Advanced Taxation Cpa PDF

ADVANCED TAXATION
BY
DR TWESIGE DANIEL
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Table of Contents
ADVANCED TAXATION ............................................................................................. 1
DR TWESIGE DANIEL ............................................................................................... 1

CHAPTER ONE: PERSONAL INCOME TAX ............................................................................. 12
INTRODUCTION .......................................................................................................................... 12
RESIDENCE .................................................................................................................................. 12
TAX CONSEQUENCES .................................................................................................................. 12
Article 9: Base of Personal Income Tax................................................................................................... 12
Micro-enterprises.................................................................................................................................. 13
RATES OF INCOME TAX FOR VEHICLES TRANSPORTING PERSONS AND GOODS ......................... 13
TAX DECLARATION...................................................................................................................... 14
PAYMENT OF PERSONAL INCOME TAX ....................................................................................... 15
INVESTMENT INCOME ........................................................................................................ 15
CAPITAL GAIN TAX ...................................................................................................................... 15
Example One ......................................................................................................................................... 16
Example Two......................................................................................................................................... 16
Withholding and Declaration of Capital Gain Tax ................................................................................... 16
FINANCIAL INCOME .................................................................................................................... 16
EXEMPTED INTEREST INCOME .................................................................................................... 17
DIVIDEND INCOME ..................................................................................................................... 17
ROYALTY INCOME ....................................................................................................................... 17
Example One ......................................................................................................................................... 17
Required: .............................................................................................................................................. 18
RENTAL INCOME ...................................................................................................................... 18
Example One ......................................................................................................................................... 19
Required: .............................................................................................................................................. 19
Tax liability ............................................................................................................................................ 19
Example Two......................................................................................................................................... 19
Required: .............................................................................................................................................. 19
TEST YOUR UNDERSTANDING..................................................................................................... 20
TAXATION OF EMPLOYMENT INCOME ............................................................................... 21
EMPLOYMENT AND SELF-EMPLOYMENT .................................................................................... 21
Factors Indicating Employment.............................................................................................................. 21
Factors Indicating Self-Employment....................................................................................................... 21
EMPLOYMENT INCOME .............................................................................................................. 21
PAYMENTS EXEMPTED FROM EMPLOYMENT INCOME TAX ....................................................... 22
PERSONS EXEMPTED FROM EMPLOYMENT INCOME TAX .......................................................... 22
BENEFITS IN KIND ....................................................................................................................... 22
Motor Vehicle ....................................................................................................................................... 23
Loan and Salary Advances ..................................................................................................................... 23
VALUATION OF BENEFITS IN KIND .............................................................................................. 23
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Domestic Employees ............................................................................................................................. 24
School Fees ........................................................................................................................................... 24
Any Other Benefit/Assistance ................................................................................................................ 24
Solution ................................................................................................................................................ 25
Computation of Taxable Employment Income of Lwewa for the Year Ended 31/12/2016 ....................... 25
Other income sources: .......................................................................................................................... 32
PENSION SCHEME ....................................................................................................................... 33
PENSION ARRANGEMENTS ......................................................................................................... 33
Occupational Pension Scheme ............................................................................................................... 33
Personal Pensions ................................................................................................................................. 33
More than One Pension Arrangement ................................................................................................... 33
CONTRIBUTING TO A PENSION SCHEME ..................................................................................... 34
Statutory Pension Scheme ..................................................................................................................... 34
Private Contribution .............................................................................................................................. 34
METHODS OF GIVING TAX RELIEF ............................................................................................... 34
Pension Contributions ........................................................................................................................... 34
QUALIFIED PENSION FUND ......................................................................................................... 34
TAXATION OF BUSINESS PROFIT OF INDIVIDUALS .............................................................. 34
TAX EXEMPTION FOR INDIVIDUAL INCOME................................................................................ 35
TAX EXEMPTION FOR PROFIT ON AGRICULTURAL AND LIVESTOCK ACTIVITIES .......................... 35
PROFIT ON ASSETS IN FOREIGN CURRENCY ................................................................................ 35
COMPUTATION OF TAXABLE PROFITS ................................................................................. 36
DEDUCTIONS FROM TAXABLE INCOME/ALLOWABLE EXPENSES ................................................ 36
NON-DEDUCTIBLE EXPENSES FROM TAXABLE INCOME .............................................................. 36
TRADING STOCK VALUE .............................................................................................................. 37
DEPRECIATION ............................................................................................................................ 37
Leased Assets ........................................................................................................................................ 37
Depreciation Basis ................................................................................................................................. 37
Computation of Depreciation ................................................................................................................ 38
Training and Research Expenses ............................................................................................................ 38
Bad Debts.............................................................................................................................................. 38
Additional Information .......................................................................................................................... 39
Computation of Adjusted Profit ............................................................................................................. 39
Additional information .......................................................................................................................... 40
Hererimana ........................................................................................................................................... 40
Computation of Taxable Income for the Year Ended 31/12/2016 ........................................................... 40
CHAPTER TWO .................................................................................................................... 41

