Topic outline

  • General

  • UNIT 1: TAXATION OF CORPORATE 1 BUSINESS PROFITS

    Key unit competence: Compute corporate income tax (CIT)

    Introductory activity 

    John is tax consultant who works with different companies in providing
    advisory services regarding to taxes matters and do the declaration of their
    taxes as well. For the year ended 30 June 2022, John had many clients and

    among matters that dealt with are shared below:

    1. One of his clients called KIGALI CITY, a government entity, has made
    a surplus of FRW 500,000 and wants John to advice on tax that is
    required to comply

    2. Rweru Ltd another client, has prepared its financial statements for
    the year ended 30th June 2022 and approved, wants John to assess
    and file its annual return to Revenue Authority.

    3. Rubengera company Ltd, a parent company, during the year ended
    30th June 2022, acquired 65% of share in Rutsiro Investment Ltd
    and wants John also to advice on the implication of taxes on the
    investment made in Rutsiro Investment Ltd.

    4. XYZ company Ltd has made a huge investment in construction of
    factory, and during the year ended 30 June 2022, it made a loss of
    FRW 2billion and as the new company has approached also John as
    tax expert to advise them on the implication of taxes on this issue.

    Suppose you are John, advice your clients on these matters noted
    above. What do you think John would base on to advice and drawn

    conclusion to the above matters?

    1.1: Relevant legislation, Chargeable and exempt entities


    1.1.1: Relevant legislation

    The legislation on income tax is established by law no
     027/2022 of 20/10/2022.
    The legislation covers both personal income tax and corporate income tax (CIT)
    besides withholding tax, capital gain tax and tax on gaming activities. In this
    unit we will focus on the calculation of corporate income tax, which is covered

    in Chapter III of the legislation.

    The processes related to calculating both personal income tax and corporate
    income tax, including filing and paying taxes, are very similar and you will have

    seen certain aspects of this unit in Units 4 and 6 in Senior Four.

    Corporate income tax is levied on business profits received by taxpayers other

    than individuals.

    Therefore, in this unit we will consider how we calculate the profits on which

    companies are charged to tax.

    1.1.2: Chargeable and exempt entities

     Any company that receives taxable income must register and pay corporate 

    income tax unless the company is exempt.

    1. Taxpayers

    The following entities will be liable to corporate income tax:
    a) A Ccompany established in accordance with Rwandan law and a
    foreign company registered in Rwanda;
    b) A cooperative society;
    c) A State-owned company;
    d) Trustee, enforcer or protector of a trust;
    e) A foundation;
    f) A protected cell company or a cell of a protected cell company depending
    on the choice of the investor at the time of company registration;
    g) A non-resident in Rwanda person with a permanent establishment;
    h) An entity established by a District or the City of Kigali if that entity
    performs an income generating activity;
    i) An association or entity that is established to realize profits regardless

    of its nature. 

    2. Entities exempted from corporate income tax

    The following entities are exempted from corporate income tax:

    a) The Government of Rwanda;
    b) The City of Kigali;
    c) The district;
    d) The National Bank of Rwanda;
    e) Organisations that carry out only faith-oriented activities,
    humanitarian, charitable, scientific or educational character unless
    the revenue received exceeds the corresponding expenses or if those
    entities conduct a business;
    f) International organisations or agencies of technical cooperation
    if such exemption is provided for by international agreements or
    an agreement concluded between these organisations and the
    Government of Rwanda;
    g) Qualified pension funds;
    h) Public institutions in charge of social security;
    i) Development Bank of Rwanda « BRD »;
    j) Agaciro Development Fund Corporate Trust;
    k) Business Development Fund limited “BDF Ltd”.
    l) Special purpose vehicle, unless the revenue received exceeds the
    corresponding expenses; 
    m) Common benefit foundations;
    n) Resident trustee for income earned by a foreign trust.
    However, entities exempted from corporate income tax are required to submit
    to the tax administration their financial statements not later than 31st March
    following the tax period or three (3) months following specific tax period
    granted to taxpayers who have made an application in accordance with
    provisions of Article 9 of the law No

     027/2022 of 20/10/2022. 

    Entities resident in Rwanda will be liable to corporate income tax on their
    worldwide business profits. However, dividends paid between resident
    companies that have not been subject to withholding tax (as the recipient
    company, being registered with the tax administration, will be exempt from

    WHT) are not included in corporate taxable income. 

    This is because the paying company would have already paid the relevant
    amount of Rwandan CIT on the profits out of which the dividend is paid. Note
    that dividends from overseas companies (for example a foreign subsidiary of
    a Rwandan parent company) are liable to CIT in Rwanda; the amount gross of
    overseas taxes should be included in taxable profit and then the overseas tax

    suffered can be deducted from the CIT liability (as double taxation relief). 

    Application activity 1.1

    1. The Government of Rwanda, the City of Kigali, the Districts, the
    National Bank of Rwanda are exempted from corporate income tax,
    however if they perform an income generating activity are liable to
    corporate income tax.

    On that context, with convincing reasons explain which of the
    following entities are not subject to Corporate Income tax?
    A. Keza Co Limited that imports sugar, cooking Oil and salt and sell
    them to the retail and wholesalers.
    B. Navigation Co that provides Human resource services to the
    different clients in Rwanda
    C. Gasabo District’s conference hall with its unique TIN that is rented
    to the staff of the district and other people in the country.
    D. None of the above
    2. Tick to show whether the following are taxable or exempt for the

    purposes of corporate income tax:

    1.2: Income tax

    1.2: Income tax

    Learning Activity 1.2

    Muhire is a business man who used to sell the home appliances. He started
    his business in 2018, after 1 year, 2 years and 3 years in business. He made
    a total revenue of FRW 5,000,000, FRW 10,000,000 and FRW 15,000,000
    respectively. As the business was growing, Muhire recruited an accountant
    to facilitate him in preparing the financial statements and declaration of
    taxes. During the year ended 31st December 2022, Muhire’s profit or loss
    account shown a total revenue of FRW 50,000,000 and expenses of FRW
    30,000,000 but included in the expenses were personal expenses of FRW

    20,000,000.

    Question:
    As student of taxation, advice Muhire on the income tax to pay

    1.2.1: The income tax regimes

    Different income tax regimes apply to calculate corporate income tax for
    companies’ dependent on their level of turnover. For companies with turnover
    exceeding FRW 20,000,000 the real regime applies which means that companies
    will need to calculate their taxable trading profits. This is done by adjusting the

    accounting profits in exactly the same way as we saw for a sole trader.

    As you saw in Unit 6 in Senior Four, income tax has three rules (regimes) for
    taxpayers based on their annual sales. These rules apply equally to corporate
    taxpayers. The calculation of corporation tax under flat rate taxation and sales
    tax/lump sums has been summarized in Senior Four’s Unit 6. Businesses with
    annual sales (annual turnover) of more than FRW20,000,000 must apply the
    real regime and pay corporation tax at 30% on their taxable income. The
    calculation of taxable income is covered in this unit.

    1.2.2: Taxable income

    The taxable income is the amount on which a company will be liable to corporate
    income tax.

    Taxable income for companies is calculated as


    In this topic we look at the calculation of taxable trading profits. The other
    income to be included is covered in sub-heading 1.3 and losses are covered in

    sub-heading 1.6

    1.2.3: Taxable trading profits

    In exactly the same way as for a sole trader business, the accounting profit of the

    company must be adjusted for tax purposes to give the taxable trading profits.

    The adjustments made for companies are identical to those for a sole trader

    and are covered in Unit 6 of senior four. 

    Companies are entitled to the same tax depreciation as we saw in Unit 4 in
    senior four and the same adjustment is made for the difference between
    the amount charged as depreciation in the accounts and the amount of tax

    depreciation which is deductible. 

    Application activity 1.2

    Which of the following correctly states the adjustments to be made to a
    company’s trading profits for tax purposes? (Tick one column for each

    item)


    1.3: Other income for companies

    Learning Activity 1.3

    Muhanga Enterprise Ltd, is company located in Muhanga district that
    do farming activities. During the board members’ meeting, the chair
    suggested to expand the investment as the accumulated profit presented
    by the management showed that the company has so far generated more
    reserves. From the suggestion of chair, the meeting resolved the following:
    1. To buy 10% of share in Shyongwe Ltd one company specialized in
    bookkeeping.
    2. To deposit some money in one commercial bank under the fixed
    term deposit at the annual interest rate of 12%.
    3. To construct residential houses near Muhanga city and start renting

    them to the visitors. 

    Question

    Apart from the income Muhanga Enterprise Ltd generating from its main
    business of doing farming activities, what else do you think as other
    incomes that are going to be generated if the resolutions of Board meeting

    are implemented by Muhanga Enterprise Ltd’s management.

    1.3.1: Taxable income

    In addition to the taxable trading profits, companies will also be taxed on their

    investment income and rental income receivable during the year. 

    After the taxable trading profits are calculated, other income must be brought

    in to calculate the company’s taxable income. 

    1.3.2: Investment income

    Dividends received by Rwandan companies from another Rwandan entity will
    be non-taxable and should be excluded from the taxable income calculation.

    Only overseas dividends would be included in the calculation of taxable profits. 

    From the investment income any investment expenses can be deducted. This

    will include any carrying charges and interest expense.

    The net investment income is then included in the taxable income calculation

    although when submitting a corporate income tax declaration, the investment 

    income and investment expenses will actually be entered in different rows of

    the declaration.

    Be reminded that, all investment income in the form of interest, dividends
    and royalties must be included unless these are non-taxable. These may have
    been received net of withholding tax but the gross amount must be declared as
    taxable income and then the tax withheld will be included in the calculation of

    the tax due.

    1.3.3: Rental income

    Rental income from buildings is included in taxable income. Related expenses
    are allowable, including tax depreciation on the building and any related

    interest on loans to acquire/improve the building. 

    A deduction can be made for rental income from machinery, equipment, land

    and livestock.

    The deduction can include:
    10% of the rental income as wear-and-tear expense
    Interest paid on loans to purchase the rented items

    Tax depreciation according to the usual rules (as per Unit 4 of senior four)

    Note that rental income for personal income tax purposes of taxpayers (i.e.
    individuals) is declared separately from corporate profits, while rental income
    for a corporation is included in the calculation of taxable income. This includes
    rental income from the rental or leasing of machinery, equipment, land,
    buildings and livestock. The special regulations for calculating the amounts

    subject to rental income tax for buildings do not apply to companies.

    Application activity 1.3

    1. Mwiza Ltd prepares its accounts to the year ended 31st December.
    In the year its financial statements show the following:
    – Interest income of FRW 680,000, which is received net of 15%
    withholding tax
    – Royalty income of FRW 595,000, also received net of 15%
    withholding tax
    – Expenses of managing the investments at FRW 50,000.
    Calculate the investment income which will be included in Mwiza Ltd’s

    taxable income.

    2. Mugonero Ltd bought a tractor for FRW 1,000,000 in the year ended
    31 December 2021 which it rents out. During the year ended 31
    December 2022 it received monthly rental income of FRW 20,000.
    When it bought the tractot Mugonero Ltd took out a loan of FRW
    800,000 to help purchase the tractor and it pays interest on this
    loan at a rate of 4% per annum.

    Required: What is Mugonero Ltd’s rental income to be included in its
    taxable income calculation?
    A. FRW 134,000
    B. FRW 240,000
    C. FRW 184,000

    D. FRW 158,000

    1.4: Total taxable income for companies

    Learning Activity 1.4

    Muhire is Managing Director and founder of Urumuri Ltd and he is looking
    for an expert in tax to help his company to prepare the taxable income. The
    following is the extract of the profit or loss account of Urumuri Ltd for the

    year ended 31st December 2022.


    Suppose Muhire has approached you as an expert, help Urumuri Ltd to

    prepare the total taxable income for the year ended 31st December 2022.

    1.4.1: Calculation of total taxable income for companies

    The taxable income is calculated by bringing together all the sources of taxable

    income as below:


    Application activity 1.4

    Turakize Plc is a Rwandan company registered with the tax administration 
    and trading in furniture manufacturing. Its audited profit or loss account

     for the tax period is shown below:


    Notes

    1. Rental income was earned by letting out spare items of machinery
    that cost FRW 150,000,000. These items are included in the other
    plant and machinery pool (see Note 3).
    2. This interest did not suffer withholding tax as it was derived from a
    long-term bank deposit.
    3. There were no acquisitions or disposals of assets in the period.
    4. Tax written down values of fixed assets at 1st January are as follows:
    5. Buildings: FRW 300,000,000 (original cost FRW 500,000,000)
    6. Other plant and machinery pool: FRW 60,000,000
    7. This bad debt was written off in the period after the customer was
    declared insolvent by a court. The income was taxed in the previous
    accounting period.
    8. This represents a proportion of the value of all goods sold.
    9. The company has paid the correct PAYE on all amounts included as
    wages and salaries.
    10. Legal and professional fees include a fine for breaching safety
    regulations of FRW 1,500,000. The remaining FRW 2,500,000
    relates to accountancy and debt collection services.
    11. Interest payable is on a business loan used to invest in working
    capital.
    Required: Compute the total income chargeable to corporate tax on

    Turakize Plc for the tax period.

    1.5: Corporate restructuring and tax on liquidation

    Learning Activity 1.5

    Karangazi Ltd is a company specialized in producing and selling Maize flour,
    during the year ended 31st December 2022, the shareholders of Karangazi
    Ltd decided to transfer their 70% of assets and liabilities to Kiramuruzi Ltd

    after assessing the performance of the company.

    Question

    1. On your understanding, what do you think was happened in
    Karangazi Ltd?
    2. Assuming, you have been appointed to assess the implication of
    taxes on the above decision made by Karangazi Ltd’s shareholders,

    what is your recommendation?

    1.5.1: Definition of restructuring

    A corporate reorganization occurs when one of the following events occurs:
    • A merger of two or more Rwandan resident companies
    • The acquisition of 50% or more of a company in exchange for shares in
    the purchasing company
    • The acquisition of 50% or more of the assets and liabilities of a company
    in exchange for shares in the purchasing company.
    • The purchase of all of a company’s assets so that it is replaced by
    another company
    • The splitting up of a Rwandan resident company into two or more

    separate companies

    1.5.2: Implications of restructuring

    The transfer of assets by a company during restructuring is exempt from

    corporate income tax.

    In case of restructuring of companies, the transferring company is exempt from
    tax in respect of capital gains and losses realized on restructuring. The receiving
    company values the assets and liabilities involved at their book value in the
    hands of the transferring company at the time of restructuring. The receiving
    company depreciates the business assets according to the rules that would have
    applied to the transferring company as if the restructuring did not take place.
    In case of restructuring, the receiving company is entitled to carry over the
    reserves and provisions created by the transferring company, subject to the
    conditions that would have applied to the transferring company as if the
    restructuring did not take place. The receiving company assumes the rights
    and obligations of the transferring company in respect of such reserves and

    provisions. 

    1.5.3: Implications of liquidation

    When a company goes into liquidation, its assets are sold and the money is
    used to pay off all of the company’s debts. The remaining money is then paid
    out to the shareholders and treated as a dividend (for personal income tax and

    withholding purposes) in the last taxable period of the company’s existence.

    1.5.4: Impact on losses

    A restructuring is likely to lead to a transfer of over 25% of a company’s share
    capital; in this case losses being carried forward may no longer be permitted to

    be offset against profits

    Application activity 1.5

    Mibabaro Plc, a Rwandan company, transfers its trade and all of its assets
    to Gakire Plc, an unconnected Rwandan company, in exchange for shares

    in Gakire Plc on 30th November 2022.

    One of the assets transferred was a factory used in the trade that originally
    cost FRW 40,000,000 six years ago and had a written down value of FRW
    28,000,000 for tax purposes. Its market value was FRW 50,000,000 at 30th

    November 2022. 

    Which one of the following statements is true in relation to the tax

    treatment of the transfer of the building?

    A. The building will be transferred at its market value of FRW
    50,000,000 and Mibabaro Plc will pay corporate income tax on
    the gain of FRW 22,000,000.
    B. The building will be transferred at its original cost of FRW
    40,000,000 and Gakire Plc will claim 5% tax depreciation on the
    FRW 40,000,000.
    C. The building will be transferred at its written down value of FRW
    28,000,000 and Gakire Plc will claim 5% tax depreciation on the
    original cost of FRW 40,000,000.
    D. The building will be transferred at its written down value of FRW
    28,000,000 and Gakire Plc will claim 5% tax depreciation on the

    FRW 28,000,000

    1.6: Business loss reliefs


    Question

    The photo above showing the decline of profit and as far as taxation is
    concerned, what do you think the company should do in case the profit

    dropped down until resulting into loss?

    1.6.1: When does a business loss arise?

    Not all companies are profitable. In this lesson, we look at how a company can
    use a loss to reduce the income tax it owes. In addition, there is a loss on a longterm
    contract, we see that there are special rules on how this loss can be used

    to save income tax.

    A company makes a loss when its accounting profit or loss is adjusted for tax
    purposes, the tax depreciation is deducted and the resulting figure is a loss.
    The corporation’s taxable profits for the period of the loss are nil and the loss is
    carried forward to be used against future corporate taxable profits in the next

    five tax periods.

    Where a business makes a loss, Article 31 of Law No
     027/2022 sets out the rules
    as to how that loss can be utilised to save income tax. The rules are the same

    whether the business in question is a sole trader, partnership or company.

    A loss arises when the taxable business profits show as a negative figure after
    the adjustment to profit and after the deduction of tax depreciation. It does
    not matter whether there is a profit or loss in the accounts at the start of the
    adjustment. What matters is that once the profit or loss has been fully adjusted

    for tax purposes, it is a negative number.

    1.6.2: What can be done with a business loss?

    If a company makes a loss, this negative amount is included in the calculation
    of taxable income (because the taxable income is less than the deductible

    expenses).

    The legislation provides that business loss is carried forward and offset against
    business profits within the next five tax periods. But on request, you can be

    granted more than five years if you fulfill the requirements.

     Remember that, if there are losses incurred in more than one period, the

    legislation states that the losses of earlier periods must be deducted first.

    Note that while the law requires the loss to be offset against business income,
    the offset is actually against all taxable income received by the individual or
    by the company receives, as all income is reported on their income tax return
    (personal or corporate). A business loss is the loss arising from all of the taxable

    activities of the individual or company, not just their trading.

    However, if the loss is from a foreign source, this loss cannot be used to offset

    against Rwandan sourced business profits.

    1.6.3: Losses on long-term contracts

    A loss incurred on a long-term contract can be offset against previous profit
    recognised on that same contract, if it cannot be used against other business

    profits of the period.

    Carry back of losses on long-term contracts

    As seen in Unit 6 (Senior four taxation book), the income and expenses relating
    to a long-term contract are charged to the accounts on the basis of the percentage

    of costs actually incurred relative to the total expected costs of the project.

    When a project is expected to be profitable it means that a percentage of profit
    is recognized in each period in relation to the percent completion of the project.
    It is possible that the contract could then incur some unexpected costs. This
    could result in the contract becoming loss-making despite taxation of profits

    taxed in previous periods.

    The loss incurred will reduce the company’s taxable profit of the business in the
    relevant year. If the loss incurred is large enough that it cannot be absorbed by
    other profits of the period in which the contract is completed, the excess loss
    may be “carried back” and used against profits previously recognised for that
    contract. While the legislation does not specify settlement order, it is assumed

    that losses are offset against the most recent contract profits first. 

    Any remaining losses are then carried forward in the normal way.

    Application activity 1.6

    Bibaho Ltd incurred a FRW 80,000,000 business loss in the year ended 31st
    December 2020. In the year ended 31st December 2021 it makes taxable
    trading profits of FRW 120,000.000 and has investment income (gross) of
    FRW 2,500,000 and taxable rEntal income of FRW 5,000,000.

    Calculate Bibaho Ltd’s taxable income for the year ended 31st December
    2021.
    Skills Lab 1

    In group discussions, invite students to make research in library or on
    internet about the calculation of taxable income for companies and
    compute corporate income tax related to the income tax at home / in club

    then present their findings

    End of unit assessment 1

    1. Shakisha Plc is a small Rwandan company which sells scrap metal.

    The company prepares its accounts annually to 31st December.

    For the year ended 31st December 2022, the company’s net profit in
    the profit or loss account was FRW 74,500,000. This was arrived at

    after accounting the following items:

    a) FRW 6,000,000 incurred on repairs to their warehouse was
    charged as an expense. The warehouse was purchased in March
    2022 after it had been damaged in a flood and could not have been
    used in the state it was in at the time of purchase.
    b) Depreciation on fixed assets of FRW 13,000,000.

    c) Entertainment expenditure charged to the accounts was as follows:

    The bad debt relates to a sale which had been taxed in the year
    ended 31 December 2021 and was written off during the year. This
    was due to the debtor being declared insolvent and Shakisha Plc

    has taken all reasonable steps to recover the debt.

    e) The amount of dividend received from Haza Ltd, a fellow Rwandan
    company, recorded in the profit and loss account was FRW
    5,200,000. Shakisha Plc paid dividends of FRW 2,000,000 which

    had been deducted in arriving at the net profit of FRW 74,500,000.

    f) Shakisha Plc received royalty income of FW 4,250,000 during the
    year. This was the amount received during the year. It also received
    FRW 1,200,000 during the year from renting out spare warehouse

    space.

    Tax depreciation for the year end has been correctly calculated at

    FRW 7,000,000.

    Required: Calculate Shakisha Plc’s taxable income for the year

    ended 31st December 2022.

    2. UB Ltd had initially agreed a contract for FRW 20,000,000 and had
    estimated the costs to fulfill the contract at FRW 15,000,000. At the
    end of Year 1, the contract was still in progress and costs incurred to
    date were FRW 10,500,000. Accordingly, the contract was deemed
    70% complete and FRW 3,500,000 of profit was recognized and
    taxed during that year. The company generated FRW 3,000,000 of

    taxable profit on its other business activities in Year 1.

    In Year 2 the contract was completed, and UB Ltd incurred some
    unexpected costs it had not initially anticipated. The total costs
    actually incurred were FRW 22,000,000. This gave an overall loss

    of FRW 2,000,000.

    The project was accounted for correctly, and a loss of FRW 5,500,000

    on this contract was recognized in Year 2.

    UB Ltd has other business profits for Year 2 of FRW 2,750,000 plus

    investment income of FRW 250,000.

    Assuming that UB Ltd wants to claim relief for the contract loss as

    early as possible, how will the loss of FRW 5,500,000 be used?

    A. It will be offset in full against total business profits of FRW
    6,500,000 in Year 1.
    B. It will be offset against total income in Year 2 of FRW 3,000,000,
    and then the remaining FRW 2,500,000 will be offset against the
    contract profit in Year 1.
    C. It will be carried forward and used against future business profits
    D. It will be offset against business profit in Year 2 of FRW 2,750,000,
    and then the remaining FRW 2,750,000 will be offset against the

    contract profit in Year 1.

    3. Nakoze Ltd has incurred the following business profits and losses
    over the last four tax periods:
    Year ended 31st December 2016; Loss FRW (500,000,000)
    Year ended 31st December 2017; Loss FRW (200,000,000)
    Year ended 31st December 2018; Profit FRW 150,000,000
    Year ended 31st December 2019; Profit FRW 400,000,000
    No shares in Nakoze Ltd have been bought or sold over this period.
    Show how the losses are used against profits, compute the
    remaining losses to carry forward at 1st January 2020, and state to

    which year they may be carried forward.

  • UNIT 2: WITHHOLDING TAXES

    Key unit competence: Use different percentages to compute related

                                                      withholding taxes.

    Introductory activity 2.1


    ALICE from Bugesera District, last year 2022 she was given FRW
    200,000,000 from expropriation and that money was invested in Bugesera
    Town and then she has invested in different projects. Buying shares from
    Bank of Kigali (BK) and buying Machine Tractors construction roads in
    that District. ALICE has imported construction materials to be used in road

    construction.

    Q1. Based on above case, is ALICE liable to pay taxes? Which type of tax?

     Q2. Based above case, which goods and services will be taxable?

    2.1: The feature of withholding taxes, imports and public

    tenders

    Learning Activity 2.1

    Ms. Kevine, legal expert, importer and a businessman who bids public
    tenders has been given a contract for law writing services for Rwandan
    central government for a value of FRW 500,000 plus VAT at 18%. Kevine was
    registered by the tax administration and she complies with all regulations

    relating to tax declarations and record-keeping.

    Question

    From the above scenario, identify the careers of Kevine that are related to

    withholding tax.

    2.1.1: The features of withholding taxes

    Definition of withholding taxes: Withholding taxes is a deduction of tax levied
    at source of income as advance payment on income. Within the Rwandan tax
    system, certain types of payment are liable to withholding taxes. Withholding
    taxes is due to be paid on or before the15th days of the month following the

    relevant payment that is subject to WHT.

    Sometimes withholding taxes is the only tax suffered by the recipient of the
    payment these are referred to as final taxes and nothing further will be due to
    the tax authorities in respect of this source of income. This would be the case
    if the recipient of the payment was not resident in Rwanda. It would also be
    the case if the recipient were a Rwandan resident individual whose only other

    income was employment income.

    However, if the law does not specify that a WHT is a final, the recipient of the
    payment that has been subject to the withholding tax must declare the income
    on their tax declaration, usually grossed up for the withholding tax, and then
    the withholding tax may be deducted in arriving at their tax payable. Most
    Rwandan withholding taxes are not final taxes, and therefore Rwandan resident
    person will be required to include the relevant income on their tax declaration.
    The main exception to this is for dividends paid out of the profits of a Rwandan
    company, which have already suffered corporate income tax (CIT).

