TAXATION BOOK

ACCOUNTING PROFESSION OPTION

for Rwandan Schools

Senior
5 Student Book

EXPERIMENTAL VERSION

Kigali, 2023
 © 2023Rwanda Basic Education Board
All rights reserved
This book is the property of the Government of Rwanda. Credit must be
provided to REB when the content is quote
FOREWORD
Dear Student,
Rwanda Basic Education Board (REB) is honoured to present Senior 5 Taxation
book for the students of Accounting Profession Option which serves as a
guide to competence-based teaching and learning to ensure consistency and
coherence in the learning of the Taxation. The Rwandan educational philosophy
is to ensure that you achieve full potential at every level of education which
will prepare you to be well integrated in society and exploit employment
opportunities.
The government of Rwanda emphasizes the importance of aligning teaching
and learning materials with the syllabus to facilitate your learning process.
Many factors influence what you learn, how well you learn and the competences
you acquire. Those factors include the relevance of the specific content, the
quality of teachers’ pedagogical approaches, the assessment strategies and the
instructional materials available. In this book, we paid special attention to the
activities that facilitate the learning process in which you can develop your ideas
and make new discoveries during concrete activities carried out individually or
in groups.
In competence-based curriculum, learning is considered as a process of active
building and developing knowledge and meanings by the student where
concepts are mainly introduced by an activity, situation or scenario that helps
the student to construct knowledge, develop skills and acquire positive attitudes
and values.
For efficiency use of this textbook, your role is to:
– Work on given activities which lead to the development of skills;
– Share relevant information with other students through presentations,
discussions, group work and other active learning techniques such
as role play, case studies, investigation and research in the library, on
internet or outside;
– Participate and take responsibility for your own learning;
– Draw conclusions based on the findings from the learning activities.
To facilitate you in doing activities, the content of this book is self-explanatory
so that you can easily use it yourself, acquire and assess your competences. The
book is made of units as presented in the syllabus. Each unit has the following
structure: the unit title and key unit competence are given and they are followed
by the introductory activity before the development of taxation concepts that
are connected to real world of economic environment.

Taxation | Student's Book | Senior Five | Experimental version iii

The development of each concept has the following points:
• Learning activity which is a well set and simple activity to be done by
students in order to generate the concept to be learnt;
• Main elements of the content to be emphasized;
• Worked examples; and
• Application activities to be done by the user to consolidate competences
or to assess the achievement of objectives.
Even though the book has some worked examples, you will succeed on the
application activities depending on your ways of reading, questioning, thinking
and handling calculations problems not by searching for similar-looking
worked out examples.
Furthermore, to succeed in Taxation, you are asked to keep trying; sometimes
you will find concepts that need to be worked at before you completely
understand. The only way to really grasp such a concept is to think about it and
work-related problems found in other reference books.
I wish to sincerely express my appreciation to the people who contributed
towards the development of this book, particularly, REB staff, RRA Officers,
development partners, Universities Lecturers and Secondary School Teachers
for their technical support. A word of gratitude goes to Secondary Schools
Head Teachers, Administration of different Universities (Public and Private
Universities) and development partners who availed their staff for various
activities.
Any comment or contribution for the improvement of this textbook for the next
edition is welcome.

Dr. MBARUSHIMANA Nelson

Director General, REB.

iv Taxation | Student's Book | Senior Five | Experimental version

ACKNOWLEDGEMENT
I wish to express my appreciation to the people who played a major role in
the development of this Taxation book for Senior 5 students in Accounting
Profession Option. It would not have been successful without active participation
of different education stakeholders.
I owe gratitude to RRA, different universities and schools in Rwanda that
allowed their staff to work with REB in the in-house textbooks production
initiative.
I wish to extend my sincere gratitude to Universities Lecturers, Secondary
School teachers and staff from different education partners whose efforts
during writing exercise of this book were very much valuable.
Finally, my word of gratitude goes to the Rwanda Basic Education Board staffs
who were involved in the whole process of in-house textbook Elaboration.