CAPITAL ALLOWANCES ....................................................................................................... 41
INVESTMENT ALLOWANCE ......................................................................................................... 42
Accelerated Depreciation ...................................................................................................................... 42
WEAR AND TEAR ALLOWANCES/DEPRECIATION ........................................................................ 43
Plant and Machinery Allowances (Wear and Tear Allowance) ................................................................ 43
Computation of wear and tear............................................................................................................... 44
Computation of Capital Allowance for the Year Ended 31/12/2016/2017/2018 ...................................... 45
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Computation of Capital Allowances of Boringo for the Years Ended 31/12/2015/2016 ........................... 46
Solution ................................................................................................................................................ 47
Computation of Capital Allowances of MZA Investment Limited for the Period Ended 31/12/2014/2015 47
Test One ............................................................................................................................................... 48
Test Two ............................................................................................................................................... 48
Test Three ............................................................................................................................................. 48
BALANCING ALLOWANCES.......................................................................................................... 49
CHAPTER THREE.................................................................................................................. 50
CORPORATE INCOME TAX .................................................................................................. 50
ENTITIES EXEMPTED FROM CORPORATE INCOME TAX ............................................................... 50
ZERO-RATED ENTITIES ................................................................................................................ 50
SCOPE OF TAX LIABILITY TO CORPORATE INCOME TAX .............................................................. 51
CORPORATE INCOME TAX RATE ................................................................................................. 51
Tax Declaration ..................................................................................................................................... 51
Solution ................................................................................................................................................ 51
Corporate Income Taxation ................................................................................................................... 52
Taxation of Income from the Rent of Movable and Immovable Assets ................................................... 52
Corporate Restructuring ........................................................................................................................ 52
Taxation of Restructured Companies ..................................................................................................... 52
Taxation in case of Liquidation .............................................................................................................. 53
TAXATION OF PARTNERSHIPS BUSINESS .................................................................................... 53
Partnerships .......................................................................................................................................... 53
Additional Notes ................................................................................................................................... 54
Solution ................................................................................................................................................ 54
Additional Information: ......................................................................................................................... 55
Solution ................................................................................................................................................ 56
Distribution Profit to Each Partner ......................................................................................................... 56
TAXATION OF CORPORATIONS ................................................................................................... 57
The Scope of Corporation Tax ................................................................................................................ 57
Accounting Periods................................................................................................................................ 57
Residence of Companies........................................................................................................................ 57
Taxable Total Profits .............................................................................................................................. 57
Computation of Taxable Profits ............................................................................................................. 57
TRADING INCOME ...................................................................................................................... 58
Adjustment of Profits ............................................................................................................................ 58
Profits before taxation........................................................................................................................... 58
Profit adjusted for tax purposes............................................................................................................. 58
Allowable deductions ............................................................................................................................ 58
Deductions not allowed. ........................................................................................................................ 59
Property Business Income ..................................................................................................................... 59
Accounting Methods ............................................................................................................................. 59
Miscellaneous Income ........................................................................................................................... 59
Solution ................................................................................................................................................ 60
Computation of Taxable Income and Tax Liability of Made in Rwanda Limited for the Year Ended
31/12/2016 ........................................................................................................................................... 60
Solution ................................................................................................................................................ 64
Solution ................................................................................................................................................ 66
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Computation of Taxable Income of Maddex Limited for the Year Ended 31/12/2015 ............................. 66
Solution ................................................................................................................................................ 68
Computation of Taxable Income and Tax Liability for Muvandimwe Limited for the Year Ended
31/12/2017 ........................................................................................................................................... 68
Tax liability and Tax Payable .................................................................................................................. 69
LOSS CARRIED FORWARD ........................................................................................................... 96
SPECIAL INCENTIVES FOR REGISTERED INVESTORS IN RWANDA ................................................ 98
I. Preferential Corporate Income Tax Rate of Zero Percent (0%) ............................................................. 98
II. Preferential Corporate Income Tax Rate of Fifteen Percent (15%) ...................................................... 99
III. Corporate Income Tax Holiday of Seven Years................................................................................... 99
IV. Corporate Income Tax Holiday of up to Five (5) Years ..................................................................... 100
V. Exemption of Customs Tax for Products Used in Export Processing Zones ........................................ 100
VI. Exemption of Capital Gains Tax ....................................................................................................... 100
VII. Value Added Tax Refund................................................................................................................ 100
VIII. Immigration Incentives ................................................................................................................. 100
TAXATION OF PROFITS FROM LONG-TERM CONTRACT ............................................................ 101
TAXATION OF BANKS AND INSURANCE COMPANIES ........................................................ 107
TAXATION OF BANKS ................................................................................................................ 107
TAX TREATMENT AND FOCUS AREAS – BANKS AND INSURANCE COMPANIES ......................... 112
TEST YOURSELF ......................................................................................................................... 113
Test One ............................................................................................................................................. 113
Test Two ............................................................................................................................................. 118
TAXATION OF INSURANCE COMPANIES ............................................................................................... 120
Important Terms in Insurance Companies............................................................................................ 120
DETERMINING THE TAXABLE INCOME OF INSURANCE COMPANIES ......................................... 121
Allowable Deductions.......................................................................................................................... 122
Life Insurance Business........................................................................................................................ 123
TEST YOURSELF ......................................................................................................................... 125
Test One ............................................................................................................................................. 125
CHAPTER FOUR ................................................................................................................. 126