    2.1.2: Import and Public Tenders

    a) Withholding tax on goods imported for commercial use
    An import is the name for the purchases from another’s country. When goods
    are imported into Rwanda for commercial use, they are held at customs until

    the trader collects them.

    The importer has to pay 5% of the CIF value of the goods purchased at the first

    entry port into East Africa Customs Union. 

    b) Withholding tax on public tenders


    When a public body requires goods or services, it will usually get several quotes
    from different suppliers. This is called public tender. The public body will award

    the tender to a supplier and pay the quoted fee. 

    Besides VAT, the public body will deduct withholding tax from the payment at
    a rate of 3% of the VAT-exclusive value of the contract. This withholding tax is
    not a final tax for a business liable to rwandan income taxes, the grossed-up fee
    paid will be included within taxable income on the tax declaration, and the 3%

    withholding tax can then be claimed as a deduction from the tax liability.

    Application activity 2.1

    Q. 1 a) Define withholding taxes?
     b) Distinguish between Withholding taxes 5% and Withholding taxes

    3%.

    2.2: Person exempted from withholding taxes and others

    payment subject to withholding tax.

    Learning Activity 2.2

    Uwineza, was discussing with her classmates: “In Senior four we have
    studied types of tax and taxpayers and if you remember last week our
    teacher tough us about withholding taxes so now I wondering whether all
    taxpayers are supposed to pay withholding taxes or not, mates may you

    share me what you know about this?” Said by Uwineza.

    Question,

    In context with taxation, what are the expected answers that you think her

     classmates will share about exemptions of withholding tax?

    2.2.1. Persons exempted from withholding taxes

     The following taxpayers are exempted from withholding taxes:
      1. those whose business profit is exempted from taxation;
      2. those who have tax clearance certificate issued by the Tax Administration;
      3. those who are newly registered during the concerned annual tax period.

    The Tax Administration issues a tax clearance certificate to taxpayers who have
    filed their tax declarations on their business activities; paid the tax due on a
    regular basis, and have no tax arrears. The certificate is valid in the year in
    which it was issued.
    The Tax Administration may revoke a tax clearance certificate at any time if the

    conditions required by the tax administration are not fulfilled.

    2.2.2 Other payments subject to withholding taxes

    A. Conditions required for WHT

    For withholding tax to apply to any of the following payments (or any others
    method of extinguishing an obligation, for example a payment made in goods
    rather than cash), the following circumstance must be met:
    – The withholding agent must be Rwandan resident (note however that
    they may be a tax-exempt body) or the permanent establishment of a

    non-resident company

    – The recipient is either:
    – (i) not register with the Rwandan tax administration

     (ii) or registered but without a recent income tax declaration.

    B. Types of payment subject to withholding tax

    Payments subject to the withholding tax of fifteen percent (15%) are related

    to the following:

    a) Dividends

    Dividend income includes income from shares in any societies, other similar
    income that may be generated by all entities that pay corporate income tax, as
    well as the outstanding balance after the taxation of income from the correction
    made by the Tax Administration in the transfer pricing.

    All dividends are taxable except those paid between resident companies and
    income distributed to the holders of shares or units in collective investment

    schemes.

    b) Financial interests

    Financial income includes:
         1. incomes from loans, debentures or other debt securities;
         2. incomes from deposits;
         3. incomes from guarantees;
         4. incomes from government securities, negotiable securities issued by the
    Government, securities issued by companies or other persons as well as

    income from cash negotiable securities.

     All financial interests are taxable except:

    i. interests on deposits in financial institutions for at least a period of one
    (1) year;

    ii. interests on loans granted by a foreign development financial institution
    exempted from income tax under applicable law in the country of origin;

    iii. interests that banks or deposit-taking microfinance institutions operating
    in Rwanda pay to banks or other foreign financial institutions;

    c) Royalties



    Royalty income includes all payments of any kind received or receivable:
    1. on the use of or the right to use any copyright of literacy, craftsmanship
    or scientific work including cinematograph films, films or tapes used for
    radio or television broadcasting;

    2. on the use, right to use or exploitation of a trademark or a trade name, a
    design or a Model, a computer application, a software and a patent;

    3. as the price or consideration of using, or of the right to use industrial,
    commercial or scientific equipment or for using information concerning
    industrial, commercial or scientific knowledge or formula;

    4. on the right to exploit or explore natural resource.

        a) Service fees including management and technical service fees except
            transport services;
         b) performance payments made to a crafts person, a musician, an artist, a
         player, sports, cultural or leisure activities irrespective of whether paid
        directly or indirectly;
        c) Goods sold in Rwanda;
       d) Profit after tax or retained earnings that are converted into shares,
        except for financial institution with paid-up capital below the minimum
        requirement set by the National bank of Rwanda;
       e) Profits repatriated from Rwanda;
      f) Payments made in cash or in kind by a resident person in Rwanda on
      behalf of a non-resident in Rwanda contracted person provided for
      under the contract in addition to contractual remuneration;
      g) Re-insurance premiums paid to a non-resident insurer except premiums
      paid to insurers that have signed agreements with the Government of

      Rwanda. 

    N.B: However, the withholding tax is five percent (5%) if levied on the following
    interests:
    1. dividends and interest on securities listed on capital market if the
    beneficiary of the dividends or interest is a resident taxpayer of Rwanda
    or of the East African Community;
    2. interests derived from treasury bonds with a maturity of at least three

    (3) years.

    Application activity 2.2

    Q1. The group INTORE won the award of PRIMUS GUMA GUMA. The value of that award is twenty-four million (FRW 24, 000,000) excluded tax laws. 
    a) What is the type of income earned by INTORE group? 

    b) Calculate the tax to be paid by that group?

    Q2. MUGISHA is hired by Modern Business Ltd as a technical consultant
    on a short-term contract. MUGISHA gross income for this contract is FRW
    3,500,000. As the source of this income, Modern Business Ltd must declare
    and pay withholding tax on this income.

    Calculate the withholding tax to be paid 

    2.3: Withholding taxes on gaming activities and Double

    Taxation Agreement (DAT).


    1. Withholding tax on gaming activities.
    The fifteen per cent (15%) tax is withheld by a company that carries out
    gaming activities on the difference between winnings of the player and amount
    invested by the player.
    2. Double Taxation Agreement (DTA)
    Definition of DTA: Double Taxation Agreement in international taxation involves
    taxation which is cross border.

    It arises from individual having taxable income or assets in two countries or a
    business operating in two (or more) countries. Due to increased globalization,
    the growing level of business trading international around the globe and

    increased personal mobility, international taxation is becoming prevalent.

    What is international taxation?

    It should be clear from the onset that laws are not “international”. Laws are
    creations of sovereign states. What is referred to as international tax law is the
    international aspect of the income tax law of particular country. It is the taxation

    of foreign-related transactions (taxation of international transactions). 

    International tax system is made of specific, piecemeal response to the way
    investment of business operations are carried out across national boundaries.
    Many of the most important international tax rules are designed to mitigate or

    eliminate double taxation. 

    Jurisdiction to Tax

     “Source of Income Taxation “inbound” and Residence Taxation “Outbound”. 

    From the perspective of the Rwandan tax system, there are two broad classes in
    which international economic activity falls:
    a) Investments or business undertakings of foreign persons in Rwanda
    b) Investments or business undertakings of Rwandans abroad
    This is what is referred to as taxation basing on the “source of income” or

    taxation basing of the residence of the person.

    1. Source Jurisdiction

    The term “Source of income” is the location of the property or business from
    which income is derived. (Look at the Article on Business income is treated as
    having its source in Rwanda only if the income is earned through a permanent
    establishment. (Look at the Article defining PE in Rwandan law, it confers to the

    OECD Model, Article 7)

    It is also referred to as “territorial taxation”, which refers to taxation of limited

    to income from source within the boundaries, no matter who derives it.

    2. Residence Jurisdiction

    Under Article 4(1) of the OECD Model Treaty, “resident) of a country for
    purposes of the treaty is a person taxable in that country “by reason of his
    domicile, residence, place of management or any other criterion of a similar

    nature.” 

    The UN Model Treaty adds “place of incorporation” to that list.
    Article 4(2) provides a series of tie-breaker rules to give residence jurisdiction
    to one country. These are;
    • Place where an individual has a permanent home;
    • Country in which the centre of the individual’s vital interest is located
    • Place of individual’s habitual dwelling;

    • Country of citizenship

    These tie-breakers are ineffective in making the individual of a residence of
    only one country for treaty purposes, certain officials of the two countries ( the
    “competent authorities” are mandated to determine a residence by mutual

    agreement. 

    For legal entities, resident in two countries, Article 4(3), of the OECD Model
    Treaty makes the entity a resident of the country where its effective management
    is located.
    Note that some countries use a place-of-incorporation test as the sole test of
    residence for corporation.

    What is the Rwandan definition of a residence?
    An individual is considered to be a resident in Rwanda if he or she fulfils one of
    the following conditions:
    1. he or she has a permanent residence in Rwanda;
    2. he or she has a habitual abode in Rwanda;
    3. he or she is a Rwandan representing Rwanda abroad;
    4. he or she is present in Rwanda during the tax period for a period or
    periods amounting in aggregate to one hundred and eighty-three (183)
    days or more;
    5. he or she is present in Rwanda during the tax period of assessment
    and has been present for periods averaging more than one hundred and
    twenty-two (122) days in each of the two (2) preceding tax periods.
    • A person other than an individual is considered to be a resident in Rwanda
    during a tax period where it fulfils one of the following requirements:
    a) where it is established according to Rwandan laws;
    b) it has a place of effective management in Rwanda at any time during
    that tax period.
    • A Ministerial Order determines the person’s permanent residence and

    the location of the effective place of management.

    As far as double taxation agreement is concerned, its main objective is “the 

    avoidance of double taxation with respect to taxes on income and on capital”.

    “International double taxation” has been defined as the imposition of
    comparable income taxes by two or more sovereign countries on the same
    item of income of the same taxable person for the same taxable period (OECD

    definition)

    The double taxation arises due to the inconsistent rules of source of income
    in different countries imposing overlapping taxes. For example, one country
    may consider origin of payment source of income while another country may

    consider where the work was performed as source of income. 

    U.S.A taxes its citizens on worldwide income irrespective of source of income.
    Inconsistent residence rules also lead to double taxation. Some countries
    consider the entity a resident of the country where its effective management
    is located. While other countries use a place-of-incorporation test as the sole

    test of residence for corporation.

    Double taxation risks typically arise when two or more country claim the right to

    impose tax on the same item of income.

    In short the basic causes for double taxation are;
    1. Source-source conflict; Two countries asserting the right to tax the
    same income of a taxpayer because they both claim the income is sourced
    in their country.
    2. Residence-Residence conflict; Two countries asserting the right to tax
    the same income of a taxpayer because they both claim the income is
    sourced in their country.
    3. Residence-source conflict; One country asserts the right to tax foreign
    source income of a taxpayer because the taxpayer is a resident of that
    country, and another country asserts the right to tax the same income

    because the source of income is that country.

    Note that double tax agreements are used to avoid non taxation of income.
    Double tax relief mechanism:

    To eliminate the double taxation effect, there are different methods for granting
    relief from international double taxation.
    a) Deduction method. Resident taxpayer is allowed to claim a deduction
    for the taxes paid in foreign country
    b) Exemption method. The resident country provides its taxpayers with
    an exemption for foreign-source income
    c) Credit method. The resident country provides its taxpayers with a
    credit against taxes payable for income tax paid to foreign country
    As noted in the table below, a double taxation agreement (DTA) can override
    the normal 15% rate of WHT. The following rates of WHT apply under existing
    Rwandan DTAs: 


    The application of the DTA rates is subject to the recipient of the payments
    meeting certain conditions. Professional advice should be sought before

    applying the above rates. Application activity 2.3

    Application activity 2.3

    Q1. Defining Double Taxation Agreement.

    Q2. State the purpose of Double Taxation Agreement.


    In group discussion, invite a resource person from RRA to share with
    students on the calculation of withholding tax for imports and public
    tenders and ask students to apply using an illustration to compute

    withholding taxes then share findings.

    End of unit assessment 2

    Q1. Which TWO of the following statement are true in relation to withholding
    taxes?
    1. Withholding taxes are paid to the tax administration by the recipient
    of a payment.
    2. If a withholding tax is a final tax, no further tax is due from the
    recipient.
    3. Income that has sulfured withholding tax will never be required to
    be included in a tax declaration.
    4. Withholding taxes at 15% are deducted from taxable income in
    preparing the income tax declaration.
    5. Withholding taxes at 15% may be deducted from the tax payable for

    a tax period.

    Q2. Which of the following payment by government bandies under public
    tenders would be liable to withholding taxes of 3%?
    A. Payment to an overseas business that is not registered with the tax
    administration.
    B. Payment to a Rwandan registered business that does not hold a tax
    clearance certificate.
    C. Payment to a Rwandan business that is new and not yet registered
    with the tax administration.
    D. Payment to a Rwandan registered company that holds a tax

    clearance certificate.

    Q3. What is the rate of withholding tax on royalty made by Rwandan
    taxpayers to countries which a double taxation agreement is in place?
    A. 0%
    B. 5%
    C. 10%

    D. 15%

    Q4. Which Two of the following interest payments would not incur
    withholding tax at 15%?
    1. Interest paid to a Rwandan resident individual on a short-term bank
    deposit does not hold a tax clearance certificate.
    2. Interest paid to a Rwandan individual on a four-year rwandan
    treasury bond.
    3. Interest paid by a Rwandan bank to a company resident in Mauritius.

    4. Interest paid by a Rwandan bank to a French individual on a shortterm bank deposit.

     A. 1 and 4
    B. 2 and 3
    C. 1 and 3

    D. 2 and 4

    Q5. You work for a large company with many Rwandan and overseas
    shareholders. The company listed on the Rwandan capital market and has

    recently declared a dividend to its shareholders.

    List the factors you need to consider when determining the rate of
    withholding tax to deduct on the dividends, and how these will impact the

    withholding tax rate.

  • 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 4: CUSTOMS AND 4 CONSUMPTION TAX

    1. Key unit competence: Compute the Customs and consumption taxes



    Mr. KAMARI, an importer located in Musanze District, imported Irish
    potatoes from Uganda Kabare District and had a consignment with vehicle
    RAC 407P for bringing 3 tons When he reached Kisoro district near Cyanika
    border the vehicle got a mechanical problem which required a spare part

    from Nairobi-Kenya.

    1. From the above picture which things are you seeing?
    2. Considering Mr. KAMARI’s scenario, what do you think Mr. KAMARI

    will present to border for his.

    4.1: EAC origin, objectives
    Learning Activity 4.1
    Many years ago businessmen from Rwanda traded with people from
    Uganda, Congo, Kenya and Tanzania but due to security and tax policies
    and international relations most of their companies were operating at a
    loss and some time they lost their products while crossing from Rwanda
    to these countries and they even faced the problem of not getting trade
    facilities while getting to the frontiers. These problems affected not only
    the Rwandan side, but almost all countries in the region. For the above
    scenario, what things have been done in this country to solve the above

    problems?

    4.1.1: EAC customs union origin 

    1. Meaning of the East African Community Customs Union 

    a) The East African Community (EAC) Customs Union

    Meaning of customs union

    The Customs Union is the first Regional Integration milestone and critical
    foundation of the East African Community (EAC), which has been in force since
    2005, as defined in Article 75 of the Treaty for the Establishment of the East

    African Community.

    It means that the EAC Partner States have agreed to establish free trade (or
    zero duty imposed) on goods and services amongst themselves and agreed on
    a common external tariff (CET), whereby imports from countries outside the

    EAC zone are subjected to the same tariff when sold to any EAC Partner State.

    Goods moving freely within the EAC must comply with the EAC Rules of Origin
    and with certain provisions of the Protocol for the Establishment of the East

    African Community Customs Union

    The East African Community (EAC) Customs Union is formed of Kenya, Tanzania,

    Uganda, Burundi, Rwanda, Democratic Republic of Congo and South Sudan

    b) Trade related aspects

    • Rules of Origin

    Rules of Origin are the laws, regulations and administrative procedures which

    determine a product’s country of origin. 

    The protocol provides that trade within the EAC will be conducted in accordance

    with agreed East African Rules of origin.

    • National treatment: 
    This is the obligation that each nation must give imported goods the same
    treatment that they give to domestic or “national” products, i.e. there should be
    no discrimination. In this respect, Partner States agreed not to enact legislation,
    or apply administrative measures, which directly or indirectly discriminate
    against the same or similar products of other Partner States.
    • Anti-dumping measures:
    Dumping occurs when imported merchandise is sold in the domestic market (or
    exported) at less than the normal value of the merchandise, i.e. a price that is
    less than the price at which the merchandise is sold in its home market. Partner

    States recognized the challenges dumping imposes on the domestic market.

    • Subsidies:
    Partner States that grant any form of subsidy that directly or indirectly distorts
     competition are required to notify the other Partner States in writing.
    •  Countervailing measures:
    For purposes of offsetting the effects of subsidies, a countervailing duty may be

    levied on any product of any foreign country imported into the Customs Union.

    • Safeguard measures:
    Partner States agreed to apply safeguard measures to situations where there
    is a sudden surge of a product imported into a Partner State, under conditions

    which cause or threaten to cause injury to domestic producers.

    •  Restriction and prohibitions to trade:
    Partner States may introduce or continue with restrictions or prohibitions
    involving: the application of security laws and regulations; the control of arms
    and ammunition; the protection of human life, the environment and natural
    resources, public safety, public health and public morality; the protection of
    animals and plants It was agreed that goods to be restricted and prohibited

    from trade be specified in the Management Act..

    • Re-exportation of goods:
    Partner States agreed to ensure that re-exports from their countries shall be

    exempt from the payment of import or export duties.

    • East African Community Committee on Trade Remedies:
    The Protocol established the above committee. This committee handles any
    matters relating to the rules of origin, anti-dumping measures, subsidies and 
    countervailing measures and any safeguarding measures that are provided for

    under the East African Community Customs Union.

    2. The main features of EAC Customs union

    .A shared set of import duties applied on goods from countries outside
    the EAC. This is referred to as the Common External Tariff (CET)
    Zero rate of import duty, and no quotas, applied on goods from countries
    within the EAC with valid certificate of origin
    .Shared procedures, safety measures, valuation methods, trade policy
             and terminology governed by the EAC Customs Management Act
            (CMA).
         Rwanda is also a member of the Common Market for Eastern and
        Southern Africa (COMESA) free trade area.

    4.1.2: Objectives of EAC Customs union
    The objectives of the East African Community are broader and cover almost all
    spheres of life. The main objective of the Customs Union is formation of a single
    customs territory. Therefore, trade is at the core of the Customs Union.

    It is within this context that internal tariffs and non-tariff barriers that could
    hinder trade between the Partner States have to be eliminated, in order to
    facilitate formation of one large single market and investment area

    Customs Union focuses on facilitating trade on the following:
    Removal of tariff on goods from partner states;
      • Application of a Common External Tariff;
      • Removal of other barriers to trade;
      • Customs Union focuses on trade facilitation through:
    – Removal of non-tariff barriers;
    – Simplifying and standardizing trade formalities and customs
              documentation;
    – Exchange of customs/ trade information;
    – Adopting and implementing international best practices in customs
    and trade;

    – Common and uniform application of Customs laws.

            Application activity 4.1

    1. Define the terms “rules of origin and mention types of rules of
    origin
    2. True or false question on the features of EAC Customs union
    a) A shared set of import duties applied on goods from countries
    outside the EAC. This is referred to as the common External Tariff
    (CET)
    b) Zero rate of import duty, and no quotas, applied on goods from
    countries within the EAC with valid certificate of origin
    c) Removal of other barriers to trade
    3. Explain the purpose of rules of origin
    4. In East African Community (EAC) rules of origin criteria, goods
    shall be accepted as originating in a Partner State where the goods
    are wholly produced in the Partner State among others.
    For the purposes of rules of origin, what products that shall be

    regarded as wholly produced in a partner state?

    4.2: Description of customs duties
    Learning Activity 4.2
    The student from Munezero girls’ schools were on a study tour in Dar -Es
    -Salam being hosted by Institute of Tax Administration (ITA) in collaboration
    with Tanzania Freight Forwarders Association (TAFFA). Initially students
    had planned to visit Dar-Es-Salam port and discuss customs issues with the
    team on the part of TAFFA, during the visit, head of the delegates asked the
    following questions that need your answers as S5 student who are studying

    taxation. 

    Q1. What is Customs Duties?
    Q2. With research, explain the exemption of customs tax for products used

    in export processing zones

    4.2.1: Definition of customs duties and the person who can import or export

    1. Definition of customs duties

    Customs duties are defined as all taxes, duties, levies and fees that are required
    to be paid to Revenue Authority like Rwanda Revenue Authority (RRA) in
    Rwanda on imported or exported goods.

    Customs duties ensure that local and foreign business can compete fairly, by
    ensuring a level playing field (VAT and Excise Duty), encouraging intra-regional
    trade (Import Duty), ensuring compliance of Income Tax (WHT 5%), funding
    beneficial projects (IDL, SRL and AUL) and supporting domestic manufacturing
    industries (Export Duty on Raw Hides and Skins).
    2. Meaning of importation and exportation and the person who can
    import or export
    a) Meaning of importing and exporting
    • Importing is when goods are brought into Rwanda from an external
    country.
    • Exporting is when goods are taken from Rwanda into an external
    country.

    b) The person who can import or export

    Any taxpayer may import or export goods. No additional registration is required,
    but individuals or businesses without Taxpayer Identification Number (TIN)
    must register with RDB or RRA as normal.
    The majority of importing and exporting procedures are carried out by licensed

    companies called Clearing Agents on behalf of the taxpayers

    4.2.2: Types of Customs duties

    1. Taxes paid on imports that are also paid on domestic goods
    • Value Added Tax (VAT)
    • Excise Duty
    2. Taxes that are specifically paid on imports
    • Import Duty
    • Withholding Tax of 5% (WHT 5%)
    • Infrastructure Development Levy (IDL)
    • Strategic Reserves Levy (SRL) 
    • African Union Levy (AUL).
    3. Taxes that are specifically paid on exports
    • Export Duty on Raw Hides and Skins
    4. Small fees on imports and exports
    • Computer Processing Fee

    • Quality Inspection Fee (QIF)

    4.2.3: Valuation of imported and exported goods
    Imports are valued as Cost, Insurance and Freight (CIF). This is equal to the cost
    of the goods, the cost of any insurance paid on the goods and the freight costs
    of transporting the goods transport the consignment to the first point of entry
    of the EAC. Exports are valued as Free On board (FOB). This is equal to the cost
    of the goods only. Whether using the CIF or FOB valuation, the declared value
    must be supported by commercial invoices, as well as insurance and freight

    invoices where applicable.

    If goods have been purchased in a foreign currency, declare the value in the
    currency of the invoice. Rwanda electronic Single Window (ReSW) system then
    uses the National Bank of Rwanda (BNR) exchange rate to convert this into
    Rwandan francs.

    Example

    Rukundo is importing a consignment of mobile phones from Japan. The cost
    of the mobile phones was USD 30,000 (thirty thousand US dollars). He paid an
    additional USD 400 (four hundred US dollars) to transport the consignment to
    the first point of entry of the EAC, in this case, the port of Mombasa in Kenya.
    He also paid USD 150 to insure the goods during transportation to the port
    of Mombasa. On the day of declaration, the exchange rate is USD 1: FRW 850.
    Therefore, the CIF value of his import declaration is:
    CIF = (USD 30,000 + USD 400 + USD 150) * 850 = FRW 25,967,500.
    4.2.4: The documents required when importing or exporting
    The importing or exporting taxpayer must provide the Clearing Agent with

    valid documents proving the value and authenticity of their consignment.

    A. The mandatory documents that taxpayers importing goods originating
    from within the EAC must provide are:

    1. Commercial Invoice or equivalent document
     Showing the value and description of all goods within the consignment.
    2. Packing List
    Lists the goods being transported within the consignment.
    B. There are two additional mandatory documents that taxpayers
    importing goods originating from outside the EAC must provide to RRA:

    1. Freight Invoice

    Showing the cost of transport and insurance for the consignment, if not included

    in the commercial invoice.

    2. Bill of Lading / Airway Bill

    A contract between the owner of the ship / plane transporting the consignment

     and the importing taxpayer.

    C. The only mandatory document that taxpayers exporting goods must
    provide to RRA:
    Commercial Invoice or equivalent document showing the value and description

    of all goods within the consignment.

    Additional documents that taxpayers may be required to provide when
    importing or exporting depend upon the type of goods and their origin. Clearing
    Agents are trained to inform taxpayers which documents are necessary for
    their consignment. Without the required documents, Customs Officials will
    not permit the goods to be imported or exported. Examples of goods that may
    require additional documents include:
    – Goods produced within the EAC or COMESA
    – Agricultural goods and inputs including food
    – Chemicals and cosmetics
    – Medical equipment and pharmaceuticals

    – Worn clothes

    The documents required to prove that goods being imported were
    produced in the EAC or COMESA?
    Imported goods that are produced within the EAC or COMESA can be subject to
    exemptions. In addition, imported goods that are produced within the EAC only
    are granted automatic access to the pre-clearance facility
    These benefits require a Certificate of Origin delivered by the exporting country.
    The EAC Rules of Origin document explains the criteria that goods should meet
    to be considered as originating from EAC partner states.