Joan MURUNGI
Head of CTLR Department

Taxation | Student's Book | Senior Five | Experimental version v

ACRONYMS AND ABBREVIATIONS
BNR : National Bank of Rwanda
C I S : Certified Invoice System
CBHI : Community Based Health Insurance
CET : Common External Tariff
CIF : Cost, Insurance and Freight
CIT : Corporate Income Tax
CMA : Customs Management Act
COMESA : Common Market for Eastern and Southern Africa
DTA : Double Taxation Agreement
E I S : Electronic Invoicing System
EAC : East African Community
EACCMA : East Africa Community Customs Management Act
EIS : Electronic Invoicing System
EU : European Union
FOB : Free On Board
FRW : Rwandan Francs
GST : Goods and Services Tax
HF : Handling Fees
HS : Harmonized System
IDL : Infrastructure development levy
IQP : Instalment Quarterly Prepayment
ITA : institute of tax administration
MRC : Machine Registration Code
MVF : Motor Vehicle Registration Fees
OECD : Organization for Economic Co-operation and Development

vi Taxation | Student's Book | Senior Five | Experimental version

PAYE : Pay As You Earn
PIT : Personal Income Tax
POS : Point of Sale
RDB : Rwanda Development Boards
ReSW : Rwanda electronic Single Window
RMF : Road Maintenance Fund
RRA : Rwanda Revenue Authority
RSSB : Rwanda Social Security Board
RTV : Rwanda Television
SDC : Sales Data Controller
SIM : Subscriber Identity Module
TAFFA : Tanzania freight forwarders association
TIN : Taxpayer Identification Number
TOGC : Transfer of a going concern
USA : United States of America
VSDC : Victual Sales Data Controller
VAT : Value Added Tax
WHT : Withholding Taxes

Taxation | Student's Book | Senior Five | Experimental version vii

 TABLE OF CONTENT

FOREWORD.................................................................................................................. iii
ACKNOWLEDGEMENT................................................................................................ v
ACRONYMS AND ABBREVIATIONS.........................................................................vi
UNIT 1: TAXATION OF CORPORATE BUSINESS PROFITS................................ 1
1.1: Relevant legislation, Chargeable and exempt entities.....................................2
1.2: Income tax..........................................................................................................................5
1.3: Other income for companies.......................................................................................8
1.4: Total taxable income for companies.....................................................................10
1.5: Corporate restructuring and tax on liquidation..............................................13
1.6: Business loss reliefs.....................................................................................................15
End of unit assessment 1...................................................................................................18
UNIT 2: WITHHOLDING TAXES............................................................................. 21
2.1: The feature of withholding taxes, imports and public tenders.................22
2.2: Person exempted from withholding taxes and others payment subject to
withholding tax.............................................................................................................24
2.3: Withholding taxes on gaming activities and Double Taxation Agreement
(DAT).................................................................................................................................27
End of unit assessment 2...................................................................................................32
UNIT 3: TAXES AND FEES OF DECENTRALIZED ENTITIES........................... 34
3.1: Definition of key terms used in decentralized taxes and fees...................35
3.2: Sources of revenue and property of decentralized entities........................37
3.3: Types of Taxes to be paid to Decentralized Entities......................................39
3.4: Other Sources of Revenue for Decentralized Entities...................................57
End of unit assessment 3...................................................................................................58
UNIT 4: CUSTOMS AND CONSUMPTION TAX.................................................... 60
4.1: EAC origin, objectives.................................................................................................61
4.2: Description of customs duties ................................................................................64
4.3: The taxes that are specifically paid on imports...............................................69

viii Taxation | Student's Book | Senior Five | Experimental version

 4.4: The excise duty (consumption tax).......................................................................74
End of unit assessment 4...................................................................................................82

UNIT 5: VALUE ADDED TAX (VAT) ....................................................................... 83

5.1: Description of the value added tax.....................................................................84
5.2: VAT registration compliance....................................................................................94
5.3. VAT Computation..........................................................................................................99
5.4: VAT offences, VAT penalties and fines.............................................................. 104
End of unit assessment 5................................................................................................ 110
UNIT 6: ELECTRONIC BILLING MACHINE (EBM)...........................................113
6.1: The electronic invoicing system (Electronic Billing Machine). ............. 114
6.2: The ways used to set EBM Invoice...................................................................... 119
6.3: EIS/EBM penalties and fines................................................................................ 122
End of unit assessment 6................................................................................................ 124

UNIT 7: TAXATION OF CROSS BORDER ACTIVITIES ...........................125

7.1. Distinction between trading in and trading with a country.................... 126
7.2. Double taxation agreement................................................................................... 127
7.3. East African Customs Union.................................................................................. 130
7.4. Transfer pricing.......................................................................................................... 132
7.5. Computation of tax for cross border activities.............................................. 135
End of unit assessment 7................................................................................................ 137
UNIT 8: TAXES DECLARATIONS AND PAYMENT.............................................139
8.1: Taxes Declarations..................................................................................................... 140
8.2: Methods, Process of taxes and RSSB Contribution declarations........... 144
8.3: Print out of a Tax declaration (Acknowledgment receipt) and Methods of
Tax payment................................................................................................................. 164
8.4: Filing system................................................................................................................ 168
End of unit assessment 8................................................................................................ 174

Taxation | Student's Book | Senior Five | Experimental version ix

UNIT 9: TAX ADMINISTRATION..........................................................................175
9.1: Description of the Tax administration (Rwanda Revenue Authority)176
9.2: Self-assessment.......................................................................................................... 187
9.3: Tax audit........................................................................................................................ 189
End of unit assessment 1................................................................................................ 197
REFERENCES.............................................................................................................198

x Taxation | Student's Book | Senior Five | Experimental version

 Unit 1 TAXATION OF CORPORATE
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?