VALUE ADDED TAX (VAT).................................................................................................. 126
INTRODUCTION ........................................................................................................................ 126
EXCLUSIVE AND INCLUSIVE OF VAT .......................................................................................... 126
INPUT AND OUTPUT VAT .......................................................................................................... 126
Value of Supply ................................................................................................................................... 127
Taxable Supplies.................................................................................................................................. 128
REQUIREMENTS FOR AN INDUSTRY TO BE ENTITLED TO THE VALUE ADDED TAX EXEMPTION 131
TEST YOUR UNDERSTANDING................................................................................................... 134
RULES RELATING TO SUPPLY OF GOODS AND SERVICES ........................................................... 136
Goods and Services ............................................................................................................................. 136
Value of Goods and Services ................................................................................................................ 137
Acquisition of Foreign Services ............................................................................................................ 137
RULES RELATING TO IMPORTED GOODS AND SERVICES ........................................................... 138
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Time for Importation of Goods ............................................................................................................ 138
Basic Value for Taxation of Imported Goods ........................................................................................ 138
INPUT TAX ................................................................................................................................ 139
Allowance of Input Tax ........................................................................................................................ 139
Value Added Tax Violations ................................................................................................................. 141
VAT Refund ......................................................................................................................................... 141
For Large Taxpayers............................................................................................................................. 141
For Medium Taxpayers ........................................................................................................................ 142
For Small Taxpayers............................................................................................................................. 142
Taxable Persons .................................................................................................................................. 142
REGISTRATION FOR VAT ........................................................................................................... 143
Obligations of a VAT Registered Taxpayer ............................................................................................ 145
Other Registration Issues..................................................................................................................... 145
Voluntary Registration......................................................................................................................... 145
Deregistration ..................................................................................................................................... 146
Voluntary Deregistration ..................................................................................................................... 146
Compulsory Deregistration .................................................................................................................. 146
The Consequences of Deregistration ................................................................................................... 146
Transfer of a Going Concern Business .................................................................................................. 146
Pre-Registration Input Tax ................................................................................................................... 147
Pre-Registration Services ..................................................................................................................... 147
Imports, Exports and Free Zones ......................................................................................................... 147
POST-SALE ADJUSTMENTS ................................................................................................... 150
DECLARATION AND PAYMENT OF VALUE ADDED TAX .............................................................. 151
Value Added Tax Declaration ............................................................................................................... 151
Payment of Value Added Tax ............................................................................................................... 151
Collection of Value Added Tax on Imported Goods .............................................................................. 151
Certificate of Registration .................................................................................................................... 151
Enterprise and Subsidiaries.................................................................................................................. 151
Currency Conversion ........................................................................................................................... 151
Foreign Diplomatic Missions in Rwanda and International Agreements ................................................ 152
ELECTRONIC BILLING MACHINE (EBM) ...................................................................................... 152
Sales Data Control (SDC) ....................................................................................................... 153
Certified Invoicing System (CIS) ............................................................................................ 153
REVIEW QUESTIONS AND ANSWERS ........................................................................................ 157
Question 1 .......................................................................................................................................... 157
Question 2 .......................................................................................................................................... 158
Question 3 .......................................................................................................................................... 160
Question 4 .......................................................................................................................................... 161
Question 5 .......................................................................................................................................... 162
Test One ............................................................................................................................................. 162
Test Two ............................................................................................................................................. 163
Test Four ............................................................................................................................................. 164
CUSTOMS ADMINISTRATION .............................................................................. 169
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INTRODUCTION ........................................................................................................................ 169
Objectives of the Customs Services Department................................................................................... 169
IMPORT PROCEDURES .............................................................................................................. 170
Quick Release with Deposit ................................................................................................................. 170
Quick Release without Deposit ............................................................................................................ 170
Clearance of Goods on Truck (“D.S.C”) ................................................................................................. 170
Valuation of Imports............................................................................................................................ 171
Application for pre-clearance .............................................................................................................. 171
Conditions for the Taxpayers do to maintain this facility ...................................................................... 172
Factors that lead to denial of this facility ............................................................................................. 172
FREE ZONE .............................................................................................................................. 175
MANUFACTURING UNDER BOND ............................................................................................. 177
Licence for Manufacturing under Bond for Home Use .......................................................................... 177
Licence Fees ........................................................................................................................................ 177
Death of Licensee or Surety ................................................................................................................. 177
Bonded Factories to be Noticeable ...................................................................................................... 177
Declaration of Goods at the Closure of a Bonded Factory..................................................................... 178
EXPORTATION OR IMPORTATION BY POST OFFICE AND OTHER RECOGNISED AGENCIES......... 178
Importation and Exportation by Post ................................................................................................... 178
Customs Declaration on Postal Articles ................................................................................................ 178
Production of Postal Articles................................................................................................................ 178
Detention of Postal Articles ................................................................................................................. 178
Un-cleared Postal Articles.................................................................................................................... 179
Duties to be Paid to the Customs ......................................................................................................... 179
Importation and Exportation by Registered Couriers............................................................................ 179
Customs Declaration on Courier Articles .............................................................................................. 179
Production of Courier .......................................................................................................................... 180
Detention of Courier Articles ............................................................................................................... 180
Procedure on Presentation of Parcels .................................................................................................. 180
TRANSIT .................................................................................................................................... 181
Transit Documentation ........................................................................................................................ 181
Customs Operations on Transits .......................................................................................................... 181
BONDED WAREHOUSE.............................................................................................................. 182
CUSTOMS AGENTS .................................................................................................................... 182
EAST AFRICAN CUSTOMS UNION .............................................................................................. 183
Objectives of the Customs Union ......................................................................................................... 184
Scope of Co-operation in the Customs Union ....................................................................................... 184
Trade Facilitation................................................................................................................................. 184
TRADE LIBERALISATION ............................................................................................................ 185
Internal Tariff ...................................................................................................................................... 185
Common External Tariff....................................................................................................................... 185
Non-tariff Barriers ............................................................................................................................... 185
TRADE RELATED ASPECTS ......................................................................................................... 185
Rules of Origin ..................................................................................................................................... 185
National Treatment ............................................................................................................................. 185
Anti-dumping Measures ...................................................................................................................... 186
EXPORT PROMOTION SCHEMES ............................................................................................... 187
Principles of Export Promotion Schemes ............................................................................... 187
Export Processing Zones ......................................................................................................... 187
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SPECIAL ECONOMIC ZONES ...................................................................................................... 188
EXEMPTION REGIMES ............................................................................................................... 188
RULES OF ORIGIN ...................................................................................................................... 188
1. TRANSACTION VALUE ........................................................................................................... 191
TRANSACTION VALUE OF IDENTICAL GOODS ........................................................................... 192
TRANSACTION VALUE OF SIMILAR GOODS ............................................................................... 192
REVERSAL OF ORDER OF APPLICATION OF DEDUCTIVE VALUE AND COMPUTED VALUES ....... 193
DEDUCTIVE VALUE .................................................................................................................... 193
COMPUTED VALUE ................................................................................................................... 194
FALL BACK VALUE ..................................................................................................................... 194
ADJUSTMENTS TO VALUE ......................................................................................................... 195
REVIEW QUESTIONS ................................................................................................................. 196
DOUBLE TAXATION AGREEMENT .............................................................................................. 196
CHAPTER SIX ..................................................................................................................... 202
TAXATION, MICRO, SMALL BUSINESS AND GAMING ACTIVITIES ...................................... 202
INTRODUCTION ........................................................................................................................ 202
TAXATION OF GAMING ACTIVITIES ........................................................................................... 203
Important Terms in Gaming ................................................................................................................. 203
Categories of Gaming .......................................................................................................................... 204
Calculation of Tax on Gaming Activities ............................................................................................... 204
CHAPTER SEVEN................................................................................................................ 207
CONSUMPTION TAX ......................................................................................................... 207
INTRODUCTION ........................................................................................................................ 207
2.24.5 DECLARATION, PAYMENT AND ASSESSMENT OF TAX .................................. 209
2.24.6 ADMINISTRATION OF CONSUMPTION TAX ....................................................... 210
2.24.6 PENALTIES ................................................................................................................. 213
CHAPTER EIGHT ................................................................................................................ 214
WITHHOLDING TAXES ....................................................................................................... 214
ARTICLE 56: WITHHOLDING TAX ON EMPLOYMENT INCOME ................................................... 214
ARTICLE 57: PERSONS RESPONSIBLE FOR APPLYING A WITHHOLDING ..................................... 214
ARTICLE 58: TIME PERIOD OVER WHICH THE DECLARATION AND PAYMENT OF THE TAX ON
EMPLOYMENT INCOME ARE MADE BY THE EMPLOYEE ............................................................ 214
ARTICLE 59: TAX ON SITTING ALLOWANCE ............................................................................... 214
ARTICLE 60: WITHHOLDING TAX ON PAYMENTS OR OTHER METHODS OF EXTINGUISHING AN
OBLIGATION ............................................................................................................................. 215
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ARTICLE 61: WITHHOLDING TAX ON GOODS IMPORTED FOR COMMERCIAL USE ..................... 216
ARTICLE 63: TIME FOR DECLARATION OF WITHHOLDING TAXES .............................................. 216
ARTICLE 64: PERSONS EXEMPTED FROM WITHHOLDING TAXES ............................................... 216
ARTICLE 65: FAILURE TO WITHHOLD TAX ................................................................................. 216
ARTICLE 66: RECORDS OF PAYMENTS AND TAX WITHHELD ...................................................... 216
CHAPTER NINE .................................................................................................................. 218
TAX PLANNING ................................................................................................................. 218
DEFINITION ............................................................................................................................... 218
FORMS OF BUSINESS ORGANIZATION ...................................................................................... 220
CAPITAL STRUCTURE................................................................................................................. 221
BUY OR MAKE ........................................................................................................................... 228
CHAPTER TEN.................................................................................................................... 232
TAX AUDIT AND INVESTIGATION .................................................................................... 232
10.1 TAX AUDIT ........................................................................................................................ 232
10.1.3 Unique audit principle ................................................................................................... 232
10.1.6.1 Contradictory procedure ............................................................................................. 233
10.1.6.2 Issue-oriented audit procedure................................................................................... 233
10.1.6.3 Correction of audit procedural errors ......................................................................... 233
10.1.7 Time limit of the power to audit .................................................................................... 233
10.1.8 Desk Audit...................................................................................................................... 234
10.1.9 Other sources of information......................................................................................... 234
10.1.10 Final note for rectification............................................................................................ 234
10.1.11 Audit without notice .................................................................................................... 234
10.1.13 Correction of audit procedural errors .......................................................................... 235
10.1.14 Time limit of the power to audit .................................................................................. 235
10.1.15 New audit based on appeal.......................................................................................... 235
10.2 TAX INVESTIGATION ......................................................................................................... 235
10.2.1 SOME OF CRIMINAL ACTIVITIES ..................................................................................... 235
10.2.2 Article 46: Access to premises for search and seizure .................................................... 235
10.2.3 Stages of Tax Investigation ............................................................................................ 236
10.2.4 INCOME RECONSTRUCTION ........................................................................................... 236
10.2.4 AUTHORITY TO RECONSTRUCT INCOME ........................................................................ 236
10.2.5 METHODS OF INCOME RECONSTRUCTION ..................................................................... 237
10.2.5.1 DIRECT METHODS ....................................................................................................... 237
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10.2.5.2 INDIRECT METHODS .................................................................................................... 238
10.3 Interest, fines and Penalties.............................................................................................. 249
10.3.1 Interest paid by Tax administration............................................................................. 249
10.3.2 Administrative fine for non-declaration and non-payment of tax on time .................... 249
10.3.3 Late payment of tax ....................................................................................................... 249
10.3.4 Understatement of tax................................................................................................... 249
CHAPTER ELEVEN .............................................................................................................. 254
TRANSFER PRICING ........................................................................................................... 254
INTRODUCTION ........................................................................................................................ 254
Comparable transactions..................................................................................................................... 255
Transactions subject to adjustment of prices ....................................................................................... 255
Methods of determining arm’s length prices........................................................................................ 256
Article 9: Comparable uncontrolled price method................................................................................ 256
Article 10: Resale price method ........................................................................................................... 256
Article 11: Cost plus method................................................................................................................ 256
Article 12: Transactional net margin method ....................................................................................... 257
Article 13: Transactional profit split method ........................................................................................ 257
Article 14: Use of alternative method .................................................................................................. 257
Article 15: Selection of the tested party ............................................................................................... 257
Article 17: Documentation................................................................................................................... 258
Article 22: Consistency of services between related persons with the arm’s length principle ................ 260
Article 24: Necessary adjustments of prices in case of non-compliance with the arm’s length principle 262
Article 26: Corresponding adjustments for international transactions .................................................. 262
CHAPTER THIRTEEN: DECENTRALISED TAX STRUCTURE ................................................... 263

IMPORTANT DEFINITIONS ........................................................................................................ 263
Sources of Revenue and Property of Decentralized Entities.................................................................. 263
Types of Taxes to be paid to Decentralized Entities .............................................................................. 263
IMMOVABLE PROPERTY TAX .................................................................................................... 264
Tax Rate on Buildings ............................................................................................................... 266
Tax Rate on Plots of Land ......................................................................................................... 268
Tax Declaration on Immovable Property by the Taxpayer..................................................................... 268
Declaration of Appreciation and Depreciation ..................................................................................... 268
Review and Re-Assessment of Tax by the Tax Administration............................................................... 268
Tax Assessment Notice ........................................................................................................................ 269
Waiver of Tax Liability ......................................................................................................................... 269
Late Submission or Incomplete or Misleading Tax Declaration ............................................................. 269
TRADING LICENSE TAX .............................................................................................................. 271
RENTAL INCOME TAX ................................................................................................................ 272
Payment of Rental Income Tax ............................................................................................................ 272
Taxable Income ................................................................................................................................... 272
Tax Computation Method.................................................................................................................... 272
Tax Rate .............................................................................................................................................. 272
Tax Declaration......................................................................................................................... 275
Expansionary and Contractionary Fiscal Policy .............................................................................. 276
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The Use of Fiscal Policy to Stabilize the Economy ................................................................. 279
Automatic Stabilizers .............................................................................................................. 279
Discretionary Fiscal Policy Tools ............................................................................................ 280
Lags.......................................................................................................................................... 280
Crowding Out .......................................................................................................................... 281
Choice of Policy ....................................................................................................................... 282
Key Takeaways.................................................................................................................................. 283
PROFESSIONAL ETHICS IN TAXATION........................................................................................ 283
FUNDAMENTAL PRINCIPLES ..................................................................................................... 284
CONCEPTUAL FRAMEWORK APPROACH .............................................................................................. 285
1. SELF-INTEREST THREAT .................................................................................................... 285
SELF-REVIEW THREAT ............................................................................................................... 286
ADVOCACY THREAT .................................................................................................................. 286
FAMILIARITY THREAT................................................................................................................ 286
INTIMIDATION THREAT ............................................................................................................ 286
THREATS TO PROFESSIONAL COMPETENCE AND DUE CARE. .................................................... 287
THREATS AND SAFEGUARDS ..................................................................................................... 287
SAFEGUARDS CREATED BY THE PROFESSION, LEGISLATION OR REGULATION INCLUDE. .......... 287
SAFEGUARDS IN THE WORK ENVIRONMENT ............................................................................ 287
ETHICAL CONFLICT RESOLUTION ............................................................................................... 288
INTEGRITY................................................................................................................................. 289
OBJECTIVITY ............................................................................................................................. 289
PROFESSIONAL COMPETENCE AND DUE CARE.......................................................................... 289
CONFIDENTIALITY ..................................................................................................................... 290
DISCLOSURE OF CONFIDENTIAL INFORMATION ....................................................................... 291
EMERGING TRENDS IN TAXATIONS........................................................................................... 291
RRA ADMINISTRATIVE MEASURES TO COPE UP WITH COVID ................................................... 291
REQUIREMENTS FOR QUITUS 2020 APPLICATION .................................................................... 292
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CHAPTER ONE: PERSONAL INCOME TAX
INTRODUCTION
It involves taxing the individual or personal income of a natural person. An individual may be
resident and/or ordinarily in the Rwanda, and his liability to Rwanda income tax will be
determined accordingly. A taxpayer's residence and ordinary residence have important
consequences in establishing the tax treatment of his Rwanda and overseas income and
capital gains.
RESIDENCE
According to Article 4 of law number 16 of 2018, an individual is considered to be a resident
in Rwanda if he/she fulfils one of the following conditions:
1. He/she has a permanent residence in Rwanda;
2. He/she has a habitual abode in Rwanda;
3. He/she is a Rwandan representing Rwanda abroad.
4. An individual who stays in Rwanda for more than one hundred eighty three (183) days
in twelve (12) month period, either continuously or intermittently, is considered to be a
resident in Rwanda for the tax period in which the twelve (12) month period has
ended.
A person other than an individual is considered as a resident in Rwanda during a tax period if
it:
1) is a company or an association established according to Rwandan laws; or
2) has its place of effective management in Rwanda at any time during that tax period;
or
3) is a Rwanda government company.
TAX CONSEQUENCES
Generally, a Rwandan resident is liable to Rwanda income tax on his Rwanda and overseas
income whereas a non-resident is liable to Rwanda income tax only on income arising in
Rwanda.
Article 9: Base of Personal Income Tax

The personal income tax shall be levied on an individual‘s annual income. According to
Article 10, each tax period, a resident taxpayer is liable to personal income tax from all
domestic and foreign sources in accordance with Articles 4 and 5 of the tax Law. However, a
non-resident taxpayer is only liable to personal income tax which has a source in Rwanda. As
per Article 11 of the income tax law, the taxable income of an individual derives from the
following:
1. Employment;
2. Business activities;
3. Investment;
4. Capital gain; use, sale, lease or free transfer of an immovable property allocated to the
business;
5. Use, sale, lease or free transfer of an immovable property allocated to the business;
6. Use, sale, lease or free transfer of movable property allocated to the business.
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Taxable income is rounded to the nearest thousand (RWF 1,000) Rwandan francs and taxed
following the real profit according to the following as per article 12 of the income tax law
Annual taxable profit (FRW) Tax rate

From To 0 360,000 0%
360,001 1,200,000 20%
1,200,001 More 30%
However, small enterprises must pay a lump sum tax of three percent (3%) on annual
turnover. Small enterprises may renounce to the lump sum imposition by opting for the real
regime in carrying out accounting in compliance with relevant laws. When they opt for the
real regime, they must inform the Tax Administration, and this decision is irrevocable for a
period of three (3) years starting from the date the Tax Administration was informed thereof.
Micro-enterprises
Micro enterprises are assessed based on their annual turnover and they must pay the flat
amount of tax as per the following table:
Annual turnover (RWF) Annual flat amount of tax due (RWF)
From 2,000,000 to 4,000,000 60,000
From 4,000,001 to 7,000,000 120,000
From 7,000,001 to 10,000,000 210,000
From 10,000,001 to 12,000,000 300,000
However, it is important to note that the tax of 3% and annual flat amount of tax are not
applicable to any person who exercises a liberal profession. Without prejudice to the right to
be governed by the real profit tax regime, the activities of road transport of persons and goods
are imposed at a flat amount of tax determined as below:
RATES OF INCOME TAX FOR VEHICLES TRANSPORTING PERSONS AND

GOODS
I. Rates of income tax for vehicles transporting persons
Type of vehicle Annual Tax (Rwf)
Minibus 8 places: RWF 12,000 x 8 96,000
Coaster 24 places: RWF 12,000 x 24 288,000
Coaster 26 places: RWF 12,000 x 26 312,000
Coaster 27 places: Rwf 12,000 x 27 324,000
Bus/Coaster 30 places: Rwf 12,000 x 30 360,000
Bus 40 places: Rwf12, 000 x 40 480,000
II. Rates of income tax for vehicles transporting goods
Type of vehicle Annual Tax
(Rwf)
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Vehicle with loading capacity of 1 ton 60,000
Hilux 1.5 tons 90,000
Dyna/Isuzu/Toyota Stout (Four-wheel): 2 tons 120,000
Vehicle with loading capacity of 2.5 tons 150,000
Vehicle with loading capacity of 3 tons 180,000
Daihatsu/Dyna/Fuso/Isuzu (Six-wheel): 4 tons 240,000
Fuso Long chassis( Six-wheel) : 7 tons 546, 000
Vehicle with loading capacity 7.5 tons 585,000
Vehicle with loading capacity of 8 tons 624, 000
Trucks: Fuso/Benz/Isuzu/Fiat. (Six-wheel): 10 tons 780, 000
Vehicle with loading capacity of 13 tons 1,014,000
Trucks: Fuso/Benz/Isuzu/Fiat/... (Ten- 15 tons 1,170,000
wheel):
TAX DECLARATION
According to Article 13, an individual who carries out taxable income generating activities
prepares an annual tax declaration in accordance with procedures specified by the Tax
Administration and he/she presents the declaration to the Tax Administration not later than
31st March of the following tax period. An individual who carries out taxable income
generating activities files his/her annual tax declaration to the Tax Administration,
14 | P a g e
accompanied by the balance sheet, profit and loss account for that tax period with annexes
thereto drawn according to the requirements of the generally recognised accounting
principles, and any other relevant document required by the Tax Administration.
However, taxpayers whose annual turnover is determined by an Order of the Minister are
obliged to have their annual tax declarations and financial statements certified by a qualified
professional and approved by the Tax Administration. A taxpayer who is not required to file
an annual tax declaration mentioned in Paragraph One of this Article is one who only
receives:
1) Employment income;
2) Income on investment related that is subject to withholding tax.
A resident individual in Rwanda who receives employment income from more than one
employer or who receives incidental employment income may file an annual declaration as
mentioned in Paragraph One of this Article, in order to claim a tax refund for excess income
tax paid.
PAYMENT OF PERSONAL INCOME TAX

According to Article 14 of the income tax law, the personal income tax is calculated, reduced
by the following:
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.
The personal income tax must be paid to the Tax Administration not later than 31 st March of
the year following the tax period through procedures specified by the Tax Administration.
Any withholding or prepayment that exceeds the amount of tax liability calculated is
considered by the Tax Administration as liquidation of tax arrears or as the payment of any
future tax obligations. Upon a written request by the taxpayer and upon satisfaction that prior
tax obligations have been discharged, the Tax Administration returns to the taxpayer the
excess amount within thirty (30) days from the date of receipt of the request.
INVESTMENT INCOME
Section 4 under article 35 of law 16/2018 of the income tax law defines investment income as
any payments in cash or in kind to an individual in the form of financial interest, dividends,
proceeds from sale or transfer of shares, royalty, or rent which has not been taxed as business
income.
CAPITAL GAIN TAX

According to Article 36 of Law 16/2018, capital gain tax is charged on the sale or transfer of
shares. The capital gain on sale or transfer of shares is the difference between the acquisition
value of shares and their selling or transfer price. Article 37 of the same Law provides that
capital gain tax is taxed at a rate of 5%.
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Example One
Madam Jane purchased 200,000 shares from Inyane limited at 200RWF per share, a private
limited company in 2010. In 2018, Jane sold 50,000 shares to Mark at 300RWF per share.
Compute the capital gain and the capital gain tax
Particulars RWF RWF

Sales proceeds 50,000 x 300 1,500,000
Cost of the shares sold 50,000 x 200 (1,000,000)
Capital gain 500,000
Capital gain tax 5% x 500,000 25,000
Example Two
Frank owned 1,000,000 shares at NIL limited, a private company. The share was purchased
in 2012 at a price of 1,000RWF per share. In 2018, he transferred 200,000 shares to his
daughter. The market price of the shares at the date of the transfer is 1200RWF per share.
Required: Compute his capital gain and the capital gain tax.
Proceeds from the shares transferred 200,000 x 1,200 240,000,000

Cost of the shares transferred 200,000 x 1,000 200,000,000
Capital gain 40,000,000
Capital gain 40,000,000 x 5% 2,000,000
Withholding and Declaration of Capital Gain Tax

According to Article 38 of the Law 16/2018, the capital gain tax on the sale or transfer of
shares shall be withheld by the company within which the transaction occurred. The company
within which the sale or transfer of shares occurred shall declare and pay the capital gain tax
to the Tax Administration within fifteen (15) days following the month in which the sale or
transfer of shares occurred. However, Article 39 of the same Law stipulates that capital gain
from the sale or transfer of shares on the capital market and capital gain from the sale or
transfer of units of the collective investment schemes, is exempted from capital gain tax.
FINANCIAL INCOME
According to Article 40 of Law 16/2018, financial income includes:
i. Income from loans;
ii. Income from deposits;
iii. Income from guarantees;
iv. Income from government securities, income from bonds, negotiable securities issued by
the Government, securities issued by public and private companies, as well as income
from cash negotiable securities.
According to Article 60 of Law 16/2018, interest income is subject to a withholding tax of

15% on the value exclusive of VAT. However, the interest income derived from the Treasury
bond with a maturity period of three years and above, the withholding tax is 5%.
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EXEMPTED INTEREST INCOME
The following interest income is exempted from the withholding tax.
i. Interests on deposits in financial institutions for at least a period of one 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 paid by banks operating in Rwanda to banks or other foreign financial
institutions;
DIVIDEND INCOME
According to Article 41 of Law 16/2018, 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. Like interest income,
dividend income is also subject to a withholding tax of 15%. However, for shares that are
listed at the Rwanda stock exchange and owned by a taxpayer from East Africa, it is subject
to a withholding tax of 5%.
ROYALTY INCOME
As per Article 42 of Law 16/2018, royalty income includes:
i. All payments of any kind received as a prize for the use of, or the right to use, any
copyright of literary, craftsmanship or scientific work including cinematograph films,
films, or tapes used for radio or television broadcasting;
ii. Any payment received from using a trademark, design or model, computer application
and invention patent;
iii. The price of using, or of the right to use industrial, commercial or scientific equipment
or for using information concerning industrial, commercial or scientific knowledge;
iv. Payments from natural resource use.
Example One
During the year ended 31/12/2018, John received income from the following assets.
i. 100,000 shares of 250 RWF each in Magendo limited a private company whose
shares are not listed at Rwanda stock exchange. During the year ended, John sold
6000 shares at 350RWF each.
ii. Invested 20,000,000RWF in a fixed deposit account in the bank for a period of eight
months at an annual interest rate of 9%.
iii. Received 8,000,000RWF from the investment in Government bonds with a maturity
period of two years
iv. John has 80,000 shares in KB a listed company at RSE market. At the end of the
year, the company declared a dividend of 200RWF per share.
v. John also owns a fixed deposit account in ACCO bank with a maturity of two years,
at the end of the year he received an interest income of 3,000,000RWF
vi. During the year he sold a copy right of his new book at 12,000,000RWF.
17 | P a g e
vii. He also invested in government securities with a maturity period of 5 years, during
the year he received an interest income of 6,000,000RWF
viii. He owns 20,000 shares of 300RWF each in Akandi limited a listed company in
Rwanda stock exchange market. During the year he disposed of 12, 000 shares at
400RWF each
ix. He owns shares in Akabanga limited a private company that is listed at RSE. During
the year ended, he received a dividend income of 2,500,000RWF
Required:
Compute the relevant withholding taxes.
Income Workings Withholding taxes

1. Capital gain Proceeds from the sale of shares (359 x 6000)
2,100,000
Cost of the shares (200 x 6000) 1,200,000
Capital gain 900,000
Capital gain tax (900,000 x 5%) 45,000
2. Interest (20,000,000 x9%) x 8/12 180,000
income 1,200,000 x 15%
3. Interest 8,000,000 x 100/85 (since maturity is below 3

income years the withholding is 15% and it is at the 1,411,765
source)
9, 411,765 x 15%
4. Dividend 200 x 80,000 = 16,000,000 (since it is a listed
income company, the WHT is 5%) 800,000
5% x 16,000,000
5. Interest Since the maturity of the deposit is above one Exempted
income year the income is exempted
6. Royalty 12,000,000 x 15% 1,800,000
income
7. Interest 6000,000 x 100/95 (since it is a long-term 315,790
income government bond the WHT is 5%)
6,315,790 x 5%
8. Capital gain Capital gain on shares that are listed at RSE is Exempted
exempted
9. Dividend 2,500,000 x100/95 (since shares are listed at 131,590
income RSE the WHT tax is 5%
2,631,590 x5%
Note: when the income are received net, in order to calculate the withholding tax
(WHT), there is a need to first gross them before computing the tax.
RENTAL INCOME
Article 43 of law 16/2018 states that all revenues derived from rent of machinery and other
equipment including agriculture and livestock equipment in Rwanda, are included in taxable
income, reduced by
1. Ten percent (10%) of gross revenue as deemed expense
2. Depreciation expenses
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3. Interests paid on loans if the asset was financed by the loan;
Example One
Uwamahoro owns machineries which she rents to various entrepreneurs. During the year
ended 31/12/2015, she received a gross income of 34,000,000Rwf. The machineries were
purchased at a cost of 45,000,000Rwf of which 20,000,000Rwf was a loan from the bank and
she pays an interest rate of 20% annually. Uwamahoro pays a quarterly instalment of
300,000Rwf on the rental income.
Required:
Compute her taxable income
Income from Rent of

Machineries
gross income 34,000,000
less allowable expenses 10% x 34,000,000 -3,400,000
30,600,000
25% x
less depreciation 45,000,000 11,250,000
less interest expenses (20%
x 20,000,000) 4,000,000 15,250,000
rental income 15,350,000
Tax liability
Tax band Tax rate Tax
0 – 360, 000 0% 0
360,001 – 1,200,000 20% 168,000
1,200,0001 - 15,350,000 30% 4,245,000
Tax liability 4,413,000
Less quarterly payments 300,000 x 3 900,000
Tax payable 3,513,000
Example Two
Clement owns machineries that he rents to various individuals, during the year ended
31/12/2016, he received a gross rental income of 120,000,000RWF. The machines were
purchased in 2015 at 40,000,000RWF. During the purchase, he borrowed 25,000,000RWF
from the bank at an annual interest rate of 20%.
Required:
Compute his taxable rental income and the tax payable.
Computation of taxable rental income and tax liability
Gross income 120,000,000

Less allowable 10% x 120,000,000 12,000,000
expenses
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Interest expenses 20% x 25,000,000 5,000,000
Depreciation W1 7,500,000 (24,500,000)
Taxable income 95,500,000
Tax band Tax rate Tax
0 – 360,000 0% 0
360,000 – 1,200,000 20% 168,000
1,200,000 – 30% 28,290,000
95,500,000
W1 Depreciation
Period Depreciation (25%) ACC. Dep NBV
1 10,000,000 10,000,000 30,000,000
2 7,500,000 17,500,000 22,500,000
TEST YOUR UNDERSTANDING

Itungo, a resident of Kibeho has many investments ranging from commercial property,
shares, bonds and Royalties. During the year ended 31 December, 2016 she provided you
with a summary of the following transactions:
Month Notes Nature of transaction

February 1 Purchased 31,250 shares from Mandiv Limited Frw 1,250,000.
May Received payment from copyrights for using literature from one of her
books Frw 500,000.
August Received Frw 4,000,000 from investing in bonds issued by government
of Rwanda, through National Bank of Rwanda with maturity of 4 years.
September Received dividends from Atlas Limited Frw 650,000.
November 2 Received quarterly rent Frw 25,000,000 from her commercial property.
Notes:
1. Mandiv Limited is listed on the Rwandan Stock Exchange. They declared and paid
dividends in July, 2016 at Rwf 10 per share to their shareholders.
2. The quarterly rent received was from four companies that occupy her commercial
property in Kigali.
Required
(a) Advise Itungo on the:
(i) Tax payable on the above transactions.
(ii)Tax treatment of the rent received.
(b) Explain the obligations of a withholding tax agent in relation to the tax withheld.
(c) With examples, explain the type of taxpayers who are exempted from withholding tax
on importation of goods.
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TAXATION OF EMPLOYMENT INCOME
EMPLOYMENT AND SELF-EMPLOYMENT

Employment involves a contract of service whereas self-employment involves a contract for
services. The distinction between employment and self-employment is decided by looking at
all the facts of the engagement.
Factors Indicating Employment

i. The degree of control exercised over the person doing the work (a high level of control
indicates employment)
ii. Whether the worker must accept further work if offered (if yes, indicates
employment)
iii. Whether the person who has offered work must provide further work (if yes,
iv. Whether the worker is entitled to employment benefits such as sick pay, holiday pay
and pension facilities (entitlement indicates employment)
v. Whether the worker works for just one person or organization (such working
Factors Indicating Self-Employment

i. Whether the worker provides his own equipment (if yes, indicates self-employment)
ii. Whether the worker hires his own helpers (if yes, indicates self-employment)
iii. What degree of financial risk the worker takes (if high risk, indicates self-
employment)
iv. What degree of responsibility for investment and management the worker has (if
most of responsibility is the worker‘s, indicates self-employment)
v. Whether the worker can profit from sound management (if can do so, indicates self-
employment)
vi. Whether the worker can work when he chooses (if can do so, indicates self-
employment)
vii. Whether the worker works for a number of different persons or organisations (such
working indicates self-employment)
EMPLOYMENT INCOME
Section 2 Article 15 of Law 16/2018 provides the following components of employment
income. The Article stipulates that employment income includes all payments paid to an
employee by his/her employer in cash or in kind in relation to the work performed. Those
payments are composed of the following:
i. Wages, salary, leave pay, sick pay and medical allowance, payment in lieu of leave for
an employee who stops working before benefiting from his/her annual leave, sitting
allowances, commissions, bonuses and gratuity allowances relating to the cost of living,
subsistence allowances, housing allowances, and entertainment or travel allowances;
ii. Any discharge or reimbursement of expenses incurred by the employee or an associate;
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iii. Payments to the employee working in exceptional conditions of employment;
iv. Payments for redundancy or loss or termination of contract;
v. Pension payments;
vi. Other payments made in respect of previous, current or future employment.
PAYMENTS EXEMPTED FROM EMPLOYMENT INCOME TAX

According to Article 16 of Law 16/2018, the following payments are not included in the
calculation of taxable employment income:
i. The discharge or reimbursement of expenses incurred by the employee or his/her
associate:
a. Wholly for business activities of the employer;
b. Those that are deducted or would be deductible in calculating the employee‘s
income from all his/her business activities;
ii. Contributions made by the employer for the employee to the public institution in charge
of social security;
iii. Pension payment from the public institution in charge of social security or from a
qualified pension fund;
iv. Employment income received by an employee who is not a Rwandan citizen from a
foreign Government or a non-governmental organization under an agreement signed by
the Government of Rwanda, when the income is received for the performance of aid
services in Rwanda; employment income received from an employer who is not a
resident in Rwanda by a non-resident individual for the performance of services in
Rwanda, unless such services are related to a permanent establishment of the employer
in Rwanda.
PERSONS EXEMPTED FROM EMPLOYMENT INCOME TAX

Persons are exempted from employment income tax in Rwanda as provided for by
international agreements referred to under Article 16 of the income tax Law, due to services
rendered in the exercise of their official duties. As per Article 17 of Law 16/2018, the
following persons are exempted from employment income tax:
i. A foreigner who represents his/her country in Rwanda;
ii. Any other individual employed in any Embassy, Legation, Consulate or Mission of a
foreign state performing State affairs, who is a national of that State and who owns a
diplomatic passport;
iii. A non-citizen individual employed by an international organization that has signed an
agreement with the Government of Rwanda in accordance with Rwandan laws.
BENEFITS IN KIND
According to Article 18 of Law 16/2018, benefits in kind received by an employee are
included in taxable employment income in consideration of market value as follows:
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Motor Vehicle
There shall be added to the taxable income an amount meant for the availability and use of a
motor vehicle to an employee during a tax period, valued at ten percent (10%) of the
employment income excluding benefits in kind.
Loan and Salary Advances

i. There are added to the taxable income, benefits on a loan including advance on a salary
exceeding a three (3) months‘ salary given to an employee valued at a difference
between:
a. The interest on loan, which would have been paid by the employee during the
month in which the loan was received, calculated at a rate of interest offered to
Rwanda;
b. And the actual interest paid by the employee in that month;
Example One
Suppose an employer gives a loan of 10,000,000RWF to the employee at an interest rate of
12%, when the interbank interest rate is 15%. The taxable benefit will be [15% - 12%] x
10,000,000 =300,000RWF
Example Two
John received a salary advance of 8,000,000RWF from his employer which must be paid
within one year. The gross salary of John is 1,500,000Rwf per month. John was not charged
any interest. The interbank interest rate is 8%. Compute his taxable benefit.
As said above, the three months‘ salary is exempted 1,500,000 x 3 = 4, 500,000

The taxable benefit will be [8,000,000 – 4,500,000] x 8% = 280,000
Housing Benefits
There are added to the taxable income an amount meant for use or availability for use
of premises including or excluding any household equipment of other contents by an
employer for residential occupation by an employee during a tax period, valued at
twenty percent (20%) of the employment income excluding benefits in kind.
Benefits in kind provided by an employer to a person related to an employee when
there is no service rendered;
Benefits in kind provided by a company to one of its members. However, a rent of
house or motor vehicle directly paid by an employer for an employee is taxed as any
allowance referred to in Article 15 of Law 16/2018.
VALUATION OF BENEFITS IN KIND

Example Three
Assume the employee in illustration 1 above obtains housing and vehicle use in kind, as well
as a loan of 2,400,000RWF free of interest during the month. Also, assume that the BNR
interbank rate is 10%. The benefits and the taxable income are determined as follows:
a) Housing = 20% of 620,000RWF = 124,000RWF
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b) Vehicle use = 10% of 620,000RWF = 62,000RWF
c) Interest = 10% of 2,400,000 x 1/12 = 20,000
d) Taxable income = 620,000 + 124,000 + 62,000 + 20,000 = 826,000RWF
Domestic Employees
If the employee has domestic employees and those employees are paid by the employer, the
salary paid to the domestic employees is considered as a benefit to the employee and
therefore should be added to the employment income of the employee.
School Fees
If the employer pays the school fees for the children of the employees, the school fees paid
should be considered as a benefit to the employee and added to the employment income.
Any Other Benefit/Assistance

Any other benefit which an employee receives because of job or any assistance made to the
family member of the employees is considered as a benefit and therefore should be added to
the employment income.
Example
Kayitesi is employed by Eco bank as the financial manager on the following terms: Monthly
salary of 2,000,000RWF per month, a company house and vehicle. Kayitesi uses the vehicle
for both private and business purpose. In addition, she also receives 100,000RWF per month
as transport allowance. The company contributes for her 50,000RWF per month in a licensed
medical provider. However, the general policy of medical insurance is 20,000RWF to all
employees paid to RAMA. The bank also gave her an interest free loan of 3,000,000RWF.
Kayitesi employs one house girl paid by the company at 60,000RWF per month. During the
month she contributed 95,000RWF as pay as you earn (PAYE).
Required:
Determine the monthly and annual taxable income and her tax liability. The interbank interest
rate is 15%
Solution
Particulars Monthly Annually
Salary 2,000,000 24,000,000
Transport allowance 100,000 1,200,000
Gross salary 2,100,000 25,200,000
Housing benefit (2,100,000 x20%) 420,000 5,040,000
Motor vehicle benefit (2,100,000x10%) 210,000 2,520,000
Medical allowance (50,000-20,000) 30,000 360,000
Interest (3,000,000x15%)/12 37,500 450,000
House girl benefit 60,000 720,000
Taxable Income 2,857,500 34,290,000
Monthly Tax Liability

Tax Band Tax Rate Amount
0-30,000 0% 0
30,000 – 100,000 20% 14,000
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100,000 – 2,857,500 30% 827,250
Tax liability 841,250
Less PAYE (95,000)
Tax payable 746,250
Annual Tax Liability

Tax Band Tax Rate Amount
0 – 360,000 0% 0
360,000 – 1,200,000 20% 168,000
1,200,000 – 34,290,000 30% 9,927,000
Less PAYE (1,140,000)
Tax Payable 8,955,000
Example
Lwewa is employed by TMK Rwanda limited as the Chief Accountant on the following
contractual terms:
i. Monthly salary 800,000RWf
ii. Communication allowance 100,000RWf per month
iii. Overtime allowance 50,000Rwf per month
iv. A company house where Lwewa contributes 100,000RWf per month as rent
v. A company vehicle which he uses for both private and business
vi. Two domestic staff paid by the company at 80,000rwf each
vii. Medical insurance contribution of 80,000rwf per month. The general policy of all
employees is 50,000rwf per month paid in RAMA
viii. During the month of June, he was sent on an official mission in China. The company
reimbursed him 5,000,000Rwf spent on the mission
ix. During the month of November, his wife got an accident the company paid
2,000,000rwf related to the treatment at King Faisal hospital.
x. The employer withheld 150,000RWf per month from Lwera as PAYE
In addition to employment income, he carries out agriculture and livestock farming.

During the year, he received gross income of 20,000,000Rwf.
Required:
i. Compute his taxable employment income and total income
ii. Compute his tax liability and tax payable
Solution
Computation of Taxable Employment Income of Lwewa for the Year Ended

31/12/2016
Workings Amount in RWF Amount in RWF
Salary 800,000 x 12 9,600,000
Add allowances:
Communication allowance 100, 000 x 12 1,200,000
Overtime allowance 50,000 x 12 600,000 1,800,000
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Employment income 11,400,000
Add benefits in kind:
11,400,000 x 20%)-
Company house 1,200,000 1,080,000
A company car 11,400,000 x 10% 1,140,000
Domestic staff 80,000 x 2 x 12 1,920,000
Medical contribution (80 000-50,000) x 12 360,000
Medical expenses for wife 2,000,000 6,500,000
Total employment income 17,900,000
Other incomes
(20,000,000 -
Agricultural income 12,000,000) 8,000,000
Total taxable income 25,900,000
Tax liability
0 - 360,000 0% -
360,001 - 1,200,000 20% 168,000
1,200,001 - 25,900,000 30% 7,410,000
Total tax liability 7,578,000
less tax paid at source
PAYE 150,000 x 12 (1,800,000)
Example
Umwari is employed by the University of Rwanda as the Director of finance under the
following contractual terms:
i. Monthly salary 1,800,000RWF
ii. Transport allowance 200,000RWF per month
iii. Communication allowances 150,000RWF per month
iv. University house
v. Overtime allowