable Property Valuation
    As per Article 13 of Law 75/2018, the date of valuation of immovable property
    is 1st January of the first taxable year. The value of immovable property is
    determined for a cyclical period of five (5) years. This means that every 5 years
    the property is revalued. It includes the market value of the building and the
    plot of land. For the five (5) years assessment cycle to enable the taxpayer to
    assess the market value of the immovable property, the following must be taken

    into account: 

    i. In the beginning of the second assessment cycle which commences after
    five (5) years and in the beginning of every next assessment cycle, a
    general revision of market value takes place; 
    ii. A global fluctuation of the market value between two (2) general revisions
    is not a reason for a new assessment of immovable property.
    However, the value of immovable property can be reviewed before the end of

    the assessment cycle due to increase or decrease of its value.

    9. Methodology of Valuation of Immovable Property

    Article 14 of Law 75/2018 provides the following methods for evaluating the
    market value of the immovable property.
    If the immovable property was valued within the previous five (5) years and
    no major changes in the buildings and structures, leading to an increase or
     decrease of the immovable property value by more than twenty percent (20%),
    have occurred, this value is regarded as the market value.
     In this case, the taxpayer must provide the certificate of valuation
     to the tax administration for verification purposes;

    iii.If the immovable property was bought within the previous five (5) years
    in the free market and no major changes in the buildings and structures,
    leading to an increase or decrease of the immovable property value by
    more than twenty percent (20%) have occurred, the purchase price is
    regarded as the market value. In this case, the taxpayer must provide the
    acquisition contract for verification purposes to the tax administration; 
    iv. If the taxpayer’s self-assessment on value of property is believed to be
    under valuated, the tax administration will proceed to a counter-valuation.
    If the value difference between the taxpayer’s self-assessment and the
    tax administration’s counter-valuation is more than twenty percent
    (20%), the value from counter-valuation will be regarded as the final
    market value. Otherwise, the taxpayer’s self-assessment value applies.
    The taxable value should be rounded up to the next full one thousand
    (FRW 1,000) in Rwandan francs. 

    Illustrative Example


    Mwubatsi owns a property in Bugesera valued at 100,000,000 FRW during the
    year ended 31st December 2022, he extended his building by
    a) 10,000,000
    b) 30,000,000
    In each of the above cases show the tax base of the asset
    c) Appreciation of the asset: 10%, since the increase in the value of the
    asset is below 20%, the tax base will remain the same. 
    d) Appreciation of the asset: 30%, since the appreciation in the value of
    the asset is above 20%, the new tax base of the asset will be 100,000,000
    + 30,000,000 = FRW 130,000,000 
    10. Tax Rate on Buildings
    According to Article 16 of Law 75/2018, the tax rate on buildings is determined
    as follows:
    i. One per cent (1%) of the market value of a residential building;
    ii. Zero point five per cent (0.5%) of the market value of the building for
    commercial buildings;
    iii. Zero point one per cent (0.1%) of the market value of industrial
    buildings, buildings belonging to small and medium enterprises and
    those intended for other activities not specified in this section. 
    11. Application of Tax Rate on Buildings
    According to Article 17 of Law 75/2018, except for the tax rate of zero point one
    per cent (0.1%), the tax rates prescribed by Article 16 of this Law are applied
    progressively as follows:
     1. For residential buildings a progressive rate is applied as follows:
    a) Zero point twenty-five percent (0.25%) from the first year after the
    commencement of this Law;
    b) Zero point fifty percent (0.50%) from the second year after the
    commencement of this Law;
    c) Zero point seventy-five percent (0.75%) from the third year after the
    commencement of this Law;
    d) One percent (1%) from the fourth year after the commencement of
    this Law;
    2. For commercial buildings a progressive rate is applied as follows:
    a) Zero point two percent (0.2%) of the market value of the building is
    applied in the first year of the commencement of this Law;
    b) Zero point three percent (0.3%) during the second year of the
    commencement of this Law;
    c) Zero point four per cent (0.4%) during the third year of the
    commencement of this Law;
    d) Zero point five percent (0.5%) during the fourth year of the
    commencement of this Law. 
    Residential apartments having a minimum of four floors,
    including basement floors, benefit from reduction of tax rates,
    equivalent to fifty percent (50%) of the ordinary rate.

    12. Tax Rate on Plots of Land

    Article 18 of Law 75/2018, provides that the tax rate on plot of land varies
    between zero (0) and three hundred Rwandan francs (FRW 300) per square
    meter. The tax rate determined by the District Council per square meter of land
    in accordance with the provisions of Article 18 of this Law is increased by fifty
    percent (50%) applicable to land in excess to standard size of plot of land meant
    for construction of buildings. This is per Article 19 of the Law 75/2018. Any
    undeveloped plot of land is subject to additional tax of one hundred percent
    (100%) to the tax rate referred to in Article 18 of this Law. 
    Example
    Haguma owns a property which is located on 500m2
    ; the district council
    approved a tax of FRW 250 per square meter. Required: Compute property tax 

    Solution:

    Since the standard plot is 300m2, the first 300m2, will be taxed at FRW 250, the

    excess to 200m2, the tax will be increased by 50%. 


    13. Tax Declaration on Immovable Property by the Taxpayer

    According to Article 21 of Law 75/2018, the taxpayer must file the declaration
    to the tax administration not later than 31st December of the year that
    corresponds to the first tax period. The taxpayer files to the tax administration
    his/her declaration of the immovable property tax determined in accordance

    with provisions of the Order of the Minister in charge of taxes. 

    14. Declaration of Appreciation and Depreciation

    If, due to changes to immovable property, the value of that property increases
    or decreases by more than twenty percent (20%) within an assessment cycle,
    the taxpayer submits within a period of one (1) month, a new tax declaration to
    the tax administration with all changes thereof and the value of the immovable

    property.

    15. Review and re-assessment of tax by the tax administration

    Tax Administration reviews the tax declaration on immovable property within a
    period of six (6) months starting from 1st January of the year following the year
    for which the tax declaration was made. If the tax declaration on immovable
    property was filed late, the six (6) months period starts from the date on which

    the tax administration received the declaration. 

    The review of the tax declaration on immovable property is based on the nature

    and general state of the immovable property, its location and its actual use.

    16. Tax Assessment Notice

    The tax assessment notice of the tax administration to be addressed to a failing
    tax declarant contains at least the following details:
    i. Tax base calculation outline;
    ii. Calculation of the value of the concerned immovable property;
    iii. Calculation of the tax;
    iv. Names of the owner, his/her proxy or usufructuary;
    v. Address of the owner, the proxy or the usufructuary;
    vi. The due date for tax payment;
    vii. Mode of payment;
    viii. Consequences of late payment or non-payment of tax;

    ix. A reference to the taxpayer’s right to complain and appeal

    17. Waiver of Tax Liability

    According to Article 31 of the Law 75/2018, the concerned District Council can
    only waive the due immovable property tax in the following cases:
    a) The taxpayer has provided a written statement of an inventory of his
    property justifying that he/she is totally indebted so as a public auction
    of his/her remaining property would yield no result;
    b) The taxpayer proves that he/she is not able to pay immovable property
    tax. The taxpayer applying for waiver of immovable property tax liability
    must write to the tax administration. When the request is found valid,
    the tax administration makes a report to the executive committee of
    the competent decentralized entity which also submits it to the District
    Council for decision. The waiver of immovable property tax liability
    cannot be granted to a taxpayer who understated or evaded taxes. 

    18. Late Submission or Incomplete or Misleading Tax Declaration

    Apart from collecting the actual amount of the tax due, the decentralized entity
    shall levy a fine not exceeding 40% of the tax due where:
    1. The fixed asset tax declaration form is not submitted;
    2. The fixed asset tax declaration form is submitted late;
    3. The fixed asset tax declaration form contains incorrect or fraudulent
    information with intent to evade tax.
    4. The fixed asset tax declaration form is substantially incomplete; 

    19. Valuation of Fixed Asset

    As mentioned in Article 6 of the Rwanda Tax Law, the fixed asset tax base is the
    market value of such fixed asset. If the fixed asset constitutes a parcel of land
    that is not built, the market value constitutes as per square meter value times
    the size of that parcel of land. Where the fixed asset consists of a parcel of land
    and a building and improvements, the aggregate value of the land, the building
    and improvements constitute the market value of such fixed asset.

    Where a parcel of land, building, improvement and usufruct have been
    purchased, the purchase price shall be taken as the tax base, unless it is patently
    clear that the purchase price is below the market value. The taxable value

    should be rounded up to the next full one thousand Rwandan francs.

    Example 1

    Bagirayabo is located in Gisenyi town. He owns the properties below which
    are used for commercial purposes; the residential property which he dwells
    with his family, and a commercial building. The market value of the residential
    building is FRW 130,000,000 and the market value of the commercial building

    is FRW 250, 000,000 

    Required: Compute the property tax Bagirayabo should pay to RRA.
    Solution
    Since the residential house is dwelled by the owner, it is exempted from the

    property tax. 

    The commercial building will be taxed in the following ways:


    

    3.3.2: Trading License Tax

    Trading License Tax, also informally known as ‘patente’, is a tax levied on any
    person or business conducting profit-oriented activities. Trading License Tax

    must be declared and paid for each business branch or premises.

    a) Tax Year

    The tax period for the trading license tax starts on January 1st and ends on
    December 31st of that same year. If taxable activities start in January, the
    trading license tax must be paid for a whole year. If such activities start after
    January, the taxpayer must pay trading license tax equivalent to the remaining
    months including the one in which the activities started. As regards to persons
    conducting seasonal or periodic activities, the trading license tax must be paid
    for a whole year, even though the taxable activities do not occur throughout the

    whole year.

    b) Trading license tax rate

    The trading license tax is calculated on the basis of the following tables

    Table I. All value added tax (VAT) registered profit-oriented activities


    Table II. Other profit-oriented activities


    Taxpayers who sell goods or services exempted from value added tax but
    whose turnover is equal or greater than twenty million Rwandan francs (FRW
    20,000,000) pay the trading license tax in the same manner as taxpayers

    registered for value added tax. 

    The basis for the calculation of trading license tax in table I above is the turnover

    of the previous year.

    c) Tax Exemption
    – Non-commercial State organs,
    – Small and medium enterprises during the first two (2) years following
    their establishment or 24 months of establishment, are exempted from
    trading license tax. After expiration of the 24 months, the taxpayer
    must declare and pay Trading License Tax within seven days.
    d) Trading license tax declaration
    Any taxpayer files a tax declaration to the decentralized entity where his/her
    activities are undertaken not later than 31st January of the year that corresponds
    to the tax period.
     If a taxpayer has branches, a trading license tax declaration is required for the
    head office as well as for each branch of his/her business activities basing on
    the turnover of the previous year for the head office and for each branch. 

    In case a branch does not have or cannot determine its turnover, the trading

    license tax is declared based on the turnover of the head office.

    If a taxpayer carries out different business activities in different buildings, he/
    she files a trading license tax declaration for each business activity.

    When a business is made of several activities carried out by the same person in
    the same building, only one trading license tax certificate is required and only

    one tax declaration for all business activities is filed.

    In case a business is spread across more than one District, the taxpayer files

    his/her declaration of trade license tax in each District where he/she operates. 

    e) Trading license tax payment

    The trading license tax assessed by a taxpayer himself/herself is paid to the tax

    administration not later than 31st January of the tax year.

    If the trading license tax is not paid by the due date, the taxpayer is not allowed
    to start or to continue his/her business activities without having paid such tax.

    Business activities undertaken while the taxpayer is in arrears with the payment
    of his/her trading license tax are illegal. The tax administration has the power

    to stop such activities.

    f) Posting of the trading license tax certificate

    The trading license tax certificate is displayed clearly at the entrance of the
    business premises or affixed to the car, boat or any other vehicle for which the

    tax was paid. 

    was paid.

    g) Presentation of the trading license tax certificate

    Whenever necessary, the holder of a trading license tax certificate presents such
    a certificate with documents identifying him/her or his/her business activities

    to the tax administration. 

    Failure to present the trading license tax certificate is punishable by an
    administrative fine of ten thousand Rwandan francs (FRW 10,000). The
    taxpayer’s obligation to pay the trading license tax is not affected by the

    imposition of a fine.

    h) Replacement of the trading license tax certificate

    If a trading license tax certificate is lost or damaged, a duplicate is issued by the
    tax administration for a fee equivalent to five thousand Rwandan francs (FRW

    5,000).

    i) Replacement of the trading license tax certificate

    In case the taxpayer terminates or changes his/her business activities during
    a taa) Payment of Rental Income Tax

    Rental income tax is charged on income generated by individuals from rented

    fixed assets located in Rwanda. The natural person who receives such an

    income is the taxpayer. The income taxable year for calculating the tax starts on

    January 1st and ends on December 31st of the previous year which shall be the


    income taxable year.x year, he/she is, after an audit, refunded the paid trading
     license taxdepa) Payment of Rental Income Tax Rental income tax is charged on income 
    generated by individuals from rented fixed asseta) Payment of Rental Income Tax
    Rental income tax is charged on income generated by individuals from rented
    fixed assets located in Rwanda. The natural person who receives such an
    income is the taxpayer. The income taxable year for calculating the tax starts on

    January 1st and ends on December 31st of the previous year which shall be the

    income taxable year.s located in Rwanda. The natural person who receives

     such an income is the taxpayer. The income taxable year for calculating 

    the tax starts on January 1st and ends on December 31st of the previous 

    year which shall be the income taxable year.ending on the remaining

     months until 31st December of that tax period. 

           3.3.3: Rental Income Tax


    Rental Income Tax is a tax levied on the income generated from rented land and
    buildings. The land and buildings are referred to as the ‘Immovable Property’
    and Rental Income Tax must be declared and paid on rented immovable

    properties in addition to Immovable Property Tax. 

    a) Payment of Rental Income Tax

    Rental income tax is charged on income generated by individuals from rented
    fixed assets located in Rwanda. The natural person who receives such an
    income is the taxpayer. The income taxable year for calculating the tax starts on
    January 1st and ends on December 31st of the previous year which shall be the

    income taxable year.

    b) Taxable Rental Income

    Rental income tax is charged to the following:

    1. Income from rented buildings in whole or in part;
    2. Income from rented improvements in whole or in part;

    3. Income from any other rented immovable property located in Rwanda.

    c) Rental Contract

    The rental contract in respect of immovable property is in writing and signed
    by the contracting parties. A copy of this contract is submitted to the tax
    administration within fifteen (15) days following the date the contract was
    signed. 

    d) Rental income tax computation method

    The taxable rental income is obtained by deducting from the gross rental income
    fifty percent (50%) considered as the expenses incurred by the taxpayer on
    maintenance and upkeep of the rented property. 
    When the taxpayer produces the proof of bank interest payments on a loan for
    the construction or purchase of a rented property, the taxable rental income
    is determined by deducting from gross rental income fifty percent (50%)
    considered as the expenses incurred for upkeep of the property plus actual
    bank interest paid from the beginning of the rental period within the tax period. 

    e) Rental income tax rate

    Rental Income Tax is a progressive tax. This means that there are different
    tax rates depending on taxpayer’s taxable income, as described above. The
    groupings of taxable rental income are called tax brackets. The tax rates for

    each tax bracket are:

    1° The bracket part of the annual income generated through rental of a building
    from one Rwandan franc (FRW 1) to one hundred eighty thousand Rwandan

    francs (FRW 180,000) shall be taxed at zero percent (0 %); 

    2° The bracket part of the annual income generated through rental of a building
    from one hundred eighty thousand and one Rwandan francs (FRW 180,001) to
    one million Rwandan francs (FRW 1,000,000) shall be taxed at twenty percent

    (20 %); 

    3° the bracket part of the annual income generated through rental of a building
    above one million Rwandan francs (FRW 1,000,000) shall be taxed at thirty

    percent (30 %). 

    It is important to note that these tax rates are marginal. This means that for each
    taxpayer in each year: the first FRW 180,000 that the taxpayer earns is taxed at
    0%, the next FRW 820,000 earned is taxed at 20% and any remaining income
    is taxed at 30%. This means that no taxpayer is made worse off by receiving

    income in a higher tax bracket. 

    Illustration Example

    Munyantore owns two properties in Remera which he rents to various business
    men. In Property one he receives a monthly rent of FRW 800,000 starts on
    05-January-2021 and in Property two he receives a monthly rent of FRW
    1,250,000, same period as above. Property two was constructed using a loan of
    FRW 13,000,000 from the bank at an interest rate of 16% per annum. 
    Required:
    a) Calculate His taxable rental income

    b) Determine His Tax liability and the Tax Payable.

    Solution
    Computation of Rental income for Munyantore for the Year Ended
    31/12/2021

    Property One:

    Property Two:


    Taxable income from two properties: FRW 4,800,000 + FRW 5,420,000 = FRW
    10,220,000

    Computation of Tax Payable of the Year Ended 31/12/2021



    3.3.4: Local Government Fees

    a) What are local government fees?
    There are a wide range of local government fees. These can be for taxpayers who
    conduct profit-oriented activities or who require services or authorizations

    from District Offices. 

    b) Third parties which also collect local government fees

    Ngali Holdings Ltd is mandated to support RRA in collecting all local government
    fees. Millennium Savings and Investment Cooperative (MISIC) also collects

    parking fees. 

    In addition, the declaration and payment of the following local government
    fees is now processed through the e-Government platform known as Irembo or

    Rwanda Online: 

    – Civil status certificates, including Birth, Marriage and Death certificates.

    – Transfer of land titles.

    c) Deadlines to declare and pay different types of local government
    fees
    The deadline to declare and pay local government fees depends upon the basis
    of the fee. Fees charged for a service, such as fees on official certificates and
    documents to be notified by the public notary, must be declared and paid before
    the service is delivered.

    Fees payable on a monthly basis, such as Public Cleaning Service Fees, must be
    declared and paid no later than the 5th of the following month. Fees payable on
    an annual basis, such as fees on advertising, must be declared and paid no later

    than 31st December of that year.

    d) Types of different local government fees and rates

    The rates of many local government fees are variable, within certain thresholds,
    depending upon certain factors such as the location, i.e. urban, trading centre, or
    rural, or the vehicle details. The exact rate, within the thresholds, is determined

    by the District Council on an annual basis by the 30th June.

    The list of local government fees, detailed in the Presidential Order Determining
    Fees Levied for Public Services and Certificates Delivered by Decentralized Entities

    are displayed below.

    The processes for declaring these fees varies, depending upon the type of fee.

    Note that vulnerable people may request a waiver from fees by the District

    Council for all of the following fees.

    Market fees
    – For traders in designated market areas.
    – Up to FRW 10,000 per month.
    Fees charged on public cemeteries
    – For entombing a corpse in a public cemetery.
    – FRW 500 – FRW 5,000 per tomb.
    – Depend upon the cemetery.
    Fees charged on parking
    – For motor vehicles parking in lots under the authority of the District.
    – FRW 100 per hour – FRW 20,000 per month
    – Depend upon the size of the vehicle and duration of the parking.
    – Collected by Millennium Savings and Investment Cooperative (MISIC).
    – Exemptions for vehicles on official duty owned by State, Embassy, UN
    organizations and international organizations having an agreement
    with the Government of Rwanda; special vehicles for disabled people. 
    Fees charged on public parking
    – For transport vehicles (buses and taxis) entering public bus/taxi parks.
    – FRW 500 – FRW 10,000 per day, multiple entry.

    – Depend upon the size of the transport vehicle.

    Parking fees on boats
    – For boats used for profit making activities.
    – FRW 100 per day – FRW 5,000 per month.
    – Depend upon the carrying capacity of the boat in tones, and whether it
    has an engine.
    Public Cleaning Fees
    – Payable by each branch of a business or institution, excluding:
    • Households
    • Orphanages / vulnerable persons’ houses
    • Government institutions which are not profit oriented
    • Churches and faith-based organizations not involved in profitoriented activities
    • United Nations institutions and embassies
    • People carrying out their activities in market places paying market

    fees 

    – FRW 500 – FRW 10,000 per month. 

    – Depends upon the location and nature of activity.

    Fees on civil marriage done not on official business days
    – Up to FRW 10,000 per marriage.
    – District Council determines the official business days for civil marriage.
    Fees on services related to the documents of immovable property
    – A range of services including changing official ownership, map requests
    and building permits.
    – FRW 1,200 – FRW 60,000.
    – Depend upon the service requested. Building permits depend upon the
    floor area in square meters.
    – Vulnerable people may request to be exempted from building permit
    fees by the District Council.
    Fees on official certificates and documents to be notified by the public notary
    – For official certificates (such as civil status, birth or death) or the
    notification of documents.
    – FRW 500 – FRW 5,000.
    – Depends upon the type of certificate or document to be notified. 
    Fees on authorization to make or burn bricks and tiles
    – Any person intending to make or burn bricks and tiles must request
    authorization from the District.
    – FRW 10,000 per year.
    – Any person putting up advertising billboards and banners must request
    authorization from the District.
    – FRW 10,000 – FRW 20,000 per square meter for each side of regular
    billboards per year.
    – FRW 60,000 – FRW 100,000 for billboards using information technology
    per year.
    – FRW 5,000 – FRW 10,000 per day for banners
    – Exemptions include:
    • Advertising on buildings and vehicles owned by a company.
    • Billboards or signposts showing the direction of a given activity
      but no other commercial advertising message. 
    Fees on boat number plates        
    – For the number plate required to operate a boat.
    – FRW 5,000 – FRW 15,000 per number plate.
    – Depend upon whether the boat has an engine. 
    Fees on bicycle number plates
    – For bicycles used for profit making activities.
    – FRW 1,000 per number plate. 
    Fees on communication towers
    – For erected communication towers.
    – FRW 2,000 per vertical meter per year.
    – FRW 1,000 per vertical meter per year for any underlying building or
    structure. 
    Fees on transport of materials from quarries and forests
    – For transport of materials from quarries and forests.
    – FRW 1,000 per tone, payable on every loading. 

    Application activity 3.3

    1. Tubyine Fun Pub is established in 1st April 2021. As the pub is
    considered a small enterprise, it will be exempted from Trading
    License Tax. Show the date it will be required to pay its first trading
    license and the deadline of paying its trading license for the second
    year.

    2. Dukore opens a small shop in Rubavu in March 2022. The tax due
    for the full tax year for “other profit-oriented” activities in an urban
    area is FRW 30,000.

     Calculate the Trading License Tax to pay to the decentralized entity.

    3. Mwiza is a resident of Rwanda. In 2022, She owns two commercial
    properties in Gisozi which she rents to various individuals. Each
    property is rented at FRW 1,200,000 per month. All properties
    received tenants the whole year. In the construction of the first
    property, Mwiza borrowed FRW 20,000,000 from EQUITY Bank
    Rwanda and she pays annual interest rate of 17%. Compute her

    rental income and the rental tax liability.

    4. Kazungu is a registered trader in Nyabugogo market. On every
    Friday, he takes part of the goods to the newly constructed Shyorongi
    market to attract more clients outside Kigali. In Nyarugenge district,
    the threshold of market fees is fixed at FRW 10,000 per month and
    per stall in Muhima, Nyarugenge and Gitega Sectors. The council of
    Rulindo district have decided to fix at FRW 3,000 market fees per
    stall in all constructed markets across the district.

    Required: Calculate the monthly market fees to be paid by Kazungu. 

    3.4: Other Sources of Revenue for Decentralized Entities

    Learning Activity 3.4

    In our previous lesson, we learned about different types of revenue streams
    generated by decentralized entities. However, there may be other sources

    of revenue for local governments. Could you please explain some of them? 

    3.4.1: Loans

    A decentralized entity can borrow money with prior approval of the Minister
    in charge of finance in accordance with the Organic Law on State Finance and

    Property. 

    Borrowings of a decentralized entity are only for investment according to the

    development plans of this entity. 

    3.4.2: Investments

    A decentralized entity can invest in companies and financial institutions. The
    authorization to invest in companies, commercial banks and other private
    institutions is granted by the Minister in charge of finance after consultation

    with the Minister in charge of Local Government. 

    An Order of the Minister in charge of finance determines regulations in relation

    to the amount for investment and other matters relating to investment. 

    3.4.3: Government Subsidies

    Every year, the Government transfers to decentralized entities at least five
    percent (5%) of the domestic revenue of the previous tax period in order to

    support their budgets. 

    Application activity 3.4

    Q1. How much money the Government transfers to the decentralized

    entities and why?

    Skills Lab Activity 3

    After a visit to the RRA office, students will have to produce a written
    report on decentralized taxes and fees collection and explain the challenges
    faced by the tax administration in collecting these taxes and they will
    solve problems of citizens not registering their property/business for tax

    purposes.

    End of unit assessment 3

    Question 1 Ntabwoba owns the following properties in Gasabo valued on 1st January 

    2019


    Question 2

    Suppose Agaciro Bank, apart of its Headquarters, has six (6) branches
    in Nyarugenge district, five (5) branches in Kicukiro district and four
    (4) branches in Gasabo district. The following additional information is

    relevant:

    – The turnover of Agaciro Bank for the year 2022, according to the
    information provided by RRA, is FRW 6,000,000,000;

    – The turnover of each branch is the average from the total turnover

    Required:
    a) Calculate the trading license tax belonging to each district
    b) Calculate the total trading license tax for Agaciro Bank;
    Question 3
    Uwineza owns two properties in Kicukiro. The first property was
    constructed in 2010 at a cost FRW 150,000,000. During the construction,
    she borrowed FRW 50,000,000 from the bank and she pays an interest rate
    of 15%. The property was occupied from 1/1/2015 to 31/12/2015. The
    second property was constructed in 2014 at a cost of FRW 125,000,000
    using her own money. The property was occupied from 1/5/2015 to
    31/12/2015. Each property is rented at FRW 3,500,000 per month.
    Uwineza incurred the following expenses on the two properties duringthe year.
    i. Salaries of the manager FRW 4,800,000
    ii. Electricity FRW 2,500,000
    iii. Painting FRW 4,500,000
    iv. Water FRW 1,200,000
    v. Depreciation FRW 10,500,000
    vi. Security personal FRW 5,000,000
    Required
    Compute the taxable rental income and the tax liability for the year ended
    31/12/2015


    ◄UNIT 2: WITHHOLDING TAXESUNIT 4: CUSTOMS AND 4 CONSUMPTION TAX►