Taxation | Student's Book | Senior Five | Experimental version 1

1.1: Relevant legislation, Chargeable and exempt entities

Learning Activity 1.1

Question
Describe your observation on the above photo?

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.

2 Taxation | Student's Book | Senior Five | Experimental version

 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;

Taxation | Student's Book | Senior Five | Experimental version 3

 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

4 Taxation | Student's Book | Senior Five | Experimental version

 2. Tick to show whether the following are taxable or exempt for the
purposes of corporate income tax:
Taxable Exempt

Jali Ltd, a Rwandan registered company

National Bank of Rwanda

Moriah Ltd, a company registered in Kenya which

operates a permanent establishment in Kigali

The United Nations Economic Commission

for Africa (UNECA), an inter-governmental
organization which has exemption under an
international agreement

Nile Ltd, an Ethiopian company which is managed

in Rwanda

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.

Taxation | Student's Book | Senior Five | Experimental version 5

 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

FRW’000
Taxable trading profits X

Investment income X
Rental income X
Less losses carried forward from previous five tax periods (X)

Taxable income X

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.

6 Taxation | Student's Book | Senior Five | Experimental version

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)

Item Do nothing Add back Deduct

Depreciation of FRW 22,000,000
FRW 8,000,000 of agricultural
income
Dividends paid of FRW
12,000,000 which have been
deducted from the profit figure
FRW 2,000,000 of client
entertaining
FRW 5,000,000 of rental income
Tax depreciation of FRW
20,000,000
FRW 20,000,000 of staff salaries

Taxation | Student's Book | Senior Five | Experimental version 7

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

8 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 9

 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.
Details Amount in FRW
Revenue 50,000,000
Cost of goods sold (34,000,000)
Gross profit 16,000,000
Other income
Muhire’s Salary 5,000,000
Muhire wife’s Salary 3,500,000
Total Income 24,500,000
Less other Expenses
Electricity 800,000
Advertising 600,000
School fees for Muhire’s daughter 2,000,000
Purchase of home foods and Services 8,000,000
Total Expenses (11,400,000)
Net profit 13,100,000

10 Taxation | Student's Book | Senior Five | Experimental version

 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:

Note FRW’000 FRW’000

Gross profit (Sales – Cost of goods sold) 360,000
Rental income 1 40,000
Bank interest income 2 5,000
405,000
Operating expenses:
Depreciation 3 60,000
Bad debts 4 4,500
General provision for warranties 5 2,500
Wages and Salaries 6 120,000
Legal and Professional fees 7 4,000
Interest payable 8 1,500
Other allowable expenses 50,000
(242,500)
Profit for the period 162,500

Taxation | Student's Book | Senior Five | Experimental version 11

 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.

12 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 13

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.

14 Taxation | Student's Book | Senior Five | Experimental version

1.6: Business loss reliefs

Learning Activity 1.6

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 long-
term 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.

Taxation | Student's Book | Senior Five | Experimental version 15

 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.

16 Taxation | Student's Book | Senior Five | Experimental version

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

Taxation | Student's Book | Senior Five | Experimental version 17

 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:
FRW’000
Christmas party for staff 2,000
Entertaining customers 7,200
Costs of an all-staff football tournament 2,300
11,500
d) Bad debts charged to the profit and loss account were:
FRW’000
Bad debts written off 5,500
Increase in provision for bad 2,000
debts
7,500

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.

18 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 19

 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.

20 Taxation | Student's Book | Senior Five | Experimental version

 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?

Taxation | Student's Book | Senior Five | Experimental version 21

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).

22 Taxation | Student's Book | Senior Five | Experimental version

 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%.

Taxation | Student's Book | Senior Five | Experimental version 23

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

24 Taxation | Student's Book | Senior Five | Experimental version

 – 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;

Taxation | Student's Book | Senior Five | Experimental version 25

 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.

26 Taxation | Student's Book | Senior Five | Experimental version

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).