    Other important points:

    a) The way Rwandan exporters certify that goods being exported
    were produced in Rwanda
    Rwandan exporters can apply for a Certificate of Origin through their Clearing
    Agent. The Clearing Agent applies on the Rwanda electronic Single Window
    ReSW) and provides the required evidence at any Border Post or Dry Port.
    There are different fees and requirements depending upon the country to
    which the goods are exported. There is also a Simplified Certificate of Origin
    available for smaller value consignments
    There are many incentives that Rwandan exporters can benefit from, depending
    on the country being exported to. This includes EAC, COMESA, the European

    Union (EU) and the United States of America (USA).

    ion (EU) and the United States of America (USA).

    b) The different Customs channels
    After import or export declarations have been submitted and paid, the Rwanda
    electronic Single Window (ReSW) system assigns the consignment to a Customs
    channel. The Customs channel refers to the level of verification from Customs
    Officers required for that consignment.
    c) Harmonized System (HS) Codes
    Harmonized System (HS) Codes is an internationally standardized to classify
    traded products. The taxpayer provides a description of the type of goods to
    the Clearing Agent, who is trained to select the correct HS Code. Selecting the
    correct HS Code is important for ensuring the correct amount of tax is declared

    and paid.

    Application activity 1.2

    Q1. State the types of Customs Duties
    Q2. What is the Rwanda electronic Single Window (ReSW)?
    Q3. Briefly explain why the government imposes tax on importation?
    Q4. XYZ enterprise is a business that offers customers a wide variety
    of products at inexpensive prices. Customers can buy from the shop on
    the online website. Owner, KAMANZI, employs more than 2000 people.
    The business had humble beginnings, but today it sells fruits, flowers,
    vegetables and meat to both the local market and abroad.
    a) Does XYZ enterprise sell to the local market or regional market?
    Explain your answer.
    b) List the advantages of selling products to the local market
    c) Which challenges do you think that KAMANZI needs to overcome
    to sell fresh flowers to other countries?
    4.3: The taxes that are specifically paid on imports
    Learning Activity 4.3



    Analyze the photos above and answer the question that follow:
     Q1. With research, give the different Import Duty rates or Common External
     Tariff (CET) rates allow for certain types of goods to be prioritized.

    4.3.1: Import duty

    1. Meaning of import duty

    Import Duty is a tax paid specifically on imported goods originating from
    outside of the EAC.

    The EAC Customs Union ensures a zero (0%) rate of import duty on all imports
    on goods originating from within the EAC

    The EAC customs union means that the rates of import duty are agreed in the
    common external tariff (CET).

    The different import duty rates also allow for certain types of goods to be
    prioritized. In general, CET rates are:
    – Capital goods and raw materials = 0%
    – Intermediate goods = 10%
    – Finished goods = 25%
    – Sensitive Goods = Varying rate
    The amount of import duty to be paid is calculated as follow:
    Import Duty = CIF * import duty rate
    • Handling fees (HF)
    Handling Fees are not actually paid, but are included in VAT and excise duty
    calculations. HF is calculated by: Handling fees (HF) = Gross weight (kg) * FRW
    10
    Gross weight (kg) refers to the weight of the goods in the consignment in

    kilograms, including the weight of the containers or transporting equipment.

    4.3.2: Withholding tax of 5% and infrastructure development levy

    1. Withholding Tax of 5%

    WHT 5% is a tax paid specifically on imported goods.
    WHT 5% is paid by all taxpayers except for taxpayers with a valid Quitus Fiscal

    certificate

    Quitus Fiscal is a privileged status available, upon request to taxpayers who
    have a good compliance record with RRA. Quitus Fiscal certificates are proof of

    this status. There are two types of Quitus Fiscal, for withholding tax on public 

    tenders of 3% (WHT 3%) and for withholding tax on imports of 5% (WHT 5%).
    Taxpayers with Quitus Fiscal certificates are not required to pay WHT 5%, or
    have WHT 3% withheld and paid on their behalf, depending upon the type of

    Quitus Fiscal certificate.

    2. Infrastructure development levy
    Infrastructure development levy (IDL) is a tax paid specifically on imported
    goods from outside of the EAC.

    IDL contributes to regional trade facilitation infrastructure projects. IDL is paid
    on all imported goods, with the exception of those detailed in Article 5 of Law
    N°34/2015 of 30/06/2015, including:
    – Goods originating from within the EAC
    – Reproductive animals and plants
    – Pharmaceuticals
    – Veterinary products
    – Medical equipment
    – Industrial machinery
    – Solar energy equipment
    – Duty remission products
    – The IDL to be paid on imported goods is calculated by: Infrastructure
    development levy (IDL) = CIF * 1.5%
    4.3.3: Strategic reserves levy and African union levy
    1. Strategic reserves levy

    SRL is a tax paid specifically on imported fuel and petroleum products.SRL
    funds the purchase and safe maintenance of greater reserves of fuel. The SRL
    is paid at a specific rate per litre of fuel, calculated by: Strategic reserves levy
    (SRL) = FRW 32.73 per litre of fuel

    2. African union levy (AUL)

    AUL is a tax paid specifically on imported goods. AUL contributes to the financing
    of African Union activities.The AUL paid on imported goods is calculated as
    follow: African union levy (AUL) = CIF * 0.2%
    4.3.4: Motor vehicle registration fees (MVF) and Road Toll
    1. Motor vehicle registration fees (MVF)
    MVF are paid specifically on imported motor vehicles. MVF must be paid
    regardless of the type of vehicle or the exemptions available to the importing
    taxpayer.

    MVF vary depending upon the engine capacity of the vehicle as measured in
    cubic centimeters (cc):

    Engine Capacity (cc)


    The special engine category includes semi-trailers, construction vehicles and

    other very heavy vehicles.

    2. Road toll

    Road toll is a fee paid specifically on foreign registered trucks entering Rwanda.
    Road toll contributes to the road maintenance fund (RMF) in Rwanda.

    It is important to note that the road toll is paid per truck entering Rwanda, not
    per declaration. Therefore, this is paid separately to other customs duties.

    The road toll has two different rates, depending on the size of the trucks. The
    road toll must be paid by trucks every time they enter Rwanda. The rate of road
    toll is:
    – $76 USD for simple trucks

    – $152 USD for heavy commercial trucks

    4.3.5: Fuel levy and export duty on raw hides and skins
    1. Fuel levy
    Fuel levy is a tax paid specifically on imported fuel and petroleum products.
    Fuel levy contributes to the road maintenance fund (RMF) in Rwanda. The fuel
    levy is paid at a specific rate per litre of fuel.
    The Fuel Levy to be paid on imported fuel is calculated by:
    Fuel Levy = FRW 115 per litre of fuel
    As with the Fuel Levy, Road Toll is referred to as ‘FER’ in import declarations
    and assessment notices
    2. Export duty on raw hides and skins
    Export duty on raw hides and skins is paid on all exports of unprocessed hides
    and skins to outside of the EAC. The rate of export duty on raw hides and skins
    is either:
    – 80% of FOB, or $0.52 per Kg, whichever is higher. In export declarations
    and assessment notices, Export Duty on raw hides and skins is referred

    to as code ‘EX1’.

    4.3.6: Computer Processing Fee, Quality inspection fees (QIF)
    and warehousing fees
    1. Computer processing fee
    The computer processing fee is a fee paid for every import or export declaration
    that is submitted.
    The computer processing fee is:
    – FRW 3,000 per regular declaration
    – FRW 500 per simplified declaration
    2. Quality inspection fees (QIF)
    Quality inspection fees (QIF) are fees paid on specific imported products.
    Rwanda Standards Board (RSB) is the institution which both designates which
    products are required to be inspected and carries out the inspections.
    RRA collects QIF on behalf of RSB. The QIF to be paid on imported goods is
    calculated by:
    Quality Inspection Fees (QIF) = FOB * 0.2%
     In import declarations and assessment notices, QIF are referred to under code
    ‘QIF’
    3. Warehousing fees
    Warehousing fees are paid when storing consignments in warehouses. It is
    important to note that these are paid directly to the warehouses and not to
    RRA. Rates may vary according to the warehouse, the size and weight of the

    consignment and how long it has been stored for.

    Application activity 4.3

    Q1. Rukundo is importing a consignment of mobile phones from Japan. The
    cost of the mobile phones was USD 30,000 (thirty thousand US dollars).
    He paid an additional USD 400 (four hundred US dollars) to transport the
    consignment to the first point of entry of the EAC, in this case, the port
    of Mombasa in Kenya. He also paid USD 150 to insure the goods during
    transportation to the port of Mombasa. On the day of declaration, the
    exchange rate is USD 1: 850 FRW. Find the CIF value of his import declared

    Q2. Mugisha bought different products from England valued 6,000
    pounds. He pays transport cost of 1000 pounds up to MOMBASSA port
    and assurance of 300 pounds. He also paid 25% of import duty. If these
    goods weight 500kg, determine the amount of VAT that RRA will tax Mr.
    Mugisha at the entrance border of RUSUMO. (The exchange rate is 1 Pound

    = FRW1400)

    4.4: The excise duty (consumption tax)

    Learning Activity 4.4



    The Government of Rwanda has implemented some tobacco control
    measures, including regulations to protect passive smokers from exposure to
    second-hand smoke; use of warning label on every cigarette pack’’ Smoking
    is harmful to your health’ “that is intended to reduce smoking and provide
    information about the danger of smoking. Additionally, banning tobacco
    advertising in electronic media in order to discourage smocking especially
    among the youth; establishment of no-smoking areas in public places like
    government and business offices, hospitals, restaurants and buses but
    these efforts too have been slow in reducing smoking consumption.

    In July 2015, government changed the tax policy for the Excise on Tobacco
    where the policy change was expected to maximize revenue collections
    and minimize tobacco consumption in Rwanda.

    Excise taxes should be designed according to those costs or risks as a way
    to account for the negative externality. Thus, a good excise tax accounts not
    for the value of a product, but for the costs of the externality. For alcohol
    products, this means that the alcohol content determines the tax. This,
    fortunately, is common practice across the Organization for Economic Cooperation
     and Development (OECD an excise tax aimed at reducing vehicle
    emissions should be targeted at heavier pollutants a practice which is not
    common for taxation of motor fuel. This principle is well-established in
    some countries where cigarettes are taxed at higher rates while other less
    harmful products are taxed at lower rates. Some governments, however,
    tax all tobacco products at equal rates despite their different harm profiles.
    Suppose that YXZ Ltd produce and sell wine from the local input and as
    Taxation student, answer the following question;
    a) Which type of tax YXZ should pay?
    b) Give the rate of excise duty for this product

    4.4.1: Definition of excise duty and the person required to register for excise duty

    1. Definition of excise duty
    Excise duty is a tax applied to specific products. This means that it is able to
    discourage consumption with negative social impacts. This can reduce the
    costs of healthcare and policing, whilst raising significant revenues for further
    government spending. As excise duties are charged on the consumption of
    certain products, it is also referred to as a ‘consumption tax’.

    2. The person required to register for excise duty

    Any manufacturer of a product that is subject to Excise Duty is required to
    declare and pay Excise Duty. There is no threshold on company size for Excise
    Duty. A taxpayer who manufactures taxable products must declare and pay

    Excise Duty regardless of the size of the business.

    4.4.2: The obligations of excise registered taxpayers and valuation methods of excise duty
    1. The obligations of excise registered taxpayers
    The obligations of excise duty registered taxpayers are detailed in Section 2 of
    Law N° 26/2006 of 27/05/2006. Excise duty registered taxpayers must:
    •  Submit an excise duty declaration and pay tax due within 5 days after the end of the tax period
    Keep a register of inventory of the taxable products manufactured.
    The inventory register shall indicate the quantity exported, sold for
    domestic consumption, and destroyed, discarded or burnt, so that
    at any time, the quantities within the factory can be established and
    verified.
    • Keep a register of the sales of all taxable products manufactured.
    The sales register shall indicate the price and quantity sold to every
    customer as well as the customer’s name and address.
    . Keep a register of raw materials to be used in manufacturing of taxable

    products.

    • Keep a register of the activities of the manufacturer. The activities
    register shall indicate the date and time of starting and ending work,
    the type names and the nature of the equipment used, the type and
    quantity of the raw materials used and the batch number of production,
    the quantity of the goods produced.
    . Notify RRA of any changes to business premises.
    • Notify RRA, within ten (10) days, of any interruption to manufacturing
    activities

    • Attach appropriate products with a tax stamp

    2. Valuation methods of excise duty
    The rates of excise duties can be charged on a ‘specific’, ‘ad valorem’ or ‘mixed’

    basis.

    A specific excise duty charges a certain amount of tax per unit of the product.
    For example, Excise Duty is charged on premium oil in Rwanda at a rate of FRW
    183 per litre

    An ad valorem excise duty charges a percentage of the taxable value of the
    product. For example, excise duty is charged on beer in Rwanda at 60% of the
    taxable value.

    A mixed excise duty charges both a certain amount of tax per unit and as a
    percentage of the taxable value of the product. For example, excise duty is
    charged on cigarettes in Rwanda at a rate of 36% of the retail price in addition

    to FRW 130 per pack of 20 individual cigarettes.

    4.4.3: Identify the taxable products, rates of excise duty and

    Compute Excise duty

    1. Identify the taxable products, rates of excise duty

    The tax rates for Excise Duty vary depending upon the product. 

    The taxable products and tax rates are:



    The taxable base for ad valorem excise duty on locally manufactured products
    is calculated according to the selling price, excluding all other taxes.

    Note: The rates of excise duty are the same for both domestic and imported
    products.

    2. Compute Excise duty

    The excise duty to be paid on a specific basis is calculated by an amount of tax
    per unit of the product. The excise duty to be paid on an ad valorem basis is
    calculated by:

    Excise duty = (CIF + Import Duty + HF) * Excise Rate

    In import declarations and assessment notices, excise duty is referred to under

    code ‘E’, for example ‘E01’.

    Example:
     1. Ubumwe produces cigarettes. In one tax period he manufactures and
    sells 400 packs (of 20 cigarettes) for a pre-tax selling price of FRW 300
    each
    Required:
    a) Total taxable sales during that tax period
    b) Excise Duty
    Solution
    a) Total taxable sales during that tax period = 400 packs * FRW300 =FRW
    120,000
    b) Ubumwe must pay mixed Excise Duty of: (FRW 120,000 * 36%) + (400

    * FRW 130) = FRW 95,200.

    2. Lucie produces banana wine using ingredients sourced in Rwanda.
    In    one tax period she manufactures and sells 200 bottles for a pre-tax
    selling price of FRW 850
    Required:
    a) Total taxable sales during that tax period
    b) Excise Duty
    Solution
    a) Total taxable sales during that tax period = 200 bottles * FRW 850=FRW
    170,000
    b) Lucie must pay ad valorem Excise Duty of: FRW 170,000 * 30% = FRW

    51,000

    4.4.4: The exemptions for excise duty
    The following goods are exempt from Excise Duty
    – Goods for charitable organizations
    – Vehicles assembled in Rwanda
    – One personal vehicles of a returning Rwandan diplomat
    – One vehicle of a Rwandan refugee returning from a foreign country as
    which the individual has personally owned and used for at least twelve
    months
    – Vehicles intended for the purpose of passenger (more than 14 people),
    goods transport, tourist transit, and those designed for the transport
    of disabled people
    – Products which are specifically manufactured for export
    – Products which are sold to duty free shops
    Note: Should Excise Duty be paid on exports?
    Taxable products are exempt from Excise Duty if they are exported outside
    Rwanda. However, proof is required that the products were actually exported.

    In terms of the declaration, exports are included in the ‘Tax Due’ calculation but
    then refunded in the ‘Tax Payable’ calculation. This is an implied refund, on the
    presumption that proof of export will be provided.
    4.4.5: The deadline to declare and pay excise duty
    1. The deadline to declare excise duty
    For the purposes of Excise Duty declaration, each month is divided into three
    tax periods:
    – Tax Period 1 – From 1st to 10th of each month
    – Tax Period 2 – From 11th to 20th of each month
    – Tax Period 3 – From 21st to the end of each month
    Excise Duty must be declared and paid within five days of the end of each tax
    period. This means it must be declared and paid by the 15th, 25th of that month

    and 5th of the following month.

    For example, declarations concerning the tax period between March 1st and
    March 10th must be declared to RRA and paid by March 15th. Then declarations
    concerning the tax period between March 11th and March 20th must be declared
    to RRA and paid by March 25th. Then declarations concerning the tax period
    between March 21st and March 31st must be declared to RRA and paid by April
    5th and so on throughout the year.
    4.4.6: Excise duty penalties and fines
    The penalties and fines for Excise Duty are similar to other domestic taxes,
    This includes penalties and fines for:
    • Late declaration
    • Late payment
    • Declaring less than the correct tax due
    Excise Duty has an additional set of penalties and fines, which are applied for
    violations to the law concerning tax stamps.

    Note: Meaning of tax stamps

    A tax stamp is a sign affixed on a product subject to Excise Duty to show retailers
    and consumers that tax has been paid. The products requiring tax stamps are
    cigarettes (each pack of 20 cigarettes), wines and liquors (each bottle). Tax
    stamps can be purchased (at cost price) from RRA.

    ps can be purchased (at cost price) from RRA.

    • The penalties for failing to keep a tax stamp register
    A domestic producer or importer who does not keep:
    – Stamp registers, records or related documents
    – Stamp reconciliation statements
    Is subject to an administrative fine between one million Rwandan francs (FRW
    1,000,000) and two million Rwandan francs (FRW 2,000,000).
    • Things for domestic producer or importer of products who
    applying incorrectly tax stamps
    – Does not affix tax stamps to appropriate products
    – Does not affix tax stamps incorrectly
    – Affixes tax stamps to products in a manner contrary to rules set
    forth by the Authority
    – Defaces tax stamps
    – Submits an incorrect or incomplete tax stamp reconciliation
    statement
    – Applies tax stamps to products for which they are not intended
    – Sells products which are subject to excise duty without tax stamps
    Is, upon conviction, subject to a fine of between one million Rwandan francs
    (FRW 1,000,000) and two million Rwandan francs (FRW 2,000,000) or to
    imprisonment for a term of six (6) months to one (1) year.
    Application activity 4.
    Q1. Amahoro produces natural fruit juice. In one tax period she
    manufactures and sells 10,000 small bottles for a pre-tax selling price
    of FRW 400 each for a total taxable sale during that tax period of FRW
    4,000,000.
    Which amount Amahoro must pay ad valorem excise duty?
    Q2. Outline the valuation methods of excise duty
    Q3. Mr. Mugisha bought different products from England valued 6,000
    pounds. He pays transport cost of 1000 pounds up to MOMBASSA port and
    assurance of 300 pounds. He also paid 25% of import duty. If these goods
    weight 500kg, determine the amount of VAT that RRA will tax Mr. Mugisha

    at the entrance border of RUSUMO. (Exchange rate 1POUND = FRW1400)

    Skills Lab Activity 4

    Through internet or after visit to RRA for customs officer, students are
    required to compute customs duties and excise duty (consumption tax)

    for imported liquor from France.

    End of unit assessment 4

    Q1. Define the following
    a) Rules of origin
    b) Certificate of origin
    c) Country of origin
    d) Risk management
    e) Customs offence
    f) Import duties
    Q2. Mary imported wines from France and the CIF to Mombasa was 50,000
    USD. The exchange rate was 1USD = FRW880
    Required: Compute the excise tax; assume the import duty of 25%
    Q3. Sportsman limited produced 2,000,000 packets of cigarette. The factory
    price is 700 and the retail price is 1000 per packet. Compute the excise tax.
    Q4. List at least three example of certificate of origin
    Q5. Identify the six categories of economic integration
    Q6. How do you relate customs union from common market?
    Q7. Discuss reasons why rules of origin are needed
    Q8.
    a) List six different types of duties and fees with their corresponding
    rates collected by RRA’s Customs Service Department on
    importation of goods?
    b) Provide a computation of import taxes assuming value of goods
    imported (i.e. Cost Insurance and Freight) is equivalent to FRW
    100,000. Assuming also a 25% import duty, 5% consumption tax,
    18% VAT, 5% Withholding Tax, 1.5% Infrastructure Development
    Levy, 0.2% Quality Inspection Fees and Africa Union Levy are
    applicable on the imported goods.
    c) Explain the features of the East African Customs Union.
    d) Define rule of origin and explain the nature of goods that are
    accepted under the rule of origin.


    


















    
    

    











  • UNIT 5: VALUE ADDED TAX (VAT)

    Key unit competence: Compute VAT and file returns in a timely manner

    Mr HABANA has a super market operating in Rwanda and he complies

    with tax law and regulations, in HABANA supermarket there are clients, Accountants, cashier.

    He imported his products from China and in his super market he also sells

    educational materials.

    In HABANA SUPERMARKET there is a fixed phone used by receptionist for
    receiving orders from customers but sometimes HABANA uses that phone

    by calling his family. 

    Questions
    1. Which type of tax that will be paid by that client who is shopping?
    And why is that client who is supposed to pay that tax not HABANA?
    2. At the end of the month, accountant make some computations
    related to tax for complying, which computations do you think an
    accountant is supposed to do?
    3. In above image cashier is giving a paper to client, what is the type of
    that paper and try to list information appear on that paper.
    4. Within products sold by HABANA Supermarket, are there any
    products exempts to the tax? Which type of that tax?

    5.1: Description of the value added tax

    Learning Activity 5.1

    VAT payable or the amount of VAT to be remitted by Tax payers to the
    Rwanda Revenue Authority is computed by deducting the input VAT from
    the output VAT. The seller of goods of service passed on the end users
    the liabilities to pay tax who in turn may credit their liability from the
    payment they received from the final consumer. This is because Credit is
    a consumption tax levied on sales to be home consumer with seller acting
    simply as tax collectors. For the above scenario differentiate VAT Inclusive
    and VAT Exclusive
    5.1.1: Definition of the value added tax and key terminology for VAT
    1. Definition of the value added tax
    • VAT is the tax charged on turnover at each stage in a production process,
    but in such a way that the burden is borne by the final consumer. VAT
    was introduced just before the First World War; there was a gradual
    improvement in the tax system, which came up with a global taxation
    system of business with VAT which was the main element. This tax was
    introduced in Rwanda in January 2001 by the law No. 06/2001.
    • VAT is a tax on the consumption of goods and services. It is indirectly
    paid by the final consumer of the goods or service. However, it is
    paid on their behalf by taxpayers on the value added at each stage of

    production.


    VAT is applied to as wide a range of products as possible to ensure fairness
    across business sectors. However, there are some goods and services that are
    exempt or zero-rated for VAT. This is usually because tax on these goods and
    services may be unfairly burdensome on the poor or because those goods and

    services have benefits to efficiency across the rest of the economy.

    VAT registered taxpayers are required to have at least one Electronic Invoicing
    System (EIS), such as an EBM, each of their sales locations, and use these to

    provide EIS invoices for all sales transactions.

    2. The tax rate of VAT

    The normal rate of VAT is 18%. There is also a zero-rate (0%) and exemptions

    applicable for certain types of goods and services.

    3. Characteristic of VAT
    a) VAT is a consumption tax i.e. the consumer of taxable goods or services
    pays VAT.
    b) VAT is an indirect tax.
    c) VAT is a multi-stage tax of transaction from importer or manufacturer
    to a wholesaler and finally to the consumer.
    d) VAT is tax levied on supply of goods made in Rwanda, on the supply of
    services, and on importation of goods or services.
    e) VAT is a tax on the value added to a commodity or services. It is imposed
    on the value added at each stage from the stage of production to retail
    stage.
    f) VAT is imposed on the value that business firms add to the goods and
    services the purchased from other firms.
    g) Its standard rate is 18% in Rwanda
    h) It is proportional tax
    Collection of VAT in Rwanda
    in Rwanda VAT is collected by two departments, they are; Domestic Taxes
    Department for domestic VAT and Customs Service Department for VAT on all

    imported goods and services.

    5.1.2: Key terminology for VAT
    1. Tax period Value added tax period is calendar month or quarter.

    2. The deadline to declare and pay VAT

    VAT is declared and paid on a monthly basis. Alternatively, taxpayers with
    annual turnover below FRW 200,000,000 may request to declare on a quarterly

    basis.

    Whether monthly or quarterly, the VAT declaration must be submitted and 

    paid by the 15th of the month following the end of the tax period.

    This means that monthly declarations concerning the tax period between
    March 1st and March 31st must be declared to RRA and paid by April 15th. Then
    declarations concerning the tax period between April 1st and April 30th must be
    declared to RRA and paid by May 15th and so on throughout the year. 
    The quarters for taxpayers declaring VAT on a quarterly basis concern the tax

    period between:

     January 1st to end March must be declared and paid by 15th April.
    – April 1st to end June must be declared and paid by 15th July.
    – July 1st to end September must be declared and paid by 15th October
    – October 1st to end December, must be declared and paid by 15th January

    the following year.

    3. Tax point

    A tax point is the date on which VAT becomes due on a particular transaction.
    The tax point depends on several factors, such as:
    • Whether the business is invoice accounting or cash accounting for VAT.
    • When the goods were supplied or the services carried out.
    • When the VAT invoice was issued to the customer.
    The taxation point for the supply of goods and services shall be the one that is
    the earliest among the following:
    i. The date on which the invoice is issued;
    ii. The date on which payment of goods and services, including a partial
    payment is made. However, this Paragraph does not concern the advance
    payment made to the constructors who later re-imburse it by deducting it
    from the invoices presented to the client;
    iii. The date on which goods are either removed from the premises of the supplier
    or when they are given to the recipient;
    iv. The date on which the service is delivered. In case of electricity, water or
    any other supplies, goods or services measured by meter or any other
    calibration, the taxation period shall be the time when the meter or any
    other calibration reads the number that follows the previous consumption
    of the supply. The taxation period to a person who suspends registration
    of the value added tax occurs immediately before the registration is
    cancelled. 
    4. Tax base
    The taxable value of each good or service is determined as follows:
    1º except where the Law provides otherwise, the taxable value of goods or
    services is the consideration paid in money by the recipient;
    2º the taxable value on goods and services is the fair market value, exclusive of
    the value added tax, if goods or services are supplied for: 
    a) a non-monetary consideration;
    b) a monetary consideration for one part and non-monetary for the other;

    c) consideration that is less than the market value of the goods or services.

    5. VAT Inclusive and VAT Exclusive
    a) VAT Inclusive
    The VAT inclusive price means the price of the goods or service including VAT.
    Goods and services supplied by VAT registered taxpayers must always be sold

    at the VAT inclusive price. 

    b) VAT Exclusive
    The VAT exclusive price means the price of the goods or service that is not the
    final cost, to which VAT has not yet been added.
    The invoice supplied to the customer must show the VAT exclusive price,

    amount of VAT and VAT inclusive price.

    Application of VAT inclusive or VAT exclusive price of taxable goods and
    services

    a) VAT inclusive


    
    Example: XYZ CO bought the 10000 kgs of beans for resale for FRW 1,000,000
    with VAT inclusive. Calculate the amount of VAT paid.

    Formula

    b) VAT exclusive

    Example: Manzi buy the 500 Kgs of rice for resale for FRW 100,000 with VAT
    exclusive. Calculate the amount of VAT payable and total amount paid.

    Formula

    Total amount paid= cost of goods or services + VAT payable

    Total amount = 100,000 + 18000= FRW 118,000 

    5.1.3: Goods and services
    According to Law no 37/2012 of 09/11/2012 establishing the value added
    (Article 8 of law no37 /2012 of 09/11/2012 on the code of VAT) :

    The following acts shall constitute the supply of taxable goods or services:

    1. sale, exchange or other transfer of the right to dispose of goods by the
    owner;
    2. lease of goods under a leasing agreement.
    Any operation other than the supply of goods or money shall be considered as

    an act of service delivery which includes:

    1. the transfer or surrender of any right to any other person;
    2. the provision of any means for facilitation;
    3. the lease of goods under operating leasing agreement aiming mainly at

    lease. 

    When there is a supply of goods or services by a taxpayer, even occasionally,
    with or without consideration:


    1. for his/her own benefit;
    2. for the benefit of himself/herself and others;
    3. for the benefit of the business partners or of any director or person
    employed in the business; (Article 3 of law no02 /2015 of 25/02/2015 on
    the code of VAT)
    4. for the benefit of customers of the business, except bonuses on telephone
    communications approved by the institution in charge of public utilities
    regulation, the supply of such goods or services shall be taxable. (Article
    3 of law no 02/2015 of 25/02/2015 modifying and complementing law no
    37 /2012 of 09/11/2012 on the code of VAT) 

    5.1.4: Compensation
    A payment for harm or compensation may be subject to VAT. This depends on
    the precise purpose of the payment. It will be exempt from VAT if it is only
    compensating. For VAT purposes, the payment will be a supply if the recipient
    (the claimant) provides something in exchange.

    It’s crucial to get the treatment right, just like with any payment that can be
    subject to VAT. The claimant will ask the defendant to pay VAT in addition to the
    principal payment of damages or compensation if the payment is VAT-eligible.
    If the payment is made pursuant to a settlement agreement, the agreement
    must state that any applicable VAT is payable in addition to the main amount; if

    it does not, the payment will be viewed as made under a different set of rules.

    5.1.5: Exempted and zero-rated goods and services
    1. Zero-rated goods and services
    Article 5 of Law No37/2012 of 09/11/2012 establishing the value added tax is
    modified and complemented as follows:

    The following goods and services shall be zero-rated:

    1. exported goods and services;
    2. minerals that are sold on the domestic market;
    3. international transportation services of goods entering Rwanda and
    transportation services of goods in transit in Rwanda to other countries,
    including related services;
    4. goods sold in shops that are exempted from tax as provided for by the law
    governing customs (Article1 of law no 02/2015 of 25/02/2015 modifying
    and complementing law no
     37 /2012 of 09/11/2012 on the code of VAT) ;
    5. services rendered to a tourist for which value added tax has been paid;
    6. the following goods and services intended for persons of a special
    category (Article1 of law no 02/2015 of 25/02/2015 modifying and
    complementing law no 37 /2012 of 09/11/2012 on the code of VAT ) :
    a) Goods and services intended for diplomats accredited to Rwanda that
    are used in their missions;
    b) goods and services intended for international organizations that have
    signed agreements with the Government of Rwanda;
    c) goods and services donated to local non-governmental organizations,
    which have been acquired through funding by countries or international
    organizations that have signed agreements with the Government of
    Rwanda and for being used for agreed upon purposes;
    d) Goods and services intended for projects funded by partners that have

    signed agreements with the Government of Rwanda.”

    2. Exempted goods and services
    Article 6 of Law No37/2012 of 09/11/2012 establishing the value added tax as

    modified and complemented to date is modified and complemented as follows:

    The following goods and services are exempted from value added tax:
    1. Services of supplying clean water and ensuring environment treatment
    for non-profit making purposes with the exception of sewage pump- out
    services;
    2. goods and services for health-related purposes:
    a) Health and medical services;
    b) Equipment designed for persons with disabilities;
    c) Goods and drugs appearing on the list established by the Minister in
    charge of health and approved by the Minister in charge of taxes.
    Institutions eligible for exemption under item 2° b) of this Article must be
    recognized by Rwandan laws as public institutions, social welfare organizations
    and any other form of voluntary or charity organizations
    For natural persons, an authorized medical Doctor ascertains whether the
    equipment provided under item 2º b) relates to their disability;
    3. educational materials, services and equipment appearing on the list
    established by the Minister in charge of education and approved by the
    Minister in charge of taxes;
    4. books, newspapers and magazines;
    5. transportation services by licensed persons:
    a) Transportation of persons by road in vehicles which have a seating
    capacity of fourteen (14) persons or more;
    b) Transportation of persons by air;
    c) Transportation of persons or goods by boat;
    d) Transportation of goods by road;
    6. lending, lease and sale:
    a) Sale or lease of land;
    b) Sale of whole or part of a building for residential use;
    c) Renting or grant of the right to occupy a house used as a place of residence
    of one person and his/her family, if the period of accommodation for a
    continuous term exceeds ninety (90) days;
    d) Lease of a movable property made by a licensed financial institution;
    7. financial and insurance services:
    a) Premiums charged on life and medical insurance services;
    b) Bank charges on current account operations;
    c) Exchange operations carried out by licensed financial institutions;
    d) Interest charged by the bank on credit and deposits;
    e) Operations of the National Bank of Rwanda;
    f) Fees charged by the bank on vouchers and bank instruments;
    g) g) Capital market transactions for listed securities and fees or expenses
    charged to investors a regulated collective investment scheme;
    h) Transfer of shares;
    8. precious metals: sale of gold in bullion form to the National Bank of
    Rwanda;
    9. any goods or services in connection with burial or cremation of a body
    provided by an Order of the Minister;
    10. energy supply equipment appearing on the list established by the
    Minister in charge of energy and approved by the Minister in charge of
    taxes;
    11. trade union subscriptions;
    12. leasing of exempted goods;
    13. all agricultural and livestock products, except processed ones. However,
    milk processed, excluding powder milk and milk derived products, is
    exempted from this tax;
    14. services of agriculture insurance;
    15. services, agricultural inputs, and other agricultural and livestock
    materials and equipment appearing on the list established by the
    Minister in charge of agriculture and animal resources and approved by
    the Minister in charge of taxes;
    16. gaming activities taxable under the Law establishing tax on gaming
    activities;
    17. personal effects of Rwandan diplomats returning from foreign postings,
    Rwandan refugees and returnees entitled to tax relief under customs
    laws. The period of twelve (12) months required for tax relief for vehicles
    provided under customs laws shall not apply to Rwandan diplomats
    returning from foreign postings;
    18. goods and services meant for Special Economic Zones imported by a
    zone user holding this legal status;
    19. mobile telephones and SIM cards;
    20. information, communication and technology equipment appearing
    on the list established by the Minister in charge of information and
    communication technology and approved by the Minister in charge
    of taxes; (Article 2 of law no 40/2016 of 15/10/2016 modifying and
    complementing law no
     37 /2012 of 09/11/2012 on the code of VAT )
    21. all goods, including materials, supplies, machinery and motor vehicles
    intended for public institutions in charge of national defense or security;
    22. machinery and capital goods of industries as well as raw materials used
    in industries appearing on the list established by the Minister in charge
    of industry and approved by the Minister in charge of taxes.
    Requirements for an industry to be entitled to exemption are determined by an
    Order of the Minister in charge of taxes.”
    Application activity 5.1
    Q1. a) What is Value Added Tax? Who is liable to pay it?
     b) Highlight the Characteristics of VAT
    Q2. Suppose that the price of the commodity is FRW1, 416,000 and it is
    VAT inclusive.
    Calculate the VAT.
    Q3. For purposes of Value Added Tax, state two (2) categories of zero
    rated goods and services and there (3) exempted goods and services
    5.2: VAT registration compliance
    Learning Activity 5.2


    The Rwandan tax laws require any business person who fulfils the
    conditions provided by law to register for value added tax (VAT). What is
    the threshold (turnover) required for a business person to register for VAT,

    respectively on quarterly and annual basis?

    5.2.1: Registration laws related on VAT
    1. Registration for VAT
    A person can be registered for VAT by voluntary but the following persons
    are enforced by law to be registered, a person whose taxable transaction in
    the preceding calendar year or preceding quarter has reached at least FRW
    20,000,000 (Twenty million) or FRW 5,000,000 (Five million), respectively, is
    required to register with the tax Administration for VAT and must obtain a VAT
    certificate. The registration must be accomplished within 7 days from the end
    of that calendar year or quarter.

    If the business is newly formed, it may operate up to 3 months without registering
    for VAT. However, as soon as the taxable transactions reach FRW 5,000,000 or
    more, it must be registered any time before the end of the 3 months’ period. If
    a person has different businesses in the same or different locations, he shall

    combine all the activities and register as one single taxable unit.

    Example

    Nduwayezu commenced business on 1/1/2018. His monthly sales are as below:

    When should Nduwayezu register for the VAT?

    Quarterly Registration Rule

    Since Nduwayezu reaches FRW 5,000,000 in the second quarter, he must

    register for VAT in seven days of month June.

    Annual Registration Rule


    Using the annual registration rule, Nduwayezu reaches RWF 20,000,000 in the
    month of September; therefore, he must register for VAT in the first seven days
    of January
    2. Form of business required for Registration
    Registration is done in the following:
    • In the name of the sole proprietor
    • In the name of the firm
    • In the name of a company

    • In the name of the organization

    The commissioner General, if he sees that it is fit, he may direct those two or
    more persons be registered and treated as a single entity.
    The person who has been registered for VAT is the only one has the right to
    levy VAT when he sells goods to his customers. Tax payers registered for VAT
    recovers the tax levied on them and profit more sales compared to those who

    did not register. 

    3. Obligation of VAT registration
    Obligations of a VAT registered taxpayer include the following:
    i. Must clearly display the VAT registration certificate in a plain view at
    the entrance of his place of business for his clients to see.
    ii. Must issue a VAT invoice to his customers’ every time they purchase
    goods or services from him.
    iii. Must file a monthly or quarterly VAT return on the appropriate form
    iv. Must be available at all times to receive VAT officers and to make
    available to the officers’ books of accounts ascertaining to the business.
    v. Must use EBM
    4. Other registration issues
    When determining the value of a person’s taxable supplies for the purposes
    of registration, supplies of goods and services that are capital assets of the
    business are to be disregarded, except for non-zero rated taxable supplies of

    interests in land.

    When a person is liable to register in respect of a past period, it is his
    responsibility to pay VAT. If he is unable to collect it from those to whom he
    made taxable supplies, the VAT burden will fall on him. A person must start
    keeping VAT records and charging VAT to customers as soon as it is known
    that he is required to register. However, VAT should not be shown separately
    on any invoices until the registration number is known. The invoice should
    show the VAT inclusive price and customers should be informed that VAT
    invoices will be forwarded once the registration number is known. Formal
    VAT invoices should then be sent to such customers within 30 days of
    receiving the registration number.
    5. Deregistration

    Every registered taxpayer is de-registered when the commissioner general
    is satisfied that they ceased to make taxable supplies or is not a person to
    whom the conditions of registration apply. Any registered person ceasing
    to be liable for registration notifies the tax administration, within a period
    of 7 days of the time when he is no longer required to be registered. The
    tax administration, when satisfied that the person is no longer liable to be
    registered, may cancel the registration. A trader may deregister voluntarily if
    he expects the value of his taxable supplies in the following one-year period
    will not exceed the minimum. Alternatively, a trader who no longer makes
    taxable supplies may be compulsorily deregistered.
    6. The Consequences of Deregistration
    VAT is chargeable on all goods and services at hand on the date of deregistration.
    On deregistration, VAT is chargeable on all stocks and capital assets in a business
    on which input tax was claimed, since the registered trader is in effect making

    a taxable supply to himself as a newly unregistered trader.

    7. Pre-Registration Input Tax

    VAT incurred before registration can be treated as input tax and recovered from
    RRA subject to certain conditions. If the claim is for input tax suffered on goods
    purchased prior to registration, then the following conditions must be satisfied:
    a) The goods were acquired for the purpose of the business which either
    was carried on or was to be carried on by him at the time of supply.
    b) The goods have not been supplied onwards or consumed before the
    date of registration (although they may have been used to make other
    goods which are still held).
    C) The VAT must have been incurred in the four years prior to the date of
    registration.
    8. Pre-Registration Services
    If the claim is for input tax suffered on the supply of services prior to registration,
    then the following conditions must be satisfied:
    a) The services were supplied for the purposes of a business which either
    was carried on or was to be carried on by him at the time of supply.
    b) The services were supplied within the six months prior to the date of
    registration. Input tax attributable to supplies made before registration
    is not deductible even if the input tax concerned is treated as having

    been incurred after registration.

    Application activity 5.2

    Q1. The Rwandan tax laws require any business person who fulfils the
    conditions provided by law to register for value added tax (VAT). What is
    the threshold (turnover) required for a business person to register for VAT,
    respectively on quarterly and annual basis?

    Q2. True or false question for obligation of VAT Registration
    i. Must clearly display the VAT registration certificate in a plain view at
    the entrance of his place of business for his clients to see. 
    ii. In the name of the firm
    iii.In the name of a company
    iv. Must file a monthly or quarterly VAT return on the appropriate form. 

    5.3. VAT Computation
    Learning Activity 5.3


    Value added tax is theoretically a tax paid by an economic unit for the value
    of which one adds to goods or services during the stages of production
    or distribution of those goods or services. However, in effect, VAT is a tax
    on the amount spent by the final consumers of goods or services. It is
    collected whenever goods or services are transferred for value production
    or wholesale or retail processes respectively. Whenever a trader pays for
    commodity liable to VAT, he/she must pay the supplier a price which include
    the appropriate rate of VAT on chargeable price. For the above scenario
    Q1. Differentiate input vat from output vat
    Q2. Specify in which case there is VAT payable/Refundable and VAT

    Claimable 

    5.3.1: Input and output vat
    1. Input vat
    Input VAT is the VAT on purchases
    Purchases of goods and services include the value of all goods and services
    purchased during the accounting period for resale or consumption in the

    production process.

    When a taxpayer supplies goods or services to another taxpayer, the supplier
    of those goods or services will levy VAT.? The VAT levied by the supplier is the
    Input VAT of the tax payer who receives those goods or services. On other hand
    when the vendors in turn supplies goods or services to other tax payers, VAT
    must be included in the price charged for those goods or services. This is the

    Output VAT of the taxpayer.

    2. Output Vat
    Output VAT is the VAT on the sales.

    A transaction that includes an exchange of services or goods for a certain
    amount of money is known as a sale.

    Turnover is an income received from sales of goods and services 

    Quantity *selling price =Revenue

    Note: When output VAT exceeds input VAT, the difference is the VAT payable to

    Rwanda Revenue Authority

    VAT payable or claimable = output VAT – input VAT

         • Value added tax refund

    If, during a particular prescribed taxation period, the input tax exceeds output
    tax, the Commissioner General shall refund the supplier the due amount to
    which the supplier stands in credit by reason of the excess, on receipt of the

    relevant tax return document within thirty (30) days:

    1. after one day from the expiry of the prescribed period for tax declaration;
    2. after receipt of proof of the last outstanding tax declaration.
    However, the value added tax paid by registered investors shall be refunded
    within a period not exceeding fifteen (15) days after receipt by the Revenue

    Authority of the relevant application.

    Prior to payment, the Commissioner General may order for verification of the
    claim for refund or deduction submitted to him/ her. In such a case, the period
    for the response to be communicated shall not exceed three (3) months from

    the date of submission of the claim”.

    Example Related on VAT payable:
    Rukundo sells wood to a furniture maker for FRW 100,000 VAT, the furniture
    maker uses this wood to make a table and sells the table to a shop for FRW
    150,000 VAT. The shop then sells the table to the final consumer for FRW
    300,000 plus VAT of 18%. Determine the VAT payable to RRA.
    Solution
    Cost will be FRW 100,000 and FRW 150,000 respectively
    Input VAT will be 18% * FRW 100,000 = FRW 18,000 and FRW 150,000 *18%
    = FRW 27,000
    Output VAT will be 18% * FRW 100,000, and FRW 150,000 * 18% and FRW
    300,000 *18%
    VAT Payable RRA will be the value added at each stage
    The first stage FRW 18,000 Second stage (FRW 27,000 – FRW 18,000) and the
    third stage it will be (FRW 54,000 - FRW 27,000) Total VAT payable will be FRW

    18,000 + FRW 9,000+ FRW 27,000 = FRW 54,000

    Practical Example
    XYZ Ltd is a registered VAT tax payer in Rwanda. Deals in both exempt and
    standard taxable supply.
    Her transactions for the month May 2022 are as shown below. Compute VAT

    payable 

    Output VAT


    Input VAT


    VAT payable/claimable = Output VAT – Input VAT = 9,254,837 – 7,347,066 =

    1,907,771

    5.3.2: General apportionment method
    Value added tax paid on such business overheard as in the case of telephones
    and electricity whose use cannot be practically separable from private and
    business use shall be equal to 40% on the input tax

    The commissioner General shall determine deniable input tax on taxable goods

    acquired or taxable goods imported.

    Example
    A businessman has invested in hospitality, he has hotel and he live in that hotel,
    the hotel accountant has declared VAT. The hotel has made input VAT on water
    consumption bill of FRW 100,000

    The tax administration will allow hotel an input vat of FRW 100,000 * 0.40 =
    FRW 40,000
    5.3.3: Attribution method
    If a taxpayer purchased in the country or imported taxable goods or services
    which are directly or indirectly related, on one hand partly to taxable goods or
    services and partly to exempted goods or services on the other, the sum of the
    input tax is a portion of the tax paid to the taxable goods or services in relation
    with his/her taxable business. As per article 15 allowance of input tax in Vat
    Law.
    Application activity 5.3
    Q1. ABC business is registered as VAT taxpayer. It sells today 800,000Rwf of
    taxable goods (VAT inclusive)

    Calculate the VAT output for this business

    Q2. EVA’s purchases on credit from EDWIN 50 Kg of flours at FRW 500/Kg
    VAT excluded.

    – 100Kg of rice at FRW 600 with VAT excluded.
    – AKANDI 24 cartons each one contains 12 bottles at FRW 300 with
    VAT included.

     Fill invoice by showing VAT for each product and total invoice to be paid

    Q3. XYZ Ltd imported goods for sales from the buyer whose acquisition
    value was FRW 2,450,000. Customs duty was charged at the rate of 10%.
    Other charges included: transport to the company’s premise: FRW 110,000
    and a commission of 5 % of the good’s value paid to the clearing agent. The

    normal VAT rate of 18%.

    Required: Determine the amount of VAT payable
    Q4. A company is registered for VAT. During a period, they have sales of FRW
    7,080,000 including VAT at 18% and purchases of FRW1, 100,000 excluding

    VAT. What is the VAT payable by the company at the end of the period?

    5.4: VAT offences, VAT penalties and fines

    Learning Activity 5.4


    Analyze the photos above and answer the question that follow:

     Outline the VAT Tax related offences punishable by Tax Law

    5.4.1: VAT offences

    1. VAT evasion

    A person who, while intending tax evasion, commits one of the following
    acts:
    1. Use of forged documents in his or her accounts;
    2. Counterfeit and use of documents or materials of the tax administration
    used for taxation;
    3. Hiding taxable goods or assets related to business;
    4. Making a declaration indicating that the taxpayer has not made sales;
    5. Changing the trade name by a person prosecuted in relation to tax;
    6. Fraudulent registration of trade under the name of another person;
    7. Hiding accounting documents from the tax administration or damaging
    them;
    8. Use of forged accounting records; Commits an offence of tax evasion.
    Upon conviction, he or she is liable to imprisonment for a term of not less than
    two (2) years and not more than five (5) years.
    2. VAT avoidance
    This is where tax payer uses legal/ legitimate means to escape paying part
    of the whole tax liability expected of him. The tax payer avoids tax by using
    loopholes or weaknesses in the tax system. A person can for example avoid
    graduated tax by going back to school since students don’t pay graduated tax or
    avoid indirect taxes such as VAT by refusing to by commodities on which they
    are taxed.
    5.4.2. VAT penalties and fines
    Interest on late payment and penalties

    1. Interest for late payment

    If the taxpayer fails to pay tax within the period provided for by the Law, he or
    she must pay late payment interest on the amount of principal tax.

    The interest rate is fixed at one point five percent (1.5%). Interests for late
    payment are calculated on a monthly basis, non-compounding, counting from
    the first day after the tax should have been paid until the day of payment

    inclusive. Every month that begins is considered as a complete month.

    Interests for late payment accrue shall not exceed one hundred percent (100%)

    of the amount of tax.

    Interests for late payment are always payable, even when the taxpayer has

    lodged an administrative or judicial appeal against the assessment.

    Interests for late payment do not apply on a taxpayer who discloses himself or

    herself

    And pays the due taxes before he or she is notified of imminent audit. The
    disclosure leads to exemption from interests only if it is done by a taxpayer who
    is not registered with the Tax administration and who discloses himself/herself

    in a period not exceeding one (1) year starting from the date the tax was due.

    When the taxpayer pays, the payment is used to pay tax liability in the following
    order:
    1. principal tax;
    2. administrative fine;

    3. interests for late payment.

    2. Administrative fine
    A. General fixed administrative fine
    • Wrongful acts punished with fixed administrative fine
    A taxpayer or any other person is subject to an administrative fine if he or she
    does one of the following:
    1. Not to submit a tax declaration on time;
    2. Not to submit a withholding tax declaration on time;
    3. Not to withhold tax;
    4. Not to provide proofs required by the Tax administration;
    5. Not to cooperate with a tax audit;
    6. Not to communicate on time powers or appointment entrusted to him
    or her referred to in Item 2 of Paragraph One of Article 10 of the Law
    related to Tax procedures 2019
    7. not to comply with the obligation to register;
    8. not to keep books and records of controlled transactions;
    9. to obstruct or attempt to obstruct the activities or duties of the Tax
    administration;
    10. not to comply with any requirements provided for in specific laws
             governing taxes if no provision of such laws provides for a sanction.
    With the exception of cases of failure referred to in Items 8° and 9°,
    administrative fine related to violations of provisions is established as
    follows:
    1. one hundred thousand Rwandan francs (FRW 100,000) for a natural
    person not engaged in any commercial activity or a taxpayer whose
    annual turnover is equal to or less than twenty million Rwandan
    francs (FRW 20,000,000);
    2. three hundred thousand Rwandan francs (FRW 300,000) if the
    taxpayer is a public institution or a non-profit making organization
    and if the taxpayer’s annual turnover exceeds twenty million Rwandan
    francs (FRW 20,000,000);
    3. five hundred thousand Rwandan francs (FRW 500,000) if the taxpayer
    was informed by the Tax administration that he or she is in the category
    of large taxpayers;
    4. five hundred thousand Rwandan francs (FRW 500,000) if taxpayer
    fails to submit his or her certified annual tax declarations and financial
    statements as required by law; the fine is paid every month until he or

    she submits them.

    If the taxpayer commits the same fault twice in five (5) years, the basic fine is
    doubled. In case the same violation is committed again within those five (5)
    years, the fine is four (4) times the basic administrative fine.

    In case of failure to keep books and records of controlled transactions as
    provided for in Articles 13, 14 and 15 of this Law, the applicable administrative
    fine referred to in this Article is doubled.

    Any qualified professional approved by the Tax Administration who obstructs
    the activities or duties of the Tax administration is liable to an administrative
    fine of two hundred thousand Rwandan francs (FRW 200,000). The qualified
    professional approved by the Tax Administration may also be suspended by
    the Commissioner General.
    B. Non-fixed administrative
    • Administrative fine for non-declaration and non-payment of tax

    on time

    If a taxpayer has neither declared nor paid tax in the required time limits provided
    by law, he or she pays the tax he or she did not declare and pay and is liable to an

    administrative fine as follows:

    1. Twenty percent (20%) of due tax, when the taxpayer exceeds the time
    limit for declaration and payment for a period not exceeding thirty (30)

    days;

    2. Forty percent (40%) of tax the taxpayer should have declared and paid,
    if he or she pays within a period ranging from thirty-one (31) to sixty
    (60) days from the time limit for the payment;

    3. Sixty percent (60%) of due tax, if the taxpayer exceeds the time limit for

    declaration and payment by more than sixty (60) days.

    The taxpayer who has declared due tax in the required time limits provided by
    law but did not pay that tax in such time limits, pays the principal tax and an

    administrative fine as follows:

    1. Ten percent (10%) of due principal tax, when the taxpayer exceeds the
    time limit for payment for a period not exceeding thirty (30) days from
    the fixed date of payment;
    2. Twenty percent (20%) of the principal tax due, when the taxpayer
    exceeds the time limit for the payment of a period ranging from thirtyone (31) to sixty (60) days from the fixed date of payment;
    3. Thirty percent (30%) of due principal tax, when the taxpayer exceeds
    the time limit for payment by more than sixty (60) days from the fixed
    date of payment;
    The taxpayer is not subject to the administrative fine if the Commissioner

    General gave him or her an extension for submitting tax declaration.

    • Administrative fine for understatement of tax levied after audit or

    investigation

    If an audit or investigation shows that there is the understatement of the
    amount on a tax declaration is at least ten percent (10%) but doesn’t exceed
    twenty percent (20%) of the tax liability, the taxpayer must pay the non-paid
    tax and also be subject to an administrative fine of ten percent (10%) of the

    amount of the understatement.

    The administrative fine referred to doubles if the understatement rate exceeds
    twenty percent (20%) of the principal tax liability the taxpayer ought to have
    paid.
    However, if a taxpayer voluntarily declares and pays the due tax after required
    time limits but before he or she is notified of imminent audit, is liable to an
    administrative fine as follows:
    1. twenty percent (20%) of due tax, when the taxpayer exceeds the time
    limit for declaration and payment for a period not exceeding thirty (30)
    days;
    2. thirty percent (30%) of tax the taxpayer should have declared and paid,
    if he or she pays within a period ranging from thirty-one (31) to sixty
    (60) days from the time limit for the payment;
    3. forty percent (40%) of due tax, if the taxpayer exceeds the time limit for
    declaration and payment by more than sixty (60) days.
    However, a taxpayer who rectifies his or her tax declaration and pays relevant
    tax before he or she is notified of imminent audit of his or her tax is not subject

    to the administrative fine.

    • Administrative fine for non-declaration and non-payment of the

    tax levied after audit or investigation

    If an audit or investigation shows that a taxpayer has neither declared nor
    paid tax in the required time, the taxpayer is liable to an administrative fine

    equivalent to sixty percent (60%) of due principal tax

    C. Special administrative fine related to the Value Added Tax: VAT

    violations

    A person who does not comply with provisions of Value Added Tax is subject to
    an administrative fine as follows:
    1. an administrative fine of fifty percent (50%) of the amount of value
    added tax output for the entire period of operation without value added
    tax registration, where Value Added Tax registration is required;
    2. an administrative fine of one hundred percent (100%) of the value
    added tax indicated in the invoice and payment of that tax as indicated
    on that invoice, for a person who issued a value added tax invoice when

    he or she is not registered for value added tax.

    Public institution which fails to withhold the value added tax or which withheld
    value added tax and failed to pay the tax withheld to the Tax Administration,
    must pay the Tax Not withheld or not paid, fines and default interests as

    provided for by the Law.

    Application activity 5.4

    Q1. Define the following terms:
    a) Penalties
    b) Fines
    Q2. Taxes and fines still have to be paid when appealing?
    Q3. What are the penalties for late lodgment of VAT returns by taxable

    person?

    Q4. Ubumwe declared his monthly Value Added Tax (VAT) for the tax
    period of January 2019 late. Instead of declaring by the 15th February
    2019, he declared and paid on 25th February 2019. The VAT Due for this
    tax period was FRW 80,000. Ubumwe is a small taxpayer. This was the
    first time that Ubumwe had declared late. Compute Ubumwe’s penalty for

    declaring late

    Skills Lab Activity 5

    Via visit of resource person (RRA), students write a note on the following:
    – Description of VAT
    – Registration for VAT

    – Calculation of VAT

    End of unit assessment 5

    Q1. What are the obligations of VAT registered taxpayers?
     Q2. Determine the requirements of a valid tax invoice 
    Q3. Give the difference between Exempt supplies and Zero-rated supplies 
    Q4. KAKA is trader at Kigali. He has purchased the goods on the price of FRW 950,000 
    excluding VAT and he sold it on the price of FRW 1,062,000 including VAT. Calculate the payable VAT.
     Q5. Shamlan is a business man in Kigali during the quarter ended 31/8/2018; 
    he hired a foreign consultant to train the employees on the accounting software
     for 20,000,000 inclusive of VAT.; No similar service is available in Rwanda.

    Required: Compute the VAT
    Q6. AMANI is a business man in Kigali, during the month of June he imported
    30,000Kg of powdered milk from Denmark. The FOB was 30,000USD,
    marine insurance 4,500USD and transport to Mombasa was 8,000USD. The

    exchange rate for the period was 1USD = FRW 830.

    Required Compute the VAT

    Q7. During January 2017 UWIMANA LTD Company made the following
    transactions (VAT exclusive):
    • January 1st bought goods on credit from MUKIZA LTD FRW 200,000
    • January 2nd sold goods on credit GASABO District FRW 150,000
    • January 3rd credit sales to DUBAI SHOP LTD FRW 250,000
    • January 4th purchased goods by cash from MUGISHA LTD FRW
    120,000
    • January 20th sold goods to GANZA FRW 100,000
    • January 31st sold goods on credit to MUSONI FRW 250,000
    Additional information:
    • Vat is applied at 18%
    • On 2nd January UWIMANA LTD Company imported office equipment
    for FRW 100,000 and paid telephone bills worth FRW 70,000.
    • UWIMANA LTD Company is VAT registered.
    • At the end of the month electricity bills used by UWIMANA LTD
    Company worth FRW 200,000 were paid.
    • Only 90% of telephone bills are accepted by RRA as used for
    Business purpose.
    REQUIRED:
    a) Prepare and present the VAT account
    b) Show the amount of VAT refunded to RRA
    Q8. HARERA declares his VAT on time as on 15 February 2021. Three
    months after, the RRA discovers that the amount of FRW 120,000 paid by
    HARERA was understated by 10% of the correct amount he should pay.
    Determine the amount of fine and penalty that HARERA has to pay to RRA
    if he was notified by RRA as small taxpayer. 


























    

  • UNIT 6: ELECTRONIC BILLING 6 MACHINE (EBM).

    Key unit competence: To be able use electronic billing machine

    Mukamana Charlotte is a mother of three children who all reach at the age
    of having the deep thinking. So this mother with her all children went to
    market to buy school materials, so, arrived there the market discussed with
    the seller in order to have the common price of these price materials, she
    wanted to buy for his children. Finally, both seller and the mother get the
    common price of these materials that mother wanted to buy but she paid
    without asking to the seller the invoice and them, the children shouted at
    her and explained her that the invoice is very necessary for them even for
    the different reasons such as: keeping the security of their properties bought
    and for the countries, it help the country to have different infrastructures

    as: hospitals, schools, roads profitable for whole the security in general. 

    Children explained their mother that the information regarding to invoice

    roles got it from the Radio Rwanda and RTV publicities.

    Questions
    Q1. Is it necessary to have the invoice once you want to buy something for
    all cases?
    Q2. State the roles of invoice for a buyer even the society in general.
    Q3. Invoice is it negotiable for the buyer to the seller once he/she buy

    something?

    6.1: The electronic invoicing system (Electronic Billing Machine).

    Learning Activity 6.1

    Mr. Patrick with friend went to the restaurant for having dinner, they have
    called the waiter and order the menu. They have enjoyed a lot and they
    have shared many stories about their students live, after 2 hours around
    22:00 PM the waiter came back with a beautiful handcraft small box with a

    printed paper inside and place it on their table.

    Peter was not aware about that paper, but his friend had information about

    that as he studied principals of taxation in secondary school.

    Mr. Patrick has called waiter again with anger by asking about such
    disturbance of bringing papers on their table without talking anything,
    but his friend calmed Patrick down and he gives him more explanation
    about that paper, and the importance of the paper on Patrick side and on

    Government side.

    Through group discussions, students should find out the kind of that

    documents brought by waiter.

    And they should state the information appear on that documents.

    6.1.1: Meaning of electronic billing machine, Definition of the
    concepts related to Electronic Billing Machine and Purpose of

    EBM.

    A. Meaning of electronic billing machine

    An electronic billing machine comprises of two components; there is a
    certified invoicing system (CIS) and a sales data controller (SDC). Upon the
    public announcement, every business registered for VAT will have to provide
    a customer with special receipt issued through electronic billing machine for

    every good or service.

    There are two versions of EBMs: EBM 1 and EBM 2.0.

    The new EBM version 2.0 (EBM 2.0) is a form of software now available for
    taxpayers to install onto desktop or laptop computers. VSDC can be incorporated
    with privately provided billing systems. EBM 2.0 have been extended to EBM
    2.1 for more perfection in reporting and data banking. EBM 2.1 can be interface

    with other systems.

    B. Definition of the terms related to electronic billing machine

    The following terms are defined with the same definitions got from the
    Ministerial Order Nº 002/13/10/TC of 31/07/2013 on modalities of use of

    Certified Electronic Billing Machine as follows:

    1. “Authority”: Rwanda Revenue Authority;
    2. “User”: a taxpayer who uses electronic billing machine;
    3. “TIN”: taxpayer identification number;
    4. “Large taxpayer”: any taxpayer who has been notified by the Authority
    that he or she is registered as large taxpayers;
    5. “Medium taxpayer”: any taxpayer whose turnover is more than fifty
    million (50,000,000) Rwandan francs during the previous tax period
    and not designed as a large taxpayer by the Authority;
    6. “Small taxpayer”: any taxpayer whose turnover is between twelve
    million and one (12,000,001) and fifty million (50,000,000) Rwandan
    francs during the previous tax period;
    7. “Micro taxpayer”: any taxpayer whose turnover is equal or less than
    twelve million (12,000,000) Rwanda francs during the previous tax
    period million;
    8. “Commissioner General”: Commissioner General of Rwanda Revenue

    Authority; 

    9. “Certified Invoicing System (CIS)”: electronic system designed for use
    in business for efficiency management controls, in areas of sales analysis
    and stock control system which fulfill the requirements specified by the
    Authority;
    10. “Sales Data Controller (SDC)”: device connected to CIS used for
    processing and storing receipts;
    11. “Signature”: receipt data used for integrity verification by the Authority;
    12. “Receipt”: certified retail receipt or wholesale receipt or receipt for the
    provision of services provided to the customer, whose integrity can be
    verified by the Authority;
    13. “Machine Registration Code (MRC)”: CIS’s unique serial number with
    designation of its certificate;
    14. “SDC serial number”: Sales Data Controller’s unique serial number with
    specification of its certificate;
    15. “POS”: Point of Sale;
    16. “Supplier”: company or physical person registered in Rwanda licensed
    by the Authority for holding certificates for CIS and/or SDC, manufactured
    in or outside Rwanda, and selling it to the market as a manufacturer or a
    representative of the manufacturer;
    17. “distributor”: company or natural person registered in Rwanda, having
    a distribution agreement with Supplier, and a license by the Authority to
    sell CIS or SDC in Rwanda
    C. Purposes of EBM
    i. Combating tax evasion
    ii. Combating corruption in the tax system
    iii. Providing a market balance and make equal business opportunities for

    every entrepreneur.

    6.1.2: Requirement to obtain EBM and the benefits of EIS/
    EBMs: RRA, Taxpayer
    A. Requirement to obtain EBM

     List of tools and documents required for the installation of EBM software:

    1. Required tools
    The EBM software is installed in a computing device (Desktop, Laptop, Tablet or
    POS) with windows operating system from 8 and above or Android operating
    system.
    Once you have a computing device, please prepare and submit the documents

    listed in point (2) below:

    2. Required documents
    The below listed documents have to be scanned and sent to ebm2.installation@
    rra.gov.rw

    a) A letter requesting the installation of EBM software. 

    This letter has to be stamped and signed by the Managing Director or one of
    the company shareholders or the business owner in case the business is not

    registered in the Rwanda Development Board (RDB).

    It has to be addressed to the head of EBM Division, Rwanda Revenue Authority

    b) A copy of RDB Full Registration Certificate or copy of Notice of Taxpayer
    Identification Number (TIN) registration in case the business is not
    registered in RDB.
    c) A copy of Value Added Tax (VAT) Certificate (If registered for that
    purpose)
    d) A copy of Identification Number or Passport of the person who signed
    the letter requesting the installation of EBM software
    e) Fill, stamp and sign the acknowledgement and commitment Form1
    that can be downloaded from this link: https://ebm2.rra.gov.rw/api/
    ConfirmForm. This form must be signed by the person who signed the

    letter requesting the installation of EBM software.

    B. The benefits of EIS/EBMs: RRA, Taxpayer

    There are numerous benefits of EIS/EBMs, both to compliant taxpayers and to
    the tax administration. These benefits to the taxpayer, to RRA and to Rwanda
    include:
    i. EIS/EBM sales data can be copied and pasted into the ‘Sales’ tab when
    completing the VAT annexures, making it quicker and easier for taxpayers
    to declare and pay VAT
    ii. Improving bookkeeping and stocktaking for taxpayers through using
    EIS/EBMs to record the exact items and prices being sold.
    iii. Simplifying the audit process, reducing the time and interruption of
    taxpayer’s daily operations
    iv. Reducing the potential for tax evasion, ensuring that taxpayers can

    compete fairly, and increasing the tax revenues for public spending.

    6.1.3: Process used to obtain Version EBM

    The way taxpayers use to obtain Version EBM

    If you would like to obtain EBM bring to RRA Headquarters:
    – RDB Business Registration Certificate
    – VAT Registration Certificate
    – If you are the owner of the company, your National ID or Passport
    – If you are not the owner of the company, the Power of Attorney and
    National or Passport of the Owner. Taxpayers will have EBM 2.0
    installed on their machine.

    The way used to buy airtime loaded into EBM V SIM cards

    It is the taxpayer’s responsibility to ensure that their EBM is loaded with
    sufficient airtime. Airtime for EBM 1 is available at a subsidized rate of FRW1,
    000 per month. Airtime can be uploaded months in advance by purchasing
    more than one FRW 1,000 vouchers. Only FRW 1,000 vouchers are allowed. 

    To check the airtime status of the EBM SIM card, dial: *183*SIM Card Number#
    to load airtime onto the EBM SIM card, dial: *746*Voucher Number*SIM Card

    Number#

    6.1.4: The components of EBM and Receipt data requirements

    A. The components of EBM

    The EBM 1 uses specific EBM hardware, made up of two components, a
    Certified Invoicing System (CIS) and a Sales Data Controller (SDC). These can
    be integrated into one item (‘All in One EBM’), or kept separate but connected

    by cable.

    B. Receipt data requirements

    A Certified Invoicing System shall generate receipts which show,
    Among others, the data enumerated in items below as minimum required

    information:

    1. taxpayer’s name;
    2. taxpayer identification number;
    3. address at which the sale takes place;
    4. optional tax identification number of the client;
    5. receipt type and transaction type;
    6. serial number of the receipt, from an uninterrupted ascending number
    series per receipt type;
    7. registered items or services with description, quantity, price, with any
    other action that may be done, such as cancellations or corrections;
    8. total sales amount;
    9. tax rates applied;
    10. the tax added to the sale amount;
    11. means of payment;
    12. SDC information including:
    a) date and time stamped by SDC;
    b) sequential receipt type number;
    c) receipt signature;
    d) SDC identification number;
    13. date and time stamped by CIS;
    14. Machine Registration Code (MRC).
    Each receipt shall be formed from a combination of a receipt type and a
    transaction type, determined by the Commissioner General. The receipt data
    requirements referred to in the lines above shall apply to return receipts.
    However, special provisions for issuing return receipts shall be determined
    by the Commissioner General.

    Application activity 6.1
    Q1. Explain two (2) advantages of use electronic information system
     to the taxpayer.
    Q2. Identify the documents required for installation of electronic billing
     machine software.
    6.2: The ways used to set EBM Invoice
    Learning Activity 6.2


    Mr. Kamali is a trader at Kigali city tower, one day he received as customer
    of one of his product, after negotiation they agreed to pay FRW100, 000
    and during invoice processing in EMB, Mr. Kamali erroneously entered
    FRW 1,000,000 and no further action made by Mr. Kamali as he felt that as
    long as sales system showing the actual sales value. On the second day, Mr.
    Kamali received several customers where they sold many products totaling
    FRW5, 000,000, during the morning his EBM was working properly but no
    EBM invoices issued as he was busy in receiving many customers and at
    the closing of the day his EBM was not working and kept quite as he was
    thinking that his technician is not around. 
    Question
     From the above scenario, what do you think Mr. Kamali was supposed to do?
    6.2.1: The way used to produce EBM invoices and the action
    done when the taxpayer enters an EBM invoice incorrectly

    A. The way used to produce EBM invoices

    EBMs must be used to produce EBM invoices for every sales transaction,
    whether to other businesses or to final consumers. The exact process varies
    slightly for different types of EBM. The licensed suppliers are trained to help
    show taxpayers how to use their EBMs.

    This typical process for using original EBMs is to enter the quantity, price and
    code of each item that is being sold. For sales to other businesses, the taxpayer
    can enter the client’s TIN number at the beginning of the transaction. Once
    all items in a transaction have been entered, the taxpayer must print the EBM
    invoice and give it to the client. The taxpayer should also print a duplicate EBM
    invoice of every transaction for their records. Alternatively, at the end of the
    business day, the taxpayer can print a daily report of all EBM invoices.
    B. The action done when the taxpayer enters an EBM invoice
    incorrectly
    If the taxpayer wishes to refund a consumer, or makes a mistake when entering
    a transaction, they can cancel a specific item, or the whole receipt. Alternatively,
    if the taxpayer wishes to enter any discount, this can be done at the end of the
    transaction, before printing the invoice.
    6.2.2: The action taxpayers do if the EBM is not working and
    Obligations of a Certified Electronic Billing Machine User

    A. The action taxpayers do if the EBM is not working

    If there is any period where the EIS/EBM is not working, for whatever reason,
    taxpayers must notify RRA and hand-write invoices for the consumer, and keep
    a duplicate, until the EIS/EBM is working again. Further actions depend upon

    the type of problem. Once the EIS/EBM is working again, enter all the handwritten invoices into the EIS/EBM.

    B. Obligations of a Certified Electronic Billing Machine User
    Users of certified electronic billing machines shall be subject to the following
    obligations:
    1. To issue receipt generated by certified electronic billing machines to
    every customer purchasing items or service;
    2. To ensure that certified electronic billing machines is placed at a place
    which is accessible and easily seen by customers;
    3. To ensure that all items or services sold through certified electronic
    billing machine have clearly defined name and appropriate tax rate.
    4. To include client’s TIN on the receipt upon request from the client who
    performs the payment prior to start issuing a receipt;
    5. To put a conspicuous notice containing the following information at a
    place where the certified electronic billing machine is installed:
    a) Name of the user, address and the TIN;
    b) Machine Registration Code;
    c) SDC Serial Number;
    d) Statement “In case of machine failure, sales personnel shall issue
    manual receipts authorized by the Authority”;
    e) Statement “do not pay if a receipt is not issued”;
    6. To make certified electronic billing machine available for control with
    respect to its being intact and the correctness of its operations;
    7. To perform compulsory technical inspection of certified electronic
    billing machine with appropriate service point, once such obligation is
    requested by the Commissioner General;
    8. To store the copies of certified electronic billing machines journal
    records within ten (10) years; 
    9. To ensure that the user manual is received at the time of supply by the
    dealer;
    10. To ensure that the supplier has registered certified electronic billing
    machine at the time of supply with the Authority;
    11. To report change of sales location to the Authority through procedure
    prescribed by the Commissioner General;
    12. Not to stop using certified electronic billing machine for more than
    twelve (12) hours without prior notification to the Authority;
    13. To report malfunctions of certified electronic billing machine to the
    Authority within six (6) hours; 
    Application activity 6.2
    Q1. Explain how the EBM invoice are produced.

    Q2. Identify three obligations of a certified Electronic Billing Machine.

    6.3: EIS/EBM penalties and fines

    Learning Activity 6.3

    Explain the judicial sanctions imposed on taxpayer who:
    a) Does not have an EBM/EIS, but is required to have
    b) Fail to comply with any other EIS/EBM user obligations

    c) Has an EIS/EBM but issues an undervalued EIS/EBM invoice

    6.3.1: EIS/EBMs penalties and fines
    The penalties and fines relating to the lack of or misuse of EIS/EBMs are
    explained below. These may be applied separately, or in addition to, any
    penalties and fines relating to Value Added Tax (VAT).
    a) What are the penalties for a taxpayer who does not have an EIS/
    EBM, but is required to have?
    A taxpayer who does not have an EIS/EBM for a sales location that requires an
    EIS/EBM is subject to a penalty of:
    – FRW 200,000 for a first-time offence.

    – FRW 400,000 for any repeat offences.

    b) What are the penalties for a taxpayer who fails to comply with any
    other EIS/EBM user obligations?

    A VAT taxpayer who fails to comply with any other five EIS/EBM user obligations,
    including indicating the true name of the goods, notify RRA of EIS/EBM failure
    and refraining from deleting invoices inappropriately, is subject to a penalty of:
    – - FRW 200,000 for a first-time offence.
    – - FRW 400,000 for any repeat offences.
    c) What are the penalties for a taxpayer who has an EBM but fails to
    issue an EIS/EBM invoice?
    A VAT taxpayer who has an operational EIS/EBM but fails to issue an EIS/EBM
    invoice when required is subject to a penalty of:
    – Ten (10) times the value of the evaded VAT for a first time offence.
    – Twenty (20) times the value of the evaded VAT for any repeat offences.

    A non-VAT taxpayer who has an operational EIS/EBM bit fails to issue an EIS/
    EBM invoice when required is subject to a penalty of:
    – Two (2) times the value of the transaction.

    – Four (4) times the value of the transaction for any repeat offences.

    d) What are the penalties for a taxpayer who has an EIS/EBM but
    issues an undervalued EIS/EBM invoice?
    A taxpayer who has an operational EIS/EBM but issues an undervalued EIS/
    EBM invoice is subject to a penalty of:
    – Ten (10) times the value of the evaded VAT for a first time offence.

    – Twenty (20) times the value of the evaded VAT for any repeat offences.

    A non-VAT taxpayer who has an operational EIS/EBM but fails to issue an EIS/
    EBM invoice when required is subject to a penalty of:
    – Two (2) times the value of the transaction.
    – Four (4) times the value of the transaction for any repeat offences.
    e) What other penalties can taxpayers be subject to for nonc
    ompliance with EIS/EBM requirements?
    Additional penaltiesavailable to RRA for non-compliance with EIS/EBM
    requirements can include:
    – Closure of business activities for a period of thirty (30) days.
    – Being barred from bidding for public tenders.

    – Being named in nationwide newspapers

    Application activity 6.3
    Lucie is a VAT registered taxpayer. Lucie is caught not issuing an EBM invoice
    for a FRW 59,000, Transaction with VAT evaded of FRW 9,000. As it is her

    first offence. Calculate the penalties Lucie to be paid.

    Skills Lab Activity 6

    Have a resource person (sole trader) or the school accountant to share
    with students the way used to programmer EBM Version and produce EBM
    invoices also ask students to describe them then share their findings.

    End of unit assessment 6

    Q1. Mukamudenge is VAT registered taxpayer. Mukamudenge is caught not
    issuing an EBM invoice for a FRW 2,900,000 transaction with VAT evaded of
    FRW 122,000. As it is second offence. Calculate the penalties Mukamudenge
    to be paid.
    Q2. Give short note on the following:
    a) Certified Invoice System (CIS)
    b) Sales Data Controller (SDC)
    Q3. Write in full the following terms related to Electronic Billing Machine:
    – POS
    – TIN
    Q4. Explain the judicial sanctions imposed on taxpayer who has an EBM
    but fail to issue an EIS/EBM invoice.
    Q5. Define the following terms:
    a) Penalties
    b) Fines
    Q6.
    a) What does EBM stand for?
    b) Define the term EBM
    c) Explain two (2) Types of EBM.
    

  • UNIT 7: TAXATION OF CROSS 7 BORDER ACTIVITIES

    Key unit competencies: Compute taxation of cross border activities.

    Scenario 1
    Mr. Robert has a manufacturing and selling company which produces
    2 products, product A and Product B. Product A is mainly consumed in
    Rwanda, this means that Mr. Robert does not export product A. Product
    B is mainly consumed outside of Rwanda, this means that Mr. Robert do
    export of product B in different countries including East Africa Community
    (EAC) countries. Due to an increase of customers in Uganda and Kenya,
    Mr. Robert has opened a branch there and to make sure that the branches
    is earning more profit, he has started to purchase the local products and
    do a retailing there. In the recent period Mr. Robert has discovered that
    the price of raw materials in Uganda are cheaper than in Rwanda and
    has started to purchase the raw materials in Uganda and transfer them in

    Rwanda without charging any additional cost to Rwandan company. 

    Scenario 2

    Joe is a citizen of and lives in Rwanda. He has a home here, and lives here
    with his wife and family. Thus, in the normal scheme of things, Joe would
    be taxed on his income in Rwanda, in common with all other residents
    and citizens who live here, and who use the roads, sanitation systems and
    other public services here. However, Joe is slightly unusual, Every Tuesday
    morning Joe flies to Tanzania, works there until Thursday afternoon and

    then flies home again. He gets paid in Tanzania.

    Question on scenario 1

    As far as taxation is concerned, which types of trading Mr. Robert is doing?
    How can you relate the two businesses of Mr. Robert?

    Question on Scenario 2

    In which country does the tax liability of Joe will fall? How that is will be
    decided? What will happen if Joe taxed on Income Received in Rwanda
    and income received in Tanzania? What do you think Rwanda should do to

    protect Joe for being taxed in Tanzania?

    7.1. Distinction between trading in and trading with a country

    Learning Activity 7.1


    From the photo above, describe the activity that person is doing?

    This refers to the trading made within the territory of the country i.e., both

    buyer and seller are in the same country. 

    7.1.2. Trading with a country.

    This refers to the trading with other territories i.e., the seller is in one country,
    and the buyer is in another “international” trade. Trade with a country
    accommodates the cross-border activities because under this, the buyer
    or seller transfers the property, goods and services between individuals or

    business entities who reside in different Jurisdictions/Countries. 

    Application activity 7.1

    With clear example, differentiate trading in a country and cross border

    activities

    7.2. Double taxation agreement

    Learning Activity 7.2


    What are you seeing on the above photo?

    7.2.1. Double taxation

    As we have seen in the introductory activity, if an individual or a company
    is resident in Rwanda, they will be charged Rwandan income tax on their
    Rwandan and overseas taxable income sources. Foreign source income may
    have already suffered taxation overseas, according to the tax rules of the

    overseas jurisdiction.

    Income that is chargeable to income tax in Rwanda is the gross amount of
    foreign income received. If the income also suffered tax in the foreign country,
    there is ‘double taxation’. Hence, double taxation, refer to when a taxpayer
    taxed both on income received where in his/her mother country taxed on gross
    income received from local and foreign and the foreign country taxed him/her

    as he/she generated the income from its territory.

    7.2.2. Double taxation agreement

    International Taxation involves taxation which is cross border. It can arise
    from an individual having taxable income or assets in two countries, or a
    business operating in two (or more) countries. Due to increased globalization,
    the growing level of businesses trading internationally around the globe, and
    increased personal mobility, international taxation is becoming more and
    more prevalent. Travel restrictions are less onerous, and it is no longer difficult
    for people to move from one state to another to carry out businesses or to
    seek employment opportunities. Capital is more mobile and with advances
    in e-commerce and e-banking it moves more swiftly than ever before. Such

    activities are all likely to attract tax liabilities.

    The Organization for Economic Co-operation and Development (OECD) has
    developed a Model Tax Convention which may be used to determine how
    double taxation is avoided. Countries may refer to the Model Tax Convention
    when making their own double taxation agreements.
    The main principles of the Model Convention are as follows:
    a) Total exemption from tax is given in the country where income
    arises in the hands of certain persons such as visiting diplomats and
    teachers on exchange programmes.
    b) Preferential rates of withholding tax are applied to payments of
    investment income whereby the usual rate would be replaced by a
    lower rate.
    c) Double taxation relief is given to taxpayers in their country of
    residence by way of a credit for tax suffered in the country where
    income arises. This may be in the form of relief for withholding tax
    only or for underlying tax on profits out of which a dividend is paid
    as well.
    d) There is exchange of information so that tax evaders can be pursued
    internationally.
    e) There are rules to determine a person’s residence and to prevent dual
    residency.
    f) There are rules which render certain profits taxable in only one
    country of the two contracting countries.
    g) There is a non-discrimination clause so that a country does not tax

    foreigners more heavily than its own nationals

    Double taxation arrangements may take the form of:
    a) Bilateral conventions or agreements relief;
    b) Unilateral relief; 
    Bilateral conventions or agreements relief: These are bilateral agreements
    for relief from double taxation. This involves countries affected negotiating an

    agreement with a view to minimize or eradicate effects of double taxation.

    Unilateral relief: Due to the difficulty involving double taxation negotiations,
    it is possible for an individual country to remove the burden of double taxation
    from international trade by opting to give relief for foreign taxation on a unilateral
    basis i.e. without regard to whether the other taxing country extended relief or
    not. This may be triggered by a representation by the business community.
    A unilateral approach is usually a last resort where negotiations have proved

    difficult due to political and other reasons. 

    Rwanda has double taxation agreements in place with Barbados, Belgium,
    Jersey, Mauritius, Morocco, Singapore, South Africa, People’s Republic of China,
    Democratic Republic of Congo, Luxembourg, Qatar, Turkey and United Arab
    Emirates. These generally impose lower rates of withholding tax on payments
    such as dividends, interest, management fees and royalties being paid from
    Rwandan enterprises to entities located in these overseas countries. For
    example, payments to South Africa have 10% withholding tax imposed instead

    of the usual 15%.

    7.2.3. Foreign tax credit

    Foreign tax credit is also known as Double Taxation Relief. Actually, a foreign
    tax credit or double taxation relief is given to eliminate the effects of double
    taxation where income that has suffered tax in one country is also subjected to
    tax in another country. The relief is given by way of a credit for the foreign tax
    paid. And remember a foreign tax relief is granted to individual or company
    where there is double taxation agreement in those countries. Thus, in the context
    of Rwanda, a foreign tax credit arises when a tax payer who is a resident of
    Rwanda is taxed on the income received both in Rwanda and outside Rwanda.
    However, that tax liability is reduced by the amount of tax paid outside.

    Note:     According to article 7 of Law Nº 027/2022 of 20/10/2022 Establishing
    Taxes on Income    ; If during a tax period, a resident in Rwanda generates
    income derived from taxable activities performed abroad, in accordance with
    Articles 4 and 6 of this Law, the income tax payable by that resident in respect
    of that income is reduced by the amount of foreign tax payable on such income.
    The amount of foreign tax payable shall be substantiated by appropriate
    evidence such as tax declaration, a withholding tax certificate or other similar
    acceptable document. However, the reduction of the income tax provided for
    under Paragraph one of this Article shall not exceed the tax payable in Rwanda

    on income from abroad.

    Steps in computing double taxation relief

    1. Calculate the total income received in resident and foreign country
    2. Compute the tax liability of the total income earned from resident and
    foreign country
    3. Compute the tax liability of the income earned from resident country
    4. Compute the tax liability that should have been paid in resident country
    (Tax liability of the total income- Tax liability of the income earned from
    resident country
    5. Computation of the double taxation relief/ Foreign tax credit; This
    should be equal to the lower between the tax liability computed in step

    4 and the actual tax paid in foreign country

    Application activity 7.2
    Hellen is resident of Rwanda, during the month of December 2022 she
    received the following employment income. From Rwanda; she received a
    salary of FRW 720,000. From Kenya; she received Kenyan Shillings (KES)
    5,400 net of tax of KES 780. Assume that Rwanda has a double taxation
    agreement with Kenya and 1KES = FRW 100.

    Required:

    Compute the double taxation relief due to Hellen for the month of December
    2022
    7.3. East African Customs Union

    Learning Activity 7.3


    Describe your observation on the above photo

    7.3.1. Meaning of East African Customs Union

    The Customs Union is the first Regional Integration milestone and critical
    foundation of the East African Community (EAC), which has been in force since
    2005. It means that the EAC Partner States have agreed to establish free trade
    (or zero duty imposed) on goods and services amongst themselves and agreed
    on a common external tariff (CET), whereby imports from countries outside
    the EAC zone are subjected to the same tariff when sold to any EAC Partner

    State. East African customs union is also referred as Customs Union.

    7.3.2. Features of a Customs Union

    The main features of a Customs Union include the following:

    i. A common set of import duty rates applied on goods from third countries
    (Common External Tariff, CET);
    ii. Duty-free and quota-free movement of tradable goods among its
    constituent customs territories;
    iii. Common safety measures for regulating the importation of goods from
    third parties such as phyto-sanitary requirements and food standards.
    iv. A common set of customs rules and procedures including documentation;
    v. A common coding and description of tradable goods (common tariff
    nomenclature, CTN);
    vi. A common valuation method for tradable goods for tax (duty) purposes
    (common valuation system);
    vii. A structure for collective administration of the Customs Union.
    viii. A common trade policy that guides the trading relationships with
    third countries/trading blocs outside the Customs Union i.e., guidelines
    for entering into preferential trading arrangements such as Free Trade
    Area’s etc. with third parties.
    Such main features of the EAC Customs Union are embodied in the Customs
    Union Protocol and its annexures, Common Customs Law (and regulations)
    and the Treaty. (Reference for students and Teachers).


    7.3.3. Objectives of the Customs Union

    The objectives of the East African Community are broader and cover almost
    all spheres of life, the main objective of the Customs Union is formation of a
    single customs territory    . Therefore, trade is at the core of the Customs Union.

    It is within this context that internal tariffs and non-tariff barriers that could
    hinder trade between the Partner States have to be eliminated, in order to

    facilitate formation of one large single market and investment area.

     Objectives of the Customs Union

    The objectives of the Customs Union include:
    a) Further liberalize intra-regional trade in goods on the basis of mutually
    beneficial trade arrangements among the Partner States;
    b) Promote efficiency in production within the Community;
    c) Enhance domestic, cross border and foreign investment in the
    Community; and
    d) Promote economic development and diversification in industrialization
    in the Community
    Application activity 7.3

    With a clear example, outline the objectives of customs union. 

    7.4. Transfer pricing
    Learning Activity 7.4

    Describe your observation on the photo above?

    7.4.1. Transfer pricing principles

    Multinational groups of companies will typically trade with each other in
    goods and services. The prices at which such transactions occur is called
    the transfer price. While the trading of goods between Rwanda and other
    countries is governed by Article VII of GATT (the General Agreement on
    Tariffs and Trade), and must not take place at an artificial or contrived value,
    this rule does not apply to the transfer price for services. An overseas parent
    company could therefore charge management fees, and manipulate the
    transfer price so that profits arise in a country where the rates of taxation are
    lower so that the overall tax liability of the group is minimized. The transfer
    pricing rules mean that the purchase price of goods and services paid for by
    Rwandan businesses to related parties should not exceed the amount that

    would have been paid to an independent third party.

    7.4.2. Definition of related person

    Article 3 of Law No     027/2022 of 20/10/ 2022 defines related persons as ‘any
    person who acts, or is likely to act, in accordance with the directives, opinion
    or wishes of another person when such directives, opinion or wishes are
    communicated or not communicated to them’. The following are specifically
    deemed related persons:
    a) An individual and his or her spouse and their direct lineal ascendants
    or direct lineal descendants and their relatives in the collateral
    lineage until at least the 3rd degree.
    b) A person who participates directly or indirectly in the management,
    control or capital of another person.
    c) Third person who participates directly or indirectly in the
    management, control or capital or both control and capital of
    another person;
    d) Such persons referred to under sub items a., b. and c. who participate
    directly or indirectly in the management, control or capital of an
    enterprise.
    e) A person who is under direct or indirect common control with
    another person
    A common example of related persons is a company and its shareholders and
    directors; the shareholders meet the definition in (b) above as persons who
    participate in the capital of the company (which is a legal person in its own
    right), and the directors participate in management.

    7    .4.3. Impact of transfer pricing rules

    Related persons must retain documents that justify that the prices charged on
    transactions between themselves were carried out on an arm’s-length basis. If
    a taxpayer fails to retain such documentation, the tax administration has the
    power to adjust taxable profits accordingly. For example, if the price paid for
    a management service by a Rwandan business to its overseas parent company
    was above an arm’s-length price, the tax administration would increase taxable
    income by the difference between the actual price and the arm’s-length price.

    7.4.4. Thin capitalization

    Internationally, most tax jurisdictions (including Rwanda) provide that taxable
    income may be reduced by amounts paid as interest on loans to related parties.
    By contrast, most do not provide tax relief for distributions to owners made
    to shareholders by way of dividends. As a result, multinational enterprises are
    motivated to finance their foreign subsidiary companies through loans rather
    than share capital. When the subsidiary is financed heavily by debt finance, its
    taxable profits would be substantially reduced by interest payments.

    To prevent huge reductions of taxable profits by way of interest deductions, thin
    capitalization rules apply. These rules limit the amount of interest that would
    be allowed as a deduction when computing taxable business profits. This is
    done by not allowing as an expense the amount of interest paid on related party
    loans when the company’s debt to equity ratio exceeds a certain limit.

    In Rwanda, this limit is a ratio of four to one: where debt is more than four
    times equity (share capital on the balance sheet), a company is said to be ‘thinly
    capitalized’ and interest payable on loans to related persons will not be given

    tax relief (and must therefore be added back).

    Application activity 7.4

    A Plc is a registered commercial bank in Rwanda. The bank pays its French
    parent company a management services charge of FRW 50,000,000 per
    year. This figure is 25% higher than what other banks in Rwanda pay for the
    same services to their parents’ companies. In addition, this is higher than
    the other group subsidiaries’ pay despite the fact that the services provided
    by the parent to all of its subsidiaries in Africa are similar in scope.
    Required:
    Compute the transfer pricing adjustment if any. 

    7.5. Computation of tax for cross border activities

    Learning Activity 7.5


    Describe your observation on the above photo?

    7.5.1. Compute the tax relating to cross border activities for
    an individual
    The tax liability should be equal to Gross tax liability computed as per tax
    rate for individual in Rwanda minus the double taxation relief.
    Steps for computing tax liability
    1. Calculate the Double taxation relief
    2. Compute the tax liability, the tax liability or tax payable is equal to
    Gross tax liability minus double taxation relief. 
    7.5.2. Compute the tax relating to cross border activities for a
    company
    The tax liability should be equal to gross tax liability computed as per tax
    rate for companies in Rwanda minus the double taxation relief.

    Recall: The income tax shall not exceed the tax payable in Rwanda on income
    from abroad. This means that the rate of tax for foreign income should not
    exceed the tax rate charged in Rwanda. 
    Steps for computing tax liability
    1. Calculate the Double taxation relief
    2. Compute the tax liability, the tax liability or tax payable is equal to Gross
    tax liability minus double taxation relief. Remember: CIT rate in Rwanda

    is 30%

    Application activity 7.5

    1. Daniel, a resident of Rwanda earned income from Rwanda and
    United Kingdom (UK) as he has a part time job there. During the
    month of December 2022, Daniel received an Income from Rwanda
    of FRW 1,765,000 and Income from United Kingdom (UK), he
    received UK£ 480 net of tax deducted amounting to UK£ 96. The
    average exchange rate during that time 1 UK £ was FRW 1400.
    Rwanda has signed a double taxation agreement with UK.
    Required:
    Compute the tax liability due to Daniel for the month of December 2022.
    2. Maurice Enterprise Ltd is company operating in Rwanda since
    2015, because Rwanda and Mauritius signed a double taxation
    agreement, Maurice enterprise Ltd has expanded its business to
    Mauritius to exploit the benefit of that agreement.

    During the year ended 31st December 2021, Maurice Enterprise Ltd had
    made a profit before tax (PBT) of FRW 4,500,000 in Rwanda’s business
    activities and Net equivalent of FRW 17,000,000 in Mauritius. The
    corporate income tax rate at Mauritius was 15%.
    Required:
    Compute the tax liability due to Maurice Enterprise Ltd for the year ended
    31st December 2021. 
    Skills Lab Activity 7
    Through the field visit of one of the companies that do business crossing
    out of Rwanda’s territory, student will be required to prepare a report on
    the following questions:
    1. How that company do declaration of an income received from
    outside of Rwanda?
    2. How much of tax paid in the foreign country that company operating
    in?
    3. What are the challenges of trading with other countries faced by
    that company?
    4. What was the facilitation of Rwanda in the business process of that

    company?

    End of unit assessment 7
    Questions
    1. List the features of customs union
    2. Describe thin capitalization.
    3. Differentiate bilateral and unilateral agreement relief as form of
    double taxation agreement.
    4. Mr. Alex Mugabe works partially in Rwanda and partially in Canada.
    His family is based in Rwanda. During the month of January 2023,
    Mr. Mugabe earned an equivalent of Rwanda francs 3,600,000 gross
    from his employment in Canada. He paid an equivalent of Rwandan
    francs 1,100,000 as tax on the income. He also earned income from
    his employment income in Rwanda of FRW 1,200,000. Assume that
    Rwanda has a double taxation agreement with Canada.
     Required:
     Tax liability for Mr. Alex Mugabe for the month of January 2023.
    5. Bugesera Company Ltd (CL Ltd) is a company operating in Rwanda
    and South Africa. For the year ended 31st December 2022, CL Ltd
    generated a gross profit of FRW 15,000,000 in Rwanda and South

    African Rand (ZAR) 600,000 in South Africa. 

    Additional information:
    i. CL Ltd incurred expenses of FRW 8,400,000 to generate income in
    Rwanda
    ii. 1 ZAR= FRW5
    iii.No expenses incurred in south Africa.
    iv. Rwanda and south Africa signed a double taxation agreement.
    v. CL Ltd paid tax of ZAR 210,000 in South Africa.
     Required:
     Calculate the tax liability to be paid by CL Ltd for the year ended 31st

    December 2022.



  • UNIT8 : TAXES DECLARATIONS 8 AND PAYMENT

    Key unit competence: Prepare Taxes declaration and Payment

    INEZA has opened a business oriented enterprise in NYAMATA deals with
    solar distribution in rural areas of Rwanda her business generates a good
    income, INEZA has registered her business at RDB only and INEZA also
    hired a junior accountant to perform all accounting responsibilities it is his
    first time to perform accounting responsibilities and in his job descriptions
    he is supposed to comply with tax law in Rwanda. Ineza has opened the
    bank account for the Enterprise in KCB, Unfortunately KCB has closed its
    branch in NYAMATA and it became challenges to accountant to take Cheque

    payments to bank.

    INEZA’ business enterprise being registered in RDB is not enough, she is
    supposed to register her Enterprise in tax administration.
    1. Why is she required to register her enterprise in tax administration?
    2. What are the tax types that INEZA’ Enterprise should be registered
    on?
    3. Is there any other methods can be used by an accountant to pay

    taxes without taking cheque to bank? If yes what are those methods?

    8.1: Taxes Declarations
    Learning Activity 8.1

    INEZA Trading LTD was acquired by a French registered business enterprise
    INEZA deals in solar distribution in rural areas of Rwanda and the tax
    administration has informed them that INEZA is a large taxpayer.
    Which mandatory documents should INEZA Trading Ltd attach when filing

    the tax return?

    8.1.1: Definition of Taxes declaration and Requirement for the

    taxes declaration

    1. Definition of Taxes declaration

    Tax declaration is made by completing a form prepared by the Fiscal
    Administration.

    The determination of the payable tax is made in the 1st degree by the taxpayer
    by way of declaration.

    In the 2nd degree, the declaration filed by the taxpayer is verified by the Fiscal
    Administration.

    The taxpayer is obliged to file a declaration even when no profit was made
    during the taxable period.

    Are only allowed not to file a declaration those who are “exempted” by the
    Fiscal Law.

    A registered taxpayer must prepare an annual tax declaration and submit
    it to the tax administration, along with the relevant accompanying
    documents(annexures), no later than 31st March of the following tax period.
    The taxpayer must choose the relevant declaration from the tax administration
    web side in order not to confuse it with other types of tax declarations. If there
    are no activities during the tax period, a nil return is submitted to the tax
    administration.
    2. Requirements for the tax’s declaration
    According to Article 9 of the Law Nº 027/2022 of 20/10/2022 establishing
    taxes on income , an individual who carries out taxable income generating
    activities prepares an annual tax declaration in accordance with procedures 
    specified by the tax administration and he or she submits the declaration with
    annexes comprising the balance sheet, profit, and loss account for that tax
    period and other annexes thereto drawn according to the requirements of the
    generally recognized accounting principles and any other relevant document
    required by the tax administration not later than 31st March of the following
    tax period, unless otherwise provided by this Law.

    However, a person who meets the required annual turnover declares the annual
    tax and financial statements certified by a qualified professional and approved
    by the tax Administration.

    A Ministerial order determines the annual turnover required for certification
    of financial
    Statements.

    A person is not required to file his or her annual tax declaration if the person:
    1. has an annual turnover of less than two million Rwandan francs (FRW
    2,000,000);
    2. receives only employment income;
    3. receives only income on investment that is subject to withholding tax.
    An individual resident in Rwanda who receives employment income from more
    than one employer or who receives incidental employment income may file an
    annual declaration as mentioned above in order to claim a tax refund for excess
    income tax paid.
    1. Tax types, Declaration and Payment deadlines


    8.1.2: Mandatory information on declaration and the deadline
    to declare, pay the RSSB contribution and PAYE

    A. Mandatory information on declaration
    – TIN number
    – Business name
    – Type of tax
    – Tax period
     Etc…
    B. The deadline to declare and pay the RSSB contribution and PAYE
    Declaration of tax and remittance of RSSB contributions can be made on
    monthly basis or quarterly basis 
    • On monthly basis
    Declaration of tax and remittance of contributions are made on monthly basis;
    not later than the 15th day of the month following the month to which the
    contributions relate.

    • On quarterly basis

    Declaration of tax and remittance of RSSB contributions are made on quarterly
    basis as follow:
    – March 1st to May 31st must be declared and paid by 15th June.
    – June 1st to August 31st must be declared and paid by 15th September.
    – September 1st to November 30th must be declared and paid by 15th

    December

    The Commissioner General has issued an instruction to make the first quarter
    starting with January ending March. Accordingly, the deadline to submit tax
    return and payment besides other related remittance will be 15th April and so
    on…
    Application activity 8.1

    Q1. Define the terminology of tax declaration
    Q2. Identify income tax in Rwanda

    Q3. When is the deadline to declare and pay Trading License Taxes.

    8.2: Methods, Process of taxes and RSSB Contribution
     declarations
    Learning Activity 8.2
    Kevin has just accepted a job working for Alphonse as a shop assistant for
    Alphonse retail business, which has a turnover of FRW 30,000,000 per year.
    Alphonse has never previously employed anyone, and this is Kevin first job
    since leaving school.

    With research List process that will be followed by Kevin in PIT tax
    declaration by using e-tax

    8.2.1. Methods of Taxes and RSSB Contribution declaration
    1. Methods of tax declaration
    a) M-declaration
    M-Declaration is a system designed to allow certain types of taxpayers to
    declare Income Tax through their mobile phones. This is particularly focused at
    lower-income taxpayers, declaring Flat Tax or Lump Sum regimes, or taxpayers
    declaring Motor Vehicle Income Tax.
    • M-Declaration Process
    The first time a taxpayer uses M-Declaration from that specific mobile phone,

    the taxpayer must first register. 

    The M-Declaration system for both registering and declaring is accessed by
    dialing *800#. The M-Declaration system has a series of screens, with number
    options, that are navigated by entering and sending the relevant number.
    The first screen requests the taxpayer to select a language, either English or
    Kinyarwanda.

    The next screen requests to select which M-Declaration service is required.
    To declare Flat Tax, Lump Sum and IQP Income Tax select ‘2. Other Business
    Activities’.
    The next screen shows the ‘Welcome to Domestic Taxes’ menu.
    This menu offers three options:
    – 1. Registration
    – 2. Declaration
    – 3. Change Mobile Number
    • Register for M-Declaration
    From the ‘Welcome to Domestic Taxes’ menu, select ‘1. Registration’ to begin
    the registration process.
    The details required for registration are:
    – Taxpayer Identification Number (TIN)
    – Rwanda National ID number for PIT registered taxpayers, their
    Rwanda National ID number is required.
    It is not currently possible to use passports to declare PIT using M-Declaration,
    E-Tax must be used instead. For CIT registered taxpayers (of any nationality),
    the Rwanda National ID number can be entered as ‘9999999999999999’
    (sixteen ‘9’s). Submit the required details in the relevant screens to register for
    M-Declaration of Flat Tax, Lump Sum and IQP Income Tax.

    • M-Declaration of Income Tax
    From the ‘Welcome to Domestic Taxes’ menu, select ‘2. Declaration’ to begin
    the declaration process.
    The taxpayer must have already registered the TIN with mobile phone that
    they are declaring from. In addition, they must select:
    – Whether they are a new taxpayer, meaning if this is their first Income
    Tax declaration of any kind.
    – The business turnover or total sales during the tax period being
    declared.
    – The year and quarter for the tax period which is being declared. 
    • For example, for annual declarations that are due by 31st March 2017
    are for the year of ‘2016’ and quarter ‘annual’.
    • For example, for IQP declarations that are due by 30th June 2017 for
    the preceding quarter are for the year of ‘2017’ and quarter ‘1’.
    Based on this turnover, the system calculates the tax to be paid, and generates
    the RRA Reference Number required for paying taxes.
    a) E-declaration
    • What is E-Tax?
    E-Tax is an online portal through which all domestic tax types can be declared.
    This can be done online or with the help of staff at RRA offices. RRA has
    developed the E-Tax system to make it easier for taxpayers to declare and pay
    domestic taxes.
    • How do taxpayers register and login to E-Tax?
    Access the E-Tax website at https://etax.rra.gov.rw or through the RRA website
    http://www.rra.gov.rw and click ‘Pay Domestic taxes here’ on the right of the
    screen.
    Taxpayers are automatically registered for E-Tax when their business is
    registered with RDB. Taxpayers are informed of their unique Taxpayer
    Identification Number (TIN) and E-Tax password by SMS and email using the
    contact details given when they registered.
    Once logged in, the E-Tax password can be changed by the taxpayer by clicking
    ‘Change Password’ on the left of the E-Tax home screen.
    • What if taxpayers do not know their TIN?
     If a taxpayer does not know his/her TIN, they can visit RRA offices or call the
    RRA call center toll-free on 3004.

    In addition, if an individual taxpayer (i.e. not a company) does not know the
    TIN, still you can visit the RRA website at http://www.rra.gov.rw and click

    ‘Search for TIN using National ID’ under the ‘Other online services’ heading.

    • Income Taxes which are declared by using E-Tax or M-Declaration


    The benefits of declaring online using E-Tax or on mobile phones using
    M Declaration
    Although the process is the same, there are many advantages to declaring
    online or on mobile phones rather than with the help of staff at RRA offices.
    The advantages of declaring online or on mobile phones include being able to:
    – Declare taxes anytime, from anywhere.
    – Avoid travel costs of visiting RRA offices.

    – Avoid queuing times at RRA offices.

    1. RSS Contributions declarations

    Who pays RSSB contributions? RSSB contributions are based on employees’
    income. These are withheld, declared and (jointly) paid on their behalf by
    their employers. Who must register for RSSB Contributions? All employers
    must register for the Pension Scheme, Occupational Hazards and Maternity
    Leave. Public institutions must also register for the Medical Scheme. What are
    the rates of RSSB contributions? Pension Scheme totals a rate of 8%, made up
    of: - 3% withheld from the employee and 5% paid by the employer, including
    Occupational Hazards. Maternity Leave scheme totals a rate of 0.6%, made up
    of: - 0.3% withheld from the employee and 0.3% paid by the employer. Medical
    Scheme totals a rate of 15%, made up of: - 7.5% withheld from employees and
    7.5% paid by the employer. When is the deadline to declare and pay RSSB?
    All RSSB contributions must be paid on a monthly basis, by the 15th of the
    following month, regardless of PAYE
    8.2.2. Process of Taxes and RSSB Contribution declarations
    Declaring PAYE and RSSB Contributions to facilitate taxpayers, RRA and
    Rwanda Social Security Board (RSSB) have introduced a unified declaration,
    where PAYE and all RSSB contributions (except for voluntary Pension Scheme)
    can be declared together.

    The original method of declaring PAYE and each of the RSSB contributions
    separately is still available. However, RRA is encouraging the use of the unified
    declaration, and recommends that any newly declaring taxpayers should use
    the unified declaration.

    The declaration process for the Unified PAYE and RSSB declaration.
    The process for the original method is very similar, but must be repeated for
    each of the separate tax types and RSSB contributions. However, when selecting
    the declaration, instead click ‘Tax

    Declaration’ for PAYE and ‘RSSSB Contributions’ for RSSB Contributions. This is
    also the case when declaring voluntary Pension Scheme contributions.


    As with other tax types, taxpayers must first register to declare the Unified
    PAYE and RSSB declaration by calling the RRA call centre on 3004 or visiting
    RRA offices. The declaration process for Unified PAYE and RSSB is similar to

    other domestic taxes,

    a) Declaring Domestic Taxes
    Step-by-Step guide to declaring domestic taxes using E-Tax
    Step 1: Log-in to E-Tax
    Access the E-Tax website at https://etax.rra.gov.rw or through the RRA website
    http://www.rra.gov.rw and clicking on ‘Pay Domestic taxes here’ on the right of
    the screen. This loads the following login screen:

    Login using the TIN and E-Tax password.
    Note: If a taxpayer does not know their password, it can be reset by clicking
    ‘Forgot Password’ on the E-Tax system login and receiving a new password by
    email to the address used when registering.
    Step 2: Download, complete, validate and save annexures

    After logging in, the E-Tax home page is loaded as shown below.

    The first step of declaring domestic taxes is to download, complete and save the
    annexures of that tax type.

    To download annexures, hover the mouse over ‘Annexure Downloads’ on the
    top-right hand side of the E-Tax homepage, and click on the applicable tax type

    to download the annexures.

    This will start a download of a spreadsheet file which can be opened in Microsoft
    Excel or other spreadsheet software.
    The annexures differ depending upon the tax type. For details on a specific tax
    type,

    Annexures have an ‘Instructions’ tab and at least one other tab to be completed.
    Only the tabs that are relevant to the taxpayer in that tax period need to be
    completed. Each relevant tab must be completed, validated and saved separately.

    For example:
    For VAT, the annexure is titled ‘VatAnnexure_1.1.xlsm’. The VAT annexure has six
    tabs: Instructions, Sales, Purchases, VAT Importation, Deductible VAT Reverse
    and VAT Retained.

    – Enabling Content
    – Date Format
    – Blank Cells
    – Mac computers
    – Validating and Saving
    There are five important things to note when completing the annexures of all
    domestic taxes. This concern:

    Enabling Content

    The first thing that must always be done after opening the spreadsheet is to
    enable the active content. Without enabling content, it is not possible to validate
    or save the annexures. The process of enabling content varies depending upon
    the spreadsheet software.

    Example
    To enable content using Microsoft Excel 2007, when the document opens click
    ‘Options’ on the ‘Security Warning’ at the top of the screen. In the resulting
    ‘Security Alert – Macros & ActiveX’ box that opens, click to ‘Enable this content’
    then ‘OK’. These steps are shown below

    Date Format

    In order to validate the annexure, all dates must be entered in the required
    format of dd/mm/yyyy. However, it is also important to note that the annexures
    will not validate if the date settings of the computer are also not in the format
    of dd/mm/yyyy. This may show the following error message, even if the dates

    entered in the cells are in the correct format.

    The process of changing the date format of the computer varies depending on
    the computer operating system. Date formats are often linked to the language
    settings of the operating system;
    Example
    To change the date settings on Windows 7,
    • Click: Control Panel
    • Clock, Language and Region
    • Region and Language
    • Change the date, time or number format
    • Format: English (United Kingdom)
    • Short Date: dd/MM/yyyy.
    Blank Cells If any data is entered in a row, then that row must be completed
    before validating. In addition, the majority of columns cannot be left empty.
    This may show the following error message.

    Example
    Rukundo is completing the Sales tab of the VAT Annexure. In one particular
    transaction, there are no Exempt Sales. In order to validate and save correctly,
    Rukundo must enter ‘0’ in the ‘Exempted Sales Amount’ column instead of
    leaving it empty.
    Mac computers
    The E-Tax system is not yet fully compatible with Apple Mac computers. If the
    taxpayer is using a Mac computer and the annexure is failing to validate and
    save, despite enabling the content, using the correct date format and avoiding
    blank cells, there may be an issue with compatibility. Try again using a Windows
    computer.
    Validating and Saving
    Annexures are saved in a different way to other spreadsheets. For each tab,
    once all data is entered for the tax period, click the validate button within the
    excel spreadsheet

    VALIDATE

    This will check that all data is entered in the required formats. If this is the case,
    it will automatically save a text file under the folder C:/RRA in the user’s local
    machine.

    If any of the format rules are violated, it will alert an error message and the file
    will not be created. The error message explains what needs to be corrected.
    Even after the file is created, any changes can still be made. Clicking validate,
    this will save over and replace the previous file.

    Step 3: Select and complete the declaration form

    After all the relevant annexures have been downloaded, completed, validated
    and saved, the declaration form can be completed. This requires logging back

    into E-Tax and accessing the homepage.



    The ‘Document Details’ page lists all un-submitted tax declarations. The
    status column is set to ‘In progress’ if any declaration details have been
    entered, or ‘pending’ if no details have yet been entered. Once a declaration
    has been submitted, it is no longer accessible on this screen.

    To enter a tax declaration, click on the document number of the relevant tax
    type and tax period. Ensure the correct tax type and tax period is chosen.

    If a taxpayer wishes to declare for a particular tax type, or tax period, and this
    is not available on the ‘Document Details’ screen, the taxpayer can request
    for it to be added by visiting RRA offices or calling the RRA Call Centre tollfree on 3004.

    Having clicked on the document number of the relevant tax type and tax period,
    the screen now focuses on that particular declaration, as seen below. The first
    step is to click on ‘Enter Declaration’.

    This opens the declaration form. The white boxes are entry fields where
    numbers must be entered (or left as zero). After all the necessary fields are
    entered, click to ‘save’ and automatically calculate the grey calculation boxes,
    including the tax due.

    Many of the rows in the declaration form are similar to the columns of the
    annexures that have previously been completed. The important distinction is
    that in the declaration form, the total combined values for all rows during that
    tax period must be entered.

    Example
    Amahoro enters the details of her monthly VAT declaration, shown below. After
    entering the details in the white boxes, she clicks ‘save’ and the VAT due for

    Amahoro this tax period is calculated automatically.

    After saving the declaration form and checking that the fields entered were
    correct, click ‘Continue with Upload Annexures’.

    Step 4: Upload annexures, compare with the declaration form and
    submit the declaration

    To support the declaration form, the previously validated and saved
    annexures must also be uploaded as evidence. The annexures that can be
    uploaded depend upon the tax type that is being declared. Each annexures
    tab is uploaded separately.

    Example

    Amahoro continues her VAT declaration as saved above. She uploads ‘Sales’,
    ‘Local Purchase’, ‘VAT Importation’ and ‘VAT Retained’ annexures as required.
    She has no ‘Deductible VAT Reverse’ to declare in this tax period, so this
    annexure is not uploaded.


    After annexures have been uploaded, they can be checked by clicking on ‘view’,
    and changed by clicking on ‘delete’ and then re-uploading. Once all relevant
    annexures are uploaded and correct, click on ‘Compare with Declaration’.

    This allows comparison between the declaration and the annexures. If these
    are equal, then certify that the entries on this declaration are true and correct
    and confirm understanding that a false declaration may result in prosecution
    by clicking on ‘I accept’. Then submit the declaration by clicking ‘Submit’.

    If the declaration and annexures are not equal, it is not possible to submit the

    declaration. Either the declaration or the annexures must then be changed 

    until they are equal and accurate. To change the declaration form, click ‘Modify
    Declaration’. To change the annexures, click ‘Delete’ on the relevant annexure,
    make necessary changes in the annexures spreadsheet, validate and save as
    before, and then re-upload the revised annexures. Then follow the same steps
    as before to certify and submit the declaration.

    Example

    Amahoro checks that the values of the declaration form and annexures are
    equal, certifies that the values are true and correct, then submits the VAT

    declaration.

    There may be a slight delay as the declaration is submitted. If the declaration is

    submitted successfully, the following screen is loaded.

    Acknowledgement Receipts

    After submitting a declaration, for all types of taxes and fees, there is an option
    to download and view the acknowledgement receipt.

    Acknowledgement receipts confirm the details of the taxpayer, contain details
    of the taxes and fees that must be paid, and provide the RRA Reference Number
    for the account the tax must be paid into. This RRA Reference Number is also
    known as the ‘Doc ID’, ‘Doc No’ or ‘Assessment Number’.

    The RRA Reference Number is very important to ensure that the taxes are paid
    into the correct RRA tax account, and that the payment is attributed to the
    correct taxpayer. The RRA Reference Number and total tax due is highlighted in
    the examples for each broad tax type below

    Alternatively, from the E-Tax homepage, hover the mouse on ‘Tax Declaration’
    and click on ‘Submitted Declarations’. Choose the year of the tax period, and
    optionally the tax type, then click submit. Find the relevant submitted tax
    declaration, click on the Document Number, and the following options appear.

    Again, click on ‘View Acknowledgement Receipt’.

    An example acknowledgement receipt for domestic tax declarations is displayed
    below. The associated RRA Reference Number and total tax due are highlighted.


    a) Customs Duties

    In the case of customs duties, the acknowledgement receipt is more commonly
    referred as the ‘Assessment Notice’. This can be accessed by Clearing Agents
    through the Rwanda electronic Single Window (ReSW) system. The Clearing
    Agent then provides the taxpayer with the assessment notice in order to pay
    the taxes and fees due.

    Different types of customs duties can be required to be paid to different accounts.
    Therefore, each assessment notice may have multiple RRA Reference Numbers
    with different amounts of tax due. The associated RRA Reference Numbers and

    amounts of tax due are highlighted in different colours in the example below.

    a) Local Government Taxes and Fees

    In the case of Local Government Taxes (LGT) and Fees on the LGT system,
    this can vary slightly for the type of tax or fee. Typically, acknowledgement
    receipts can be viewed by clicking ‘Get Acknowledgement’ immediately after

    submitting the declaration, as seen below.

    The taxpayer can also enter their email address or phone number to receive
    the RRA Reference Number and tax due. An example acknowledgement
    receipt for LGT and fees declarations is displayed below. The associated RRA

    Reference Number and total tax due are highlighted.

    Application activity 8.2

    Q1. Discuss the methods of tax declaration

    Q2. What is E-Tax? 

    8.3: Print out of a Tax declaration (Acknowledgment receipt)

    and Methods of Tax payment

    Learning Activity 8.3


    Follow the picture above and answer the following question.
    1. Which things are you seeing at the above pictures?

    2. What kind of paper print out after making tax declaration?

    8.3.1. Print out a tax declaration form and Methods of Tax payment

    1. Print out a tax declaration form
    Before for making payment of taxes and filling document for physical filing you
    must print out a tax declaration form using a printer.
    2. Methods of Paying Taxes
    Taxpayers should submit tax declarations before paying taxes. Tax declarations

    provide the necessary information to calculate the correct amount of tax due.

    The process of submitting the relevant tax declarations is different for each tax
    type

    However, after declaring, the methods of paying taxes are the same for all types
    of domestic taxes, customs duties and local government taxes and fees. There
    are four possible methods of paying all types of taxes and fees:
    – Online using Internet Banking and E-Payment.
    – On mobile phones or through agents using MTN Mobile Money.
    – Through Mobicash agents.
    – In person at a bank.
    It is important to note that it is not possible to pay taxes in cash at RRA offices.

    The details needed each method of paying taxes are the same? However, there
    are many advantages for taxpayers to paying taxes online, on mobile phones or
    through licensed agents.

    For all methods of paying taxes, it is important to save any receipts confirming

    the payment.

    a) Paying Taxes online using Internet Banking and E-Payment

    Option 1: Using the banks’ internet banking systems

    All commercial banks in Rwanda now offer internet banking services. However,
    the process of using these internet banking systems varies depending on the
    bank. It is not possible to cover each system in this Tax Handbook, but bank
    staff will be able to assist with registering and using internet banking, including
    explaining how to pay taxes.
    Option 2: Using the Domestic Taxes E-Payment system

    In the case of domestic taxes, after submitting the declaration it is possible to

    directly access the domestic taxes E-Payment system, by clicking ‘Epayment’.

    This shows the following screen. Clicking on the ‘Select Bank to Pay’ drop-down

    menu lists the banks that are linked with the domestic taxes E-Payment system.

    It is important to note that taxpayers may need to register for internet banking

    directly with their bank before paying taxes on the E-Payment system.

    After the taxpayer has selected their bank from the dropdown menu and clicked
    ‘submit’, they will be directed to the online banking system of their bank. Follow
    the bank instructions to complete the payment. The exact steps may vary by
    bank.
    b) Paying taxes on mobile phones using MTN Mobile Money
    Paying taxes through mobile money is currently only available on MTN Mobile
    Money. This can be done individually, or through an MTN Mobile Money agent.

    To pay taxes individually, register on MTN Mobile Money requires an MTN SIMcard,
     and registering an account at any MTN Mobile Money agent. The taxpayer
    does not need to register with MTN to pay taxes through an agent
    It is important to note that there are small additional transaction fees payable
    to MTN that vary depending upon the amount of tax being paid.

    Once registered, and with sufficient funds in the account to cover the amount
    payable, including transaction fees, follow these steps to pay taxes individually:

    – Dial *182# to enter the mobile money platform.
    – Choose the Language.
    – Choose the ‘Pay Bill’ option.
    – Choose the ‘RRA’ payment option.
    – Enter the RRA Reference Number from the Acknowledgement Receipt.
    – This will then show the Amount and Taxpayer Name. If these details
    are correct, enter ‘1’ to proceed with payment.
    – Enter Mobile Money PIN to confirm the payment.
    To pay through an MTN Mobile Money agent, provide the agent with the RRA
    Reference Number from the Acknowledgement Receipt and sufficient funds to

    cover the amount payable, including transaction fees.

    a) Paying taxes through agents with Mobicash
    Paying taxes with Mobicash is currently only available through Mobicash
    agents. The taxpayer does not need to register with Mobicash to pay taxes
    through an agent.

    It is important to note that there are small additional transaction fees payable
    to Mobicash that vary depending upon the amount of tax being paid.

    To pay through a Mobicash agent, provide the agent with the RRA Reference
    Number from the Acknowledgement Receipt and sufficient funds to cover the
    amount payable, including transaction fees.

    b) Paying taxes at a Bank

    Taxes can be paid at all registered commercial banks in Rwanda. This can
    be done using a cash deposit slip or by bank cheque. Any payments of FRW
    500,000 (five hundred thousand Rwandan francs) or more must be paid by
    bank cheque only.

    When writing a bank cheque, make it out to ‘Rwanda Revenue Authority’,
    making sure to include the RRA Reference Number, total tax due and tax type.
    On the Cash Deposit Slip, enter the following details:

    - Beneficiary:
    • Account Number – Write the RRA Reference Number from the
    Acknowledgement Receipt.
    • Of – Write ‘Rwanda Revenue Authority’.
    – Amount – write the “Total Tax Due”.
    – Paid in by:
    • Name – Write the Taxpayer Name.
    • Address – Write the address of the business or the PO Box number if
    applicable.
    – Comment: Write the tax type, e.g. “VAT”.

    The advantages of paying taxes using Internet Banking, E-Payment, MTN
    Mobile Money or Mobicash

    The benefits of paying online, on mobile phones or through licensed agents
    are:
    – Pay taxes anytime, anywhere.
    – Avoid travel costs of visiting a bank.
    – Avoid queuing times at banks.

    – Avoid safety risks of carrying cash.

    Application activity 8.3
    Discuss the modes of payment for taxes
    8.4: Filing system
    Learning Activity 8.4
    Baptiste is an Accountant of XYZ Tea factory, on 25th March 2022 has declared
    CIT for 2021 after declaration process he printed out the Acknowledgement
    receipt/ invoice and he went to Bank of Kigali Gisenyi Branch to pay that

    tax and he came back in the office with proofs of payments.

    Questions
    1. What should be the next step to be done by accountant with those
    proofs of Payment?

    2. What do you know about filing?

    8.4.1: Definition of filing system and The purpose of filing
    system
    A. Definition of filing system
    It is the process of classifying, arranging and storing record so that they can be
    located when
    Required. It is also the process of collecting and arranging records or their
    copies in such a way
    that whenever it is needed it could be found very easily.
    B. Purposes:
    1. It helps to keep all records together so the history of office can be
    understood.
    2. It helps to provide safety place for storage of necessary documents in
    order to use and locate them when required.
    3. To make records readily and easily available.
    4. It can be used as evidence in case of dispute
    5. It helps in some legal formalities.
    6. It is shown as profit or legal evidence.
    7. It can be presented as a legal document in court.
    8. It helps to make future plans. Past records are the base of future records

    8.4.2: Methods of filing system,Advantages and disadvantages
    methods of filing system

    Different filing methods are:
    • Alphabetical.
    • Numerical,
    • Geographical,
    • Chronological and
    • Subject wise
    1. Alphabetical classification
    The filing method under which files and folders are arranged in order of
    alphabets of the names
    of person or institution concerned with such file is alphabetical classification.
    In case name of
    more than one person starts with same letter then second letter of name is
    taken into
    consideration. It is flexible method. It is used in both small and large organization.
     Advantages:
    • simple and easy to understand
    • Doesn’t need separate index
    • It is flexible
    Disadvantages:
    • Time consuming
    • Difficult to arrange files
    • Difficult to locate in case of common names
    2. Numerical classification
    The filing method under which files and folders are arranged in order of
    number is called
    Numerical classification. All files and folders are given separate numbers. It
    is indirect method of classification of filing. In this filing alphabetical index
    is required. It includes name, address, phone number, subject and other
    information along with file number.
     Advantages:
    • Suitable for large offices having large number of files and folders
    • Accurate method of filing
    • It is flexible
    • Separate index can be easily developed using numbers.
    Disadvantages:
    • It is expensive
    • It is time consuming
    • Not suitable for small organization
    • It is not easy to operate
    • Separate alphabetical index is required.
    3. Subjective classification
    In this filing method, records are classified according to their subject; letters
    and documents are classified and arranged in files and folders into subject or
    sub-subject wise.
    In this filing, subject must be arranged alphabetically. It is widely used in
    those cases where subject is more important than the name of the person or
    organization. All documents relating to same subject.
    Advantages:
    • Simple to operate
    • Flexible
    • Convenient
    • Easy to locate
    Disadvantages:
    • Not applicable for filing miscellaneous subject
    • Time consuming

    • Difficult to locate when subject matter is not properly understood

    4. Geographic classification
    In this method, files are grouped according to the geographical location of
    firm, organization or person. Under this method name of places are written
    in file and are arranged in drawer either in alphabetical or numerical order
    whichever is suitable for organization. It used in multinational companies or
    those organizations whose business and branches are located in many places
    of the nation or the world.
    Advantages:
    • Easy to understand and use
    • Can be arranged in alphabetical and numerical order
    • It used in those organizations whose business is engaged in
    correspondence with the businesses all over the globe or the nation.
     Disadvantages:
    • Expensive
    • Not suitable for small scale organization are filed together in one file.
    • Time consuming
    • No use of card or index
    5. Chronological classification
    In this method, files and folders of documents are arranged in an order of their
    date, day, and time. In an office, several letters and documents may be received
    and dispatched.
    They all are arranged according to time and date when they were received and
    dispatched
    Advantages:
    • Simple to understand and easy to operate
    • Quickly located if their dates are known
    • Less expensive
    Disadvantages:
    • Not suitable for large offices

    • When clear dates are not mentioned then there can be difficulty. 

    8.4.3: Essentials (or) Characteristics of Good filing system

    1. Compactness:
    The compact filing system should be adopted by every business office. It means
    that the filing system should not require any unnecessary space.
    2. Simplicity:
    The filing system should be simple and not too elaborate. At the same time, the
    usefulness of the filing system cannot be sacrificed for the sack of simplicity.
    3. Accessibility:
    A good filing system should be arranged in such a way that the records are
    easily available whenever required. The filing system should allow the insertion
    of additional documents without disturbing the existing order of files.
    4. Economy:
    The filing system should be economical in time, space, money and operations.
    The cost of installation and operation of filling system should be as low as
    possible. The selected filing equipment should occupy minimum space but can
    accommodate maximum number of files.
    The cost of filing equipment should be very low. The filing equipment save the
    time of operation i.e. locating, inserting and placing of documents and papers
    in a file. The unwanted records may be disposed of in order to economies space.
    5. Flexibility:
    The filing system can be expanded if the volume of business transactions
    increased. An inflexible system is not useful after crossing a certain limit.
    6. Classification:
    The filing system should be supported by a proper system of classification.
    Proper classification reduces the number of files to be maintained and helps in
    inserting as well as locating the documents in the files.
    7. Safety:
    The filed documents and records should be in safe condition and available
    whenever required. The documents and records should be protected from
    insects, rain, dust, or mishandling.
    8. Cross Reference:
    A cross reference should be given wherever a document can be filed more than
    one head to avoid confusion and facilitates easy location of files. It saves time
    and human resources.
    9. Easy Location:
    Documents and records should be kept in such a way that they can be easily
    located whenever required with the minimum delay possible. At the same time,
    it does not require heavy expenditure to achieve this purpose.
    10. Indexing:
    A well-designed index is also used to supplement the filing system. It will hel to
    locate the file quickly when it is required.
    11. Retention:
    All documents and records are maintained for a minimum period of time.
    Then, the dead records and documents can be discarded without too much
    disturbance. The remaining documents and records are retained even after a
    storage period.
    12. Out guides:
    A reference is to be maintained in the files that the list of documents or records
    are withdrawn by the office staff or department and returned the documents
    with date. Rules and procedures can be framed and followed to prevent

    misfiling. 

    Application activity 8.4

    Q1. Identify and explain brief two (2) methods of filing system.

    Q2. Outline the advantages of alphabetical classification system.

    Skills Lab Activity 8

    In group discussion, invite a resource person from RSSB to share with
    students on the tax declaration and filing system then ask students to

    share the findings

    End of unit assessment 8

    Q1. Discuss the period that taxpayers start declaring and paying taxes
    Q2. Define the term filing
    Q3. Discuss the quality of goods filings
    Q4. Identify any three (3) methods of good filing
    Q5. Jean Baptiste is a taxpayer who had total sales of FRW 10,000,000 for
    the first quarter of January through March 2020 and his total reported
    revenues/sales for fiscal year 2019 were FRW 50,000,000. The annual tax
    calculated in 2019 was FRW 80,000.
    a) Compute the Instalment Quarterly Prepayment (IQP) payable

    b) Indicate the deadline that Jean Baptiste must have paid his IQP


  • UNIT 9: TAX ADMINISTRATION

    Key unit competence: Identify tax administration according to rules

    and regulations

    Introductory activity


    Scenario
    Taxpayers have the obligation to report and pay taxes, and thus contribute
    to the economic growth and development of their Countries. The actions
    of taxpayers – whether due to ignorance, carelessness, recklessness, or
    deliberate evasion, as well as weaknesses in the tax administration mean
    that instances of failure to comply with the tax law are inevitable. Therefore,
    tax administration should have in place strategies and structures to ensure
    that non-compliance with tax laws is kept to a minimum. The art of good tax
    administration is based on vision and mission of Rwanda Revenue Authority,
    enumerate the importance of Rwanda Revenue Authority and the purpose

    of tax audit to the government 

    9.1: Description of the Tax administration (Rwanda Revenue

    Authority)

    Learning Activity 1.3


    Scenario:

    Any person who sets up a business or other activities that may be taxable
    is obliged to register with the Tax Administration within a period of seven
    (7) days from the beginning of the business activity, Tax administration
    have the ability to collect taxes for increasing country’s capacity to finance
    social services such as health and education, critical infrastructure such as
    electricity and roads, and other public goods with research. Outline Core

    values of RRA.

    9.1.1: General introduction of tax administration: Rwanda
    Revenue Authority
    1. Official mandate
    The Rwanda Revenue Authority was established under Law No 15/97 of 8
    November 1997 as a quasi-autonomous body charged with the task of assessing,
    collecting, and accounting for tax, customs and other specified revenues. This is
    achieved through effective administration and enforcement of the laws relating
    to those revenues. In addition, it is mandated to collect non-tax revenues.
    2. Vision
     “To become a world-class efficient and modern revenue agency, fully financing
    national needs.”
    3. Mission
    “Mobilize revenue for economic development through efficient and equitable
    services that promote business growth.”
    4. Core values
    We are Customer-Focused:
    • We treat our customers with fairness and equity,
    • We cater for our customer needs when delivering services,
    • We are open to customer concerns, ideas and criticism for our
    continuous improvement.
    We act with Integrity:
    • We are honest, sincere and have high ethical standards,
    • We are fair and considerate in our treatment to others,
    • We show respect, courtesy and tolerance to the views of others,
    • We are open and work with clarity and consistency in dealing with our
    customers.
    We are Accountable:
    • We embrace our government given mandate and trust for revenue
    collection and endeavour to deliver on it
    • We assume responsibility for our decisions and actions as they affect
    our customers,
    • We are open, reliable and transparent in dealings with our customers.
    We work as a Team:
    • We empower our people
    • We involve our staff
    • We value team work
    • We are engaged.
    We are Professional:
    • We commit to provide quality services to our clients
    • Our work always aims to provide solutions to our clients
    • We embrace best practice and innovations for continuous improvement,
    • We demonstrate confidentiality in dealing with our customers,
    • We commit to work with Passion
    • The Structure
    This includes the shape and type of the logo in a rose form. The structure

    symbolizes three elements:

    • Colors
    The Colors to the logo which are Green, Blue and Orange symbolizes the
    following
    Green: Health environment, Harmony, Growth and Prosperity;
    Blue: Universal, Light Friendly and Calm;
    Orange: Essential, Sincere, Commitment and Strength.
    The change logo shall be reflected change in attitude, service delivery,
    opportunities, best practices and approaches of the tax administrators towards
    taxpayers.
    5. RRA strategic principles
    The strategic principles to support core values and explain the way we design
    RRA’s services are as follows:
    a) Efficiency
    We collect more revenue with less resource. Our customers experience our
    services to be efficient. Our services and products meet international standards.
    b) Fairness
    We are fair, even-handed and consistent in our treatment of staff and customers.
    There is transparency in our decision-making, which leads to a stable and
    predictable environment for our stakeholders. We respond to feedback in a
    flexible and timely manner.
    c) Customer-centered
    We take time to understand how customers operate and we tailor our services
    so that it is easy, simple and cost-effective for our customers to comply.
    d) Data and Technology driven
    We use data, evidence, and technology to drive our decision-making and inform
    our operations. We are resilient to threats through the internal controls we

    build.

    9.1.2: Description of recruitment, registration and

     de-registration

    1. Recruitment
    Recruitment in taxation is the process of actively seeking out, finding Tax payer
    for a given time by making sensibilization of tax and improving awareness of
    tax to the citizens.
    This sensibilization and awareness is done through different ways, such
    Publicity, Entertainments, Sponsors of public events.
    2. Registration
    a) Meaning of Registration
    Registration means to put information, especially your name, into an official list
    or record
    b) Registered person in Tax Administration
    Any person who sets up a business or other activities that may be taxable is
    obliged to register with the Tax Administration within a period of seven (7)
    days from the beginning of the business activity.

    Registering a company owned by an individual or group of people is done by
    Rwanda Development Board (RDB) via online services. This service is immediate
    and free of charge. After company registration, the certificate is issued by RDB.
    For individual businesses, registration can be done by RRA, and Tax Identification
    Number (TIN) certificate is issued freely at countrywide spread RRA branches.
    There is an RRA office in all 30 districts of Rwanda.

    Every taxable business activity with a turnover exceeding Twenty Million
    Rwanda Francs (Rwf20m) in the previous fiscal year or Five Million (Rwf5m) in
    the preceding quarter is required by law to register for Value Added Tax (VAT)
    within seven (7) days from the end of the year or quarter respectively.

    Based on the above point, a business that has registered for VAT is legally
    obliged to acquire an EBM with immediate effect because issuing any other
    invoice other than the electronic one or not issuing it attracts penalties.
    Businesses not meeting the above requirements may register for VAT voluntarily
    and thus acquire EBM to meet the law provisions.

    Any changes, whether related to the taxpayer or line of business shall be notified
    in writing to the tax administration within seven (7) days from the day of the
    notice of the change.

    For example; if ownership of the business is transferred from Mr. A to B or
    changes from trading in business to hardware. Failure to make the nonfictions
    contravenes the law and attracts penalties.

    The Commissioner General issues instructions regarding the registration
    and cancellation of registration on persons who no longer carry out business
    activities.
    c) Rights of a registered business:
    • Base of application for tax clearance certificate to participate in income
    enhancing activities such as bidding, obtaining a loan
    • Base of application for Quitus Fiscal
    • Base of interaction with Tax Administration, benefiting for trainings on
    tax matters
    • Base of transfer of title for movable assets
    d) Obligations of a registered business:
    i. Centralized Taxes:
    • Must file tax returns such as Personal Income Tax (PIT), Corporate
    Income Tax (CIP), VAT (for those registered for VAT), PAYE (for those
    qualifying), Consumption Tax (for those qualifying), Withholding Tax
    of 3% and 15% for those qualifying.
    • Each tax declared must be paid immediately as provided by the law.
    ii. Decentralized Taxes:
    Must file these taxes and Fees: Trading License Tax, Fixed Assets Tax, Rental
    Income Tax and Cleaning Fees.
    3. De-registration
    a) meaning of de-registration
    De-registration is where a taxpayer is removed from the obligations to declare
    a certain tax.
    Non-filing of returns is not an automatic condition for de-registration. RRA
    must be satisfied that the taxpayer is not operating at all or is operating to the
    required level to continue being registered for a given type of tax.

    De- registration is decided on a tax-by-tax basis. For example, a taxpayer could
    remain registered for PAYE while being de-registered for VAT.

    De-registration becomes effective when RRA is satisfied that the taxpayer is not
    at the time of application for de-registration, operating at a level that makes it
    liable to a particular tax. De-registration becomes effective when the taxpayer
    is issued a de-registration letter confirming that he/she is deactivated for a
    specific head tax as mentioned above.
    b) The documents are needed for de-registration
    In the cases of both de-registration of a specific tax type and full de-registration,
    RRA may request any documents of proof as necessary. The documents that are
    required may differ depending upon the nature of the request.
    c) The time taxpayer de-register for a specific tax type
    If a taxpayer is no longer required to declare a specific tax type, they may
    request for de-registration from that tax type. This can be due to a permanent
    or temporary change in circumstances of the taxpayer.
    It is important to note that a taxpayer must continue to submit declarations

    until he/she receives confirmation that RRA has approved the de-registration. 

    In addition, a taxpayer cannot be de-registered for a tax type if they still have
    arrears due for that tax type.

    9.1.3: Registration and De-registration procedures
    1. Registration procedures
    Step-by-Step Guide to Business Registration
    Step 1: Register on the RDB business registration system
    Access the RDB business registration system at
    http://org.rdb.rw/busregonline.
    The RDB business registration login page is shown below.

    New users must first register an account by clicking on ‘Register Here’. This
    leads to the ‘Create New Online User’ screen. Enter the required personal
    details and click submit to register an account.

    The RDB system will then send an email to the given email address containing
    a website link. Click on the link provided to validate and activate this account.
    Once the account has been activated, return to the RDB business registration
    system and enter the chosen login details to begin the business registration
    process.
    Step 2: Choose the business category to be registered
    Once logged in, an initial message advises that if the company already has a
    unique Taxpayer Identification Number (TIN), then do not use this system to

    register.

    The business registration system first requires selection of the type of business
    being registered.
    Note that the ‘Name Reservation’ option does not register a business, but can
    be used to reserve a business name for registration in the future. For each of
    the categories, ‘Your Position’ within the business must be noted. In addition,
    ‘Domestic’ requires a choice of ‘Company Category’ which can be public or
    private and ‘Type’.

    Step 3: Complete the business registration application
    Depending upon the business type selected, the details that must be completed
    differ slightly. The screen below shows the tabs after selecting a domestic,
    private, limited by shares company registration.

    Note that each of the major tabs (‘General Info’, ‘Share Info’ etc.) has separate
     minor tabs (‘Company Name’, ‘Articles of Association’ etc.) Ensure to complete all
    tabs before submitting the registration. Once all tabs are completed, click the
     ‘Preview’ tab to check that all the details entered are correct, before

    clicking ‘Submit’ to submit the business registration application.

    After submitting, RDB will validate that the information entered is correct. If
    this is approved, an SMS will be sent to inform the taxpayer that the application
    has been sent to RRA to issue a Taxpayer Identification Number (TIN). Once
    the TIN is issued, another SMS will be sent to inform the taxpayer that their
    business has been registered.
    Step 4: Print Certificates
    After receiving the second SMS, confirming that RDB has validated the business
    registration application and RRA has issued a TIN, the taxpayer must log back
    in to the RDB Business Registration system.
     Once logged in, click on the ‘Certificates’ option on the left hand side. There are
    two certificates that must be printed and kept securely.

    Firstly, choose the ‘Certificate Type’ that matches the application type, for
    example ‘Domestic’ if the business type that was registered was a domestic
    company. Once selected, download and print this certificate. Secondly, choose
    the ‘Certificate Type’ titled ‘Memorandum’ and also download and print this
    certificate. If there are any other applicable certificates, for example a ‘Value
    Added Tax’ certificate, then these should also be printed at this stage

    Once registered, the business can operate and declare and pay taxes as normal.
    The immediate obligations of the taxpayer.

    Step 5: Register, declare and pay all required taxes

    The taxpayer is automatically registered for Income Tax. Visit RRA offices to
    register for any additional required taxes, including visiting LGT tax centers
    immediately to register for Trading License Tax and Public Cleaning Service
    Fees.
    2. De-registration procedures
    Once de-registration has been requested by a taxpayer, or concerned parties,
    there are four steps to de-registration:
    • RRA checks the information and reasons.
    • RRA checks if the taxpayer has any arrears.
    • If the reasons are approved, and there are no arrears, RRA may
    deregister the taxpayers. At this time, RRA will provide a letter to the
    taxpayer confirming the de-registration and stating they no longer
    need to submit declarations.
    • RRA may audit the taxpayer at any time, taxpayers should keep all

    relevant documents for a minimum of five (5) years.

    Application activity 9.1

    Q1. True or false for the following which step guide to business
    registration
    a) Choose the business category to be registered
    b) Complete the business registration application
    c) Interaction with Tax Administration
    Q2. Give the meaning of de-registration
    Q3. How much does it cost to register a business?
    Q4. Match the element in column A to the corresponding one in column
    B so as to get a correct meaning of each element in column A for Mission,

    Vision and official mandate of RRA (Rwanda Revenue Authority). 


    9.2: Self-assessment

    Learning Activity 1.3


    Scenario:

    Tax administration allow tax payer alone to assess the tax to be paid without
    intervention of tax administration and after computing tax payable a tax
    payer takes next step of paying that tax and file proof of Payment. Any time
    tax administration can conduct tax audit to examine true and fair of tax
    computation done by tax payer, this is done by performing re-assessment
    of tax. In case tax administration find out miscomputation of tax, tax payer

    is liable to pay understated tax together with fines and penalties.

    9.2.1: Self-assessment
    Tax administration is the system of assessment, declaration, payment and
    collection of taxes.
    1. Tax Assessment
    This is the calculation of the amount of taxable income and gains after deducting
    relief and allowances; a calculation of income tax payable after taking into
    account tax deducted at source and tax credits on dividends. 

    Tax assessment is composed of two systems that are a self-assessment system
    and assessment by Rwanda revenue authority.
    A. Self-assessment system
    The self-assessment system relies upon the company or individual completing
    and filing a tax return and paying the tax due. The system is enforced by
    a system of penalties for failure to comply within the set time limits, and by
    interest for late payment of tax. Dormant companies and companies which
    have not yet started to trade may not be required to complete tax returns. Such
    companies have a duty to notify RRA when they should be brought within the
    self-assessment system.
    B. Notice of Assessment
    The notice of assessment constitutes full legal basis for the recovery of tax,
    interest, penalties and all costs incurred collection.
    • Reasons for Issuance of a Notice of Assessment
    A notice of assessment is issued when:
    1. the tax declared on time has not been paid;
    2. the audit by the Tax Administration indicates an additional tax to be paid;
    3. there are serious indications that the taxpayer has the intention to evade
    tax Issuance of the notice of tax assessment and written notification of
    an administrative fine
    • Content of the Notice of Assessment
    The notice of assessment mentions:
    i. The taxpayer’s name, taxpayer identification number and address;
    ii. The modalities of calculation of the tax and the amount of tax to be paid;
    iii. The tax declaration or its rectification note, the assessment notice on
    which the declaration is based;
    iv. The date of issuance of the notice of assessment;
    v. The address of the Commissioner General to which an appeal has to be
    sent;

    vi. The conditions to be fulfilled in order to lodge an appeal

    Application activity 9.2

    Q1. Define Tax assessment.

    Q2. Outline content of the notice of assessment

    9.3: Tax audit

    Learning Activity 9.3


    An audit involves performing procedures to obtain audit evidence about
    the amounts and disclosures in the financial statements. The procedures
    selected depend on the auditor’s judgment, including the assessment of
    the risks of material misstatement of the financial statements, whether
    due to fraud or error. In making those risk assessments, the auditor
    considers internal control relevant to the preparation and fair presentation
    of the financial statements in order to design audit procedures that are
    appropriate in the circumstances but not for the purposes of expressing
    an opinion on the effectiveness of the entity’s internal control. Why at the
    end of financial report Tax administration comes in the business in order
    to be sure that the activity done related to the tax computation has been
    done properly according to tax laws and regulations provided by revenue

    authority.

    9.3.1: General introduction on tax audit

    1. Meaning of tax audit

    Tax audit is an examination of whether the taxpayer has correctly assessed and
    reported the tax liability and fulfils other obligations.

    Tax audit is one of the methods Tax Administration uses to ensure that
    taxpayers are correctly declaring and paying their taxes. Audits involve Tax
    Administration checking the relevant documents concerning a taxpayer’s tax
    obligations for any tax period(s) within the past five years.

    If there is evidence of non-compliance, the taxpayer will be issued with an
    assessment notice. This contains details of the offence(s), and the unpaid tax
    due, as well as additional penalties or fines that must be paid. It is important
    to note that being selected for an audit does not necessarily mean that RRA
    suspects the taxpayer of non-compliance.

     It simply means that RRA wishes to check taxpayer’s declarations and
    payments in more detail, to encourage a high level of voluntary compliance
    across all taxpayers. The processes for audits is similar for domestic taxes,
    Local Government Taxes (LGT) and fees, and for Post-Clearance Audits (PCAs)
    regarding customs duties.
    2. Audit notice
    The Tax administration informs the taxpayer in writing, at least seven (7)
    working days before conducting an audit, about the following:
    1. the audit to be conducted;
    2. the place where the audit is to be conducted and the possible duration
    of the audit;
    3. any document required to be audited or any information required.
    If the taxpayer is not ready for audit, he or she writes to the Tax administration
    requesting for a postponement which should not exceed thirty (30) days and
    can only be allowed once.
    • Contents of the notice of tax assessment
    The notice of tax assessment indicates the following information:
    1. name, identification number and address of a taxpayer;
    2. calculation of the tax and the amount of the tax to be paid;
    3. the tax declaration or the audit closure report on which the tax
    assessment notice is based;
    4. the date of establishment of the tax assessment notice;
    5. the taxpayer’s right to lodge an appeal to the Commissioner General;
    6. the conditions for lodging an appeal;
    7. time limit for payment of the tax.

    3. Obligations of the taxpayer during audit
    During audit, the taxpayer must:
    1. provide tax auditors with appropriate working environment;
    2. provide tax auditors with books and records prescribed by this Law and
    other related documents and provide them with their copies.

    4. Unique audit principle
    The Tax administration audits a taxpayer only once on a type of tax and for a
    tax period.
    However, the Tax administration may conduct a new audit only once in case of
    one of the following circumstances:
    1. complicity of the taxpayer and the tax auditor to evade taxes or commit
    any other act intending to non-payment of required tax;
    2. if the first audit was based on forged documents;
    3. if the first audit was issue-oriented and the Tax administration wants to
    conduct a comprehensive audit,
    4. when the Commissioner General cancels the first audit based on appeal.

    5. Purpose of tax audit
    i. To exam in whether taxpayer fulfils his/her required obligation
    ii. To maximize revenue collected from taxpayer inform of tax
    iii.To reduce tax fraud (tax evasion)
    iv. To detect error and fraud committed in the books of accounts
    v. To verify the accuracy of the books of accounts 

    6. Matter examined in a tax audit
    i. Tax liability
    ii. Tax value
    iii. Financial statements
    iv. Accounting record
    v. Third parties’ information

    7. The required from the taxpayers
    – Declaration form
    – Acknowledgement receipts
    – Accounting source document
    – Audit reports of previous years

    8. Instruction, guideline for source a tax audit
    • Tax Law
    • Ministerial orders
    • International auditing standard (IAS) and IFRS (International reporting
    standard)
    • What types of taxpayers are subjected?

    9. The objectives and contents of the tax audit report
    a) Objective
    – To show for view of taxpayer
    – To prove if a taxpayer is evader
    – To detect and prevent error and fraud
    b) Contents of audit reports
    Contents of an audit report
    Main contents of the audit report are:



    10. Action to be taken after and closed tax audit
    • Advice taxpayer
    • Proposed punishment
    • Taxpayers’ business can be closed
    • Fine and penalties
    • Taxpayer can be appreciated

    9.3.2: Importance of audit function

    1. Importance of the audit

    For the shareholders:
    a) Audit ensures to them if management is acting on their behalf
    b) They use audit to determine amount to be paid to dead partner
    c) They use audit to admit a new partner by examining his business

    d) Audit ensures that regulations and statutory requirements are followed

    For the employees:
    a) Audit keeps accounting staff vigilant and careful in their work
    b) Employees ensure their job security and continuity of good
    remuneration by the audited company
    c) Act as a detective and preventive measure against errors and frauds
    For the state:
    a) Audited companies ensure the accomplishment of fiscal duties
    regarding companies (payment of taxes and social contributions)
    b) The government is assured that public funds are being well used
    a) The government ensures continuity of business for the purpose of
    general interest of the people
    a) The state ensures that books of accounts are maintained according to
    legal requirements and companies act
    For the management of an enterprise and third parties in general:
    a) Audit provides assurance and credibility to the accounts for interested
    parties
    b) Third parties not taking active part in the organization are protected
    against risks
    c) Audited accounts minimize disputes between parties
    d) Audited accounts are acceptable as the basis of ascertaining tax liability
    e) The auditor promotes general management efficiency by advising
    management
    f) Audited accounts are used as a basis for asking loans banks and
    procurement

    9.3.3: Types of tax audits
    1. Types of audits
    There are three main types of audit:
    – Desk audit
    – Issue-oriented audit
    – Comprehensive audit
    Desk audits are conducted by RRA staff using information that has already
    been submitted to RRA.
    Issue-oriented audits are usually focused on a single tax type, single aspect
    or single tax period. Refund audits are a type of issue audit, focused on tax 
    declarations claiming refunds from RRA. Issue audits may be desk-based or
    involve visits to the taxpayer’s business premises.
    Comprehensive audits are more in-depth and time intensive. These are
    usually conducted by RRA staff whilst visiting the taxpayer’s business premises
    and reviewing all relevant documents.
    2. The time taxpayers informed about audits
    In the case of desk audits, taxpayers may not be informed about the audit
    unless a specific problem is identified. Taxpayers will always be invited to offer
    explanations before being issued with assessment notices.

    In the case of issue-oriented audits, taxpayers will be notified at least three
    days beforehand. The postponement of such an issue-oriented audit cannot
    exceed seven (7) working days.

    In the case of comprehensive audits, taxpayers will be notified at least seven
    days beforehand. If the taxpayer is not ready, they may write to RRA requesting
    an extension, up to a maximum of thirty days.

    9.3.4: Features of an effective audit plan
    1. Systematic Process
    Auditing is a systematic and scientific process that follows a sequence of
    activities, which are logical, structured, and organized.
    2. Three-party Relationship
    The audit process involves three parties: shareholders, managers, and auditors.
    3. Subject Matter
    Auditors give assurance on a specific subject matter. However, the subject matter
    may differ considerably, such as – data, systems or processes, and behavior.
    4. Evidence
    The auditing process requires collecting the evidence, that is, financial and
    non-financial data, and examining thereof
    5. Established Criteria
    The evidence must be evaluated regarding established criteria, which include
    International Accounting Standards, International Financial Reporting
    Standards, Generally Accepted Accounting Principles, industry practices, etc.
    6. Opinion
    The auditor has to express an honest and professional opinion as to
    the reasonable assurance of the entity’s financial statements.
    Conclusion on Audit Features
    The most important feature of any audit is that; it is a systematic process of
    expressing a professional opinion on financial position of a company based on
    gathering and evaluating the evidence.

    Audit features influence the objectives of the audit to refer to the security of
    the information and systems, the protection of the personal data, and access to
    some databases with a sensitive informational character.

    9.3.5: Definition of tax arrears and Debt classification
    1. Definition of tax arrears

    Tax arrears refer to any amount owned by taxpayers to administration. This
    includes any unpaid taxes after the deadline and unpaid penalties, fines and
    interest.
    Tax arrears is tax due to government but not paid

    There are many enforcement actions legally available to the tax administration
    for the collection for unpaid tax arrears. The typically process is in three steps.
    Firstly, the tax payer receives a warning letter from the tax administration,
    requesting them to visit tax office to discuss the arrears situation and repayment
    options.

    If there is no response within 15 days, the tax administration may begin
    “garnishment” procedures. This means that the tax administration may work
    with third parties, such as banks, to freeze the taxpayer’s accounts.

    Finally, the tax administration may begin search and seizure of movable and
    immovable assets and may sell these at public auction within eight days of
    notification to the taxpayer.

    2. Debt classification

    Debtors of the taxpayer and possessors of the taxpayer’s funds

    In case the tax is not paid within the fifteen (15) days period, the Tax
    administration may require any debtor, bank or any other party in possession
    of the taxpayer’s funds to pay to the Tax administration the amount due to the

    taxpayer against the tax liability.

    Application activity 9.3

    Q1. State the Obligations of the taxpayer during audit
    Q2. state objective of audit to the country

    Q3. List and explain the different types of audits

    Skills Lab Activity 9

    Via internet search, visit the RRA website and write a note on the following
    aspects
    1. RRA mandate, mission, vision and core value
    2. Requirements for starting a business and how to register a business
    3. Tax audit requirements

    End of unit assessment 1

    Q1. Discuss action to be taken after and closed tax audit
    Q2. Outline types of tax audits
    Q3. State the objectives and contents of the tax audit report
    Q4. Give the condition for registered person in Tax Administration
    Q5. Discuss about official mandate, vision and mission of Rwanda Revenue
    Authority
    Q6. State the instruction, guideline for source a tax audit
    Q7. Describe the period tax authorities inform taxpayers about audits
    Q8. Discuss RRA (Rwanda Revenue Authorities) strategic principles

    REFERENCES

    ICPAR. (2019). Taxation. London: BPP LEARNING MEDIA LTD.

    ICPAR. (2020). Company Law. Kigali: Institute of Certified Public Accountants
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    Parliament of the Republic of Rwanda. (2015, March 28). Law No. 06/2015 of
    28/03/2015 relating to investment promotion and facilitation. Official Gazette
    No. Special of 27/05/2015, pp. 02-36.

    Parliament of the Republic of Rwanda. (2018, August 30). Law No. 66/2018
    of 30/08/2018 regulating labour in Rwanda. Official Gazette No. Special of
    06/09/2018, pp. 02-104.

    Parliament of the Republic of Rwanda. (2020, December 11). Ministerial Order
    No.003/20/10/TC of 11/12/2020 establishing general rules on transfer
    pricing. Official Gazette No. 40 of 14/12/2020, pp. 02-55.

    Parliament of the Republic of Rwanda. (2021, February 05). No. 007/2021 of
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    Parliament of the Republic of Rwanda. (2022, October 28). Law No. 027/2022of
    28/10/2022 establishing taxes on income. Official Gazette No. 027 of
    28/10/2022, pp. 12-101.

    RRA. (2019). RRA Tax Handbook, 2nd Edition. Kigali: Rwanda Revenue Authority.
    RRA. (2022, March 30). rra.gov.rw/index.php?id=32. Retrieved from rra.gov.rw:
    http://www.rra.gov.rw

    RSSB. (2018). Understanding Social Security, Edition 2018. Kigali: Rwanda Social
    Security Board.

    Rwanda Prime Minister’s Office. (2020, September 30). Oder No. 105/03
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