Learning Activity 2.3

Football fans like to bet in different betting companies such Premier betting,
Do you think that the betting company will pay tax? And why.

Taxation | Student's Book | Senior Five | Experimental version 27

 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)

28 Taxation | Student's Book | Senior Five | Experimental version

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 shefulfils 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;

Taxation | Student's Book | Senior Five | Experimental version 29

 5. he or she is present in Rwanda during the tax period of assessment
and has been present for periods averaging more h tanone 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 residentniRwanda
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

30 Taxation | Student's Book | Senior Five | Experimental version

 country, and another country asserts the right to tax the same income
because the source of income is that country.

The closest thing to a system of ‘international taxation’ arises in income tax

treaties between different countries. A treaty by its nature is an element of
the laws of more than one nation. Although the taxes affected by treaties are
ultimately imposed by a specific country, the treasuries of the countries joining
treaties do make concessions from their habitual norms of taxation. The result
is a tax regime arising under a treaty that may differ from the regime imposed
by the laws imposed by any one 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:

Country Dividends Interest Royalties Technical

on Shares fees
Belgium 15% 10% 10% 10%
Mauritius 10% 10% 10% 12%
South Africa 10% 10% 10% 10%

Barbados 7.5% 10% 10% 10%

Singapore 7.5% 10% 10% 10%

Jersey 10% 10% 10% 12%

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.

Taxation | Student's Book | Senior Five | Experimental version 31

 Application activity 2.3
Q1. Defining Double Taxation Agreement.
Q2. State the purpose of Double Taxation Agreement.

Skills Lab Activity 2

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.

32 Taxation | Student's Book | Senior Five | Experimental version

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 short-
term 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.

Taxation | Student's Book | Senior Five | Experimental version 33

 3
TAXES AND FEES OF
Unit DECENTRALIZED ENTITIES

Key unit competence: To compute taxes and fees collected by

decentralized entities

Introductory activity

Q1. Describe the role of that person in the photo?

Q2. Are there any taxable activities in those areas?

34 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 35

 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;

36 Taxation | Student's Book | Senior Five | Experimental version

 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?

Taxation | Student's Book | Senior Five | Experimental version 37

 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?

38 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 39

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 co-
owned 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.

40 Taxation | Student's Book | Senior Five | Experimental version

 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 profit-
making 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;

Taxation | Student's Book | Senior Five | Experimental version 41

 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 de-
crease 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 tax-
payer 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.

42 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 43

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%.

Workings Tax FRW

300* 250 FRW/m2 75,000
200* (250 + (250 x 50%) 75,000

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.

44 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 45

 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.

46 Taxation | Student's Book | Senior Five | Experimental version

The commercial building will be taxed in the following ways:
1st year 2nd year 3rd year 4th year (0.5%)
(0.2%) (0.3%) (0.4%)
Property 250,000,000* 250,000,000* 250,000,000* 250,000,000*
tax 0.2% 0.3% 0.4% 0.5%

= FRW 500,000 = FRW 750,000 = FRW = FRW 1,250,000

1,000,000

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

Turnover Tax due

From FRW 1 to FRW 40,000,000 FRW 60,000
From FRW 40,000,001 to FRW 60,000,000 FRW 90,000
From FRW 60,000,001 to FRW 150,000,000 FRW 150,000
Above FRW 150,000,000 FRW 250,000

Taxation | Student's Book | Senior Five | Experimental version 47

Table II. Other profit-oriented activities
Type of Activity Rural area/ Towns/FRW City of
FRW Kigali/FRW
a) Vendors without shops, 4,000 6,000 8,000
small scale technicians
b) Transporters of people and 8,000 8,000 8,000
goods on motorcycle
c) All other vehicles besides 40,000 40,000 40,000
bicycles
Each vehicle Each vehicle Each vehicle
d) For transport activities by 20,000 20,000 20,000
motor boat
Each boat Each boat Each boat
e) Others profit-oriented activ- 20,000 30,000 40,000
ities

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.

48 Taxation | Student's Book | Senior Five | Experimental version

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.
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 tax year, he/she is, after an audit, refunded the paid trading license tax
depending on the remaining months until 31st December of that tax period.

Taxation | Student's Book | Senior Five | Experimental version 49

 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.

50 Taxation | Student's Book | Senior Five | Experimental version

 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 %).
Annual taxable Marginal tax Formulae
income rate
Below FRW 180,000 0% T = 180,000* 0% = 0
Between FRW 180,001 20% T= (1,000,000 – 180,000)* 20% + 0=
to FRW 1,000,000 164,000
Above FRW 1,000,000 30% T= (T1 – 1,000,000)* 30% + 164,000

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.

Taxation | Student's Book | Senior Five | Experimental version 51

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:
Particulars Workings Amount (FRW)
Gross Rent 800,000* 12 9,600,000
Less: Allowable expenses 50%* 9,600,000 (4,800,000)
Taxable Rental Income 4,800,000

Property Two:
Particulars Workings Amount (FRW)
Gross Rent 1,250,000* 12 15,000,000
Less: Allowable expenses 50% * 15,000,000 (7,500,000)
Less: Interest expenses 16% * 13,000,000 (2,080,000)
Taxable Rental Income 5,420,000

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
Total income 10,220,000
Tax liability Tax rate Tax
0 – 180,000 0% 0
180,000 – 1,000,000 20% 164,000
1,000,000 – 10,220,000 30% 2,766,000
Total liability 2,930,000

52 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 53

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 profit-
oriented activities
• United Nations institutions and embassies
• People carrying out their activities in market places paying market
fees

54 Taxation | Student's Book | Senior Five | Experimental version

 – 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.
Fees on advertising billboards and banners
– 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.

Taxation | Student's Book | Senior Five | Experimental version 55

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.

56 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 57

 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
Particular Market value

Residential building occupied by the owner and his 200,000,000

family
Apartment with two floors 450,000,000
Apartment with five floors 800,000,000
Commercial building 500,000,000

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

58 Taxation | Student's Book | Senior Five | Experimental version

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 during
the 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

Taxation | Student's Book | Senior Five | Experimental version 59

 Unit 4 CUSTOMS AND
CONSUMPTION TAX

Key unit competence: Compute the Customs and consumption taxes

Introductory activity

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.

60 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 61

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 com-
petition 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

62 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 63

 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

64 Taxation | Student's Book | Senior Five | Experimental version

 4.2.1: Definition of customs duties and the person who can im-
port 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)

Taxation | Student's Book | Senior Five | Experimental version 65

 • 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.

66 Taxation | Student's Book | Senior Five | Experimental version

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

Taxation | Student's Book | Senior Five | Experimental version 67

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).
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.

68 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 69

 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

70 Taxation | Student's Book | Senior Five | Experimental version

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%

Taxation | Student's Book | Senior Five | Experimental version 71

 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) Motor Vehicle Fees (MVF) for all

between Motor Vehicles

0 to 1,000 FRW 75,000

1,001 to 1,500 FRW 160,000

1,501 to 3,000 FRW 250,000

3,001 to 4,500 FRW 420,000

4,501 and above FRW 560,000

Special Engine FRW 640,000

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

72 Taxation | Student's Book | Senior Five | Experimental version

 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’.

Taxation | Student's Book | Senior Five | Experimental version 73

 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

74 Taxation | Student's Book | Senior Five | Experimental version

 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 Co-
operation 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 reg-

ister 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’.

Taxation | Student's Book | Senior Five | Experimental version 75

 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 valua-

tion 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.

76 Taxation | Student's Book | Senior Five | Experimental version

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:
Products Tax Rate
Natural fruit juice 5%
Lemonade, soda and other non-natural 39%
juices
Industrial packed mineral water 10%
Beer produced with locally sourced inputs 30%

Other beer 60%

Wine produced with locally sourced inputs 30%

Other wine 70%

Brandies, liquors and whiskey 70%

Cigarettes 36% of retail price and FRW

130 per pack of 20 cigarettes

Premium oil (excluding benzene) FRW 183 per litre

Gas oil FRW 150 per litre

Lubricants 37%

Taxation | Student's Book | Senior Five | Experimental version 77

 Vehicles with an engine capacity of less than 5%
1500cc
Vehicles with an engine capacity of between 10%
1500cc and 2500cc
Vehicles with an engine capacity of more 15%
than 2500cc
Powdered milk 10%
Telephone communications 10%

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.

78 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 79

 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.
• 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

80 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 81

 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.

82 Taxation | Student's Book | Senior Five | Experimental version

 Unit 5 VALUE ADDED TAX (VAT)

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

Introductory activity

Taxation | Student's Book | Senior Five | Experimental version 83

 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

84 Taxation | Student's Book | Senior Five | Experimental version

 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.
Example: Wholesale Retail Last consumer.
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.

Taxation | Student's Book | Senior Five | Experimental version 85

 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:

86 Taxation | Student's Book | Senior Five | Experimental version

 – 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:

Taxation | Student's Book | Senior Five | Experimental version 87

 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
COST OF GOOGS *VAT Rate
VAT=
100 + VAT Rate

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
cos t of goods *VAT Rate 1, 000, 000 ∗18 18, 000, 000
VAT= = = = FRW 152,542
100 + VAT Rate 100 + 18 118

b) VAT exclusive

cos t of goods *VAT Rate

VAT=
100

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
COST OF GOODS ∗ VAT RATE 100, 000 ∗18 1,800, 000
VAT= = = = FRW 18, 000
100 100 100

88 Taxation | Student's Book | Senior Five | Experimental version

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 Lawo no 37/2012 of 09/11/2012 establishing the value added
(Article 8 of law n 37 /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 oro of any director or person
employed in the business; (Article 3 of law n 02 /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. (Articleo
3 of law no 02/2015 of 25/02/2015 modifying and complementing law n
37 /2012 of 09/11/2012 on the code of VAT)

Taxation | Student's Book | Senior Five | Experimental version 89

 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 No 37/2012 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
o of law no 02/2015 of 25/02/2015 modifying
and complementing law n 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 ofo law no 02/2015 of 25/02/2015 modifying and
complementing law n 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;

90 Taxation | Student's Book | Senior Five | Experimental version

 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 No 37/2012 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;

Taxation | Student's Book | Senior Five | Experimental version 91

 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;

92 Taxation | Student's Book | Senior Five | Experimental version

 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
o
law no 40/2016 of 15/10/2016 modifying and
complementing law n 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

Taxation | Student's Book | Senior Five | Experimental version 93

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.

94 Taxation | Student's Book | Senior Five | Experimental version

Example
Nduwayezu commenced business on 1/1/2018. His monthly sales are as below:
Month Sales
January 1,800,000
February 800,000
March 2,000,000
April 2,500,000
May 2,000,000
June 1,800,000
July 3,000,000
August 4,800,000
September 3,500,000
October 6,850,000
November 2,800,700
December 6,500,000
January 4,650,000
February 1,680,000
March 4,600,800
April 2,804,000
May 3,000,000

When should Nduwayezu register for the VAT?

Quarterly Registration Rule
Month Monthly Sales amount Cumulative sales Amount
(FRW) (FRW)
January 1,800,000 1,800,000
February 800,000 2,600,000
March 2,000,000 4,600,000
April 2,500,000 7,100,000
May 2,000,000 9,100,000
June 1,800,000 10,800,000

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

register for VAT in seven days of month June.

Taxation | Student's Book | Senior Five | Experimental version 95

Annual Registration Rule

Month Monthly Sales amount Cumulative sales Amount

(FRW) (FRW)

January 1,800,000 1,800,000

February 800,000 2,600,000
March 2,000,000 4,600,000
April 2,500,000 7,100,000
May 2,000,000 9,100,000
June 1,800,000 10,800,000
July 3,000,000 13,900,000
August 4,800,000 18,700,000
September 3,500,000 22,200,000
October 6,850,000
November 2,800,700
December 6,500,000

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.

96 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 97

 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.

98 Taxation | Student's Book | Senior Five | Experimental version

 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

Taxation | Student's Book | Senior Five | Experimental version 99

 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.

100 Taxation | Student's Book | Senior Five | Experimental version

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

Items Purchases inclusive Sales inclusive of

of VAT (FRW) VAT (FRW)
Wines 12,450,000 15,600,000
Milk processed in Rwanda 3,800,000 3,790,000
Clothes 7,460,500 9,830,000
Wheel chairs 10,800,000 14,890,000
Tomatoes unprocessed 2,562,000 6,700,600
Tomato source from Kenya 4,120,300 6,950,100
Electricity 2,320,400

Taxation | Student's Book | Senior Five | Experimental version 101

Fuel 3,870,900
Rent 1,782,300
Computers 11,456,700 17,850,000
Cooking oil 9,230,600 13,400,500

Output VAT

Items Standard Rated Zero rated Exempt Output

VAT
Wines 15,600,000 2,379,661
Milk in Rwanda 3,790,000
Clothes 9,830,000 1,499,492
Wheel chairs 14,890,000 2,271,355
Unprocessed 6,700,600
tomatoes
Tomato source from 6,950,100 1,060,185
Kenya
Computers 17,850,000
Cooking oil 13,400,500 2,044,144
Total sales 45,780,600 43,230,600 9,254,837

Input VAT

Items Standard Zero rated Exempt Input VAT

Rated
Wines 12,450,000 1,899,153
Milk in Rwanda 3,800,000
Clothes 7,460,500 1,138,042
Wheel chairs 10,800,000 1,647,457
Unprocessed tomatoes 2,562,000
Tomato source from 4,120,300 628,520
Kenya
Electricity 2,320,400 353,959
Fuel 3,870,900
Rent 1,782,300 271,876
Computers 11,456,700
Cooking oil 9,230,600 1,408,058
Total purchases 37,364,100 32,489,600 7,347,066

102 Taxation | Student's Book | Senior Five | Experimental version

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

Taxation | Student's Book | Senior Five | Experimental version 103

 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

104 Taxation | Student's Book | Senior Five | Experimental version

 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

Taxation | Student's Book | Senior Five | Experimental version 105

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;

106 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 107

 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 thirty-
one (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.

108 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 109

 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.

110 Taxation | Student's Book | Senior Five | Experimental version

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.

Tax Rate
Excise tax 10%
Import duty 25%
VAT 18%
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

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 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.

112 Taxation | Student's Book | Senior Five | Experimental version

 Unit 6 ELECTRONIC BILLING
MACHINE (EBM).

Key unit competence: To be able use electronic billing machine

Introductory activity

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?

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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.

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 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;

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 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

116 Taxation | Student's Book | Senior Five | Experimental version

 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.

Taxation | Student's Book | Senior Five | Experimental version 117

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;

118 Taxation | Student's Book | Senior Five | Experimental version

 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

Taxation | Student's Book | Senior Five | Experimental version 119

 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.

120 Taxation | Student's Book | Senior Five | Experimental version

 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 hand-
written 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;

Taxation | Student's Book | Senior Five | Experimental version 121

 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.

122 Taxation | Student's Book | Senior Five | Experimental version

 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 non-
compliance with EIS/EBM requirements?
Additional penalties available 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

Taxation | Student's Book | Senior Five | Experimental version 123

 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.

124 Taxation | Student's Book | Senior Five | Experimental version

 Unit 7 TAXATION OF CROSS
BORDER ACTIVITIES

Key unit competencies: Compute taxation of cross border activities.

Introductory activity

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.

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 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?

7.1.1. Trading in a country.

This refers to the trading made within the territory of the country i.e., both
buyer and seller are in the same country.

126 Taxation | Student's Book | Senior Five | Experimental version

 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.

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 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;

128 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 129

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

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 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.

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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?

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 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.

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 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.

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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.

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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.

136 Taxation | Student's Book | Senior Five | Experimental version

 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.

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 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.

138 Taxation | Student's Book | Senior Five | Experimental version

 Unit 8 TAXES DECLARATIONS
AND PAYMENT

Key unit competence: Prepare Taxes declaration and Payment

Introductory activity

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?

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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

140 Taxation | Student's Book | Senior Five | Experimental version

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.

3. Computation and payment of income tax

The amount of tax to be paid is calculated on the basis of the annual basic
declaration, reduced by:
1. the tax withheld on taxable income; with the exception of the tax
withheld on employment income, as well as on income to which lump
sum tax or flat tax are applied;
2. the prepayments made every quarter.

Income tax is paid to the Tax Administration starting from the date of declaration
and not later than 31 March of the year following the tax period through
procedures specified by the Tax Administration unless otherwise provided.

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1. Tax types, Declaration and Payment deadlines

Description Tax Type(S) Declaration and

Payment Deadlines
For all business Income Tax (PIT or 31st March of following
CIT), year
Including Instalment 30th June,31st
Quarterly September and 31st
Prepayment(IQP) December of current
year
Trading License Tax 31st January of current
year
Public Cleaning 5th of the following
Services Fees month
….with annual turnover Value Added Tax 15th of the following
above FRW 200,000,000 month
……with employees Pay As You Earn 15th of the following
(PAYE) month
RSSB Contributions 15th of the following
month
… which manufacture Excise Duty 15th, 20th and 5th of the
juices, sodas, mineral following month
waters, beers, wines,
spirits, oils, lubricants,
motor vehicles, powdered
milk or airtime
… which make payments Withholding Taxes 15th of following month
of interest, dividends,
royalties, service or
consultancy fees, for
performances, or to non-
registered businesses
… which pay out gambling Gaming Taxes 15th of following month
proceeds
… which export minerals Tax on Mining 15th of following month
For all Landowners … Immovable Property 31st December of same
Tax year
… renting out property Rental Income Tax 31st January of
following year

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For all Individuals …
… who have sold Capital Gains Tax 31st March of following
commercial immovable year
property or shares
For anyone …
… importing a car Importing Motor When importing
Vehicles
… buying a car locally Motor Vehicle When buying the car
Registration Transfer
… requiring District’s Local Government Before the service
services or authorization Fees or authorization is
provided

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.

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 – December 1st to February 28th (or 29th if a leap year), must be declared
and paid by 15th March.
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.

144 Taxation | Student's Book | Senior Five | Experimental version

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.

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 • 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.

146 Taxation | Student's Book | Senior Five | Experimental version

 • 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

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 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,

148 Taxation | Student's Book | Senior Five | Experimental version

 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.

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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.

150 Taxation | Student's Book | Senior Five | Experimental version

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

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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.

152 Taxation | Student's Book | Senior Five | Experimental version

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

Taxation | Student's Book | Senior Five | Experimental version 153

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.

However, the mouse over ‘Tax Declaration’ in the left side of the E-Tax homepage,
and then click on ‘New Declaration’ from the list that appears. To revise
previously submitted declarations, click on ‘Submitted Declarations’. Clicking
‘New Declaration’ leads to the following screen.

154 Taxation | Student's Book | Senior Five | Experimental version

Without changing the type, year or tax type, click ‘Submit’ to continue to the
‘Document Details’ page.

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 toll-
free on 3004.

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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.

156 Taxation | Student's Book | Senior Five | Experimental version

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.

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For each of the applicable annexures, she clicks ‘Upload’, then ‘Choose File’.
All annexures are automatically saved in the C: drive, in the ‘RRA’ folder. Once
selected, she clicks submit, and repeats for all relevant annexures.

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

158 Taxation | Student's Book | Senior Five | Experimental version

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.

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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.

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 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.

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162 Taxation | Student's Book | Senior Five | Experimental version
 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.

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 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 pay-
ment
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.

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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.

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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 SIM-
card, 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.

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 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.

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 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.

168 Taxation | Student's Book | Senior Five | Experimental version

 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

Taxation | Student's Book | Senior Five | Experimental version 169

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

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 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.

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 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.

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 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.

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 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

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 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

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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.

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 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.

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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:
– Unity and Equity;

– Growth and Development;

and

– Prosperity

• 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.

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 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

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 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

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 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.

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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.

182 Taxation | Student's Book | Senior Five | Experimental version

If the company does not yet have a TIN, click OK to continue to the business
registration system screen below.

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.

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Note that each of the major tabs (‘General Info’, ‘Share Info’ etc.) has separate mi-
nor tabs (‘Company Name’, ‘Articles of Association’ etc.) Ensure to complete all
tabs before submitting the registration. Once all tabs are completed, click the ‘Pre-
view’ 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.

184 Taxation | Student's Book | Senior Five | Experimental version

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 de-
register 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.

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 • 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).
1. Mission a. The Rwanda Revenue Authority was estab-
lished 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 spec-
ified revenues.
2. Vision b. Mobilize revenue for economic develop-
ment through efficient and equitable ser-
vices that promote business growth
3. Official mandate c. We commit to provide quality services to
our clients

d. To become a world-class efficient and mod-

ern revenue agency, fully financing national
needs.

186 Taxation | Student's Book | Senior Five | Experimental version

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.

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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

188 Taxation | Student's Book | Senior Five | Experimental version

 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.

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 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;

190 Taxation | Student's Book | Senior Five | Experimental version

 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

Taxation | Student's Book | Senior Five | Experimental version 191

 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:
Description Contents
1. Title 1. Auditor’s report
2. Address 2. It is addressed to the
shareholders or board of directors
of a company. It should be normally
addressed to shareholders.

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3. Scope 3. The scope and extent of the audit
is mentioned. It includes the names
of financial statements like balance
sheet, profit and loss account,
name of company and the period of
audited statements.
4. References 4. The report indicates the
references of companies act,
auditing standard and guidelines
followed in the conduct of the audit.
5. Opinion The auditor’s opinion is given in
the report regarding the financial
statements and accounting records.
The words “the accounts show a
true and fair view” are normally
used.
6. Auditor’s address The auditor gives his address
7. Date of report It means the date on which the
auditor submitted this report.

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

Taxation | Student's Book | Senior Five | Experimental version 193

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

194 Taxation | Student's Book | Senior Five | Experimental version

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.

Taxation | Student's Book | Senior Five | Experimental version 195

 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.

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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

Taxation | Student's Book | Senior Five | Experimental version 197

REFERENCES
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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
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Parliament of the Republic of Rwanda. (2018, August 30). Law No. 66/2018
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06/09/2018, pp. 02-104.
Parliament of the Republic of Rwanda. (2020, December 11). Ministerial Order
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28/10/2022 establishing taxes on income. Official Gazette No. 027 of
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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
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contributions. Official Gazette No. Special of 01/10/2020, pp. 03-20.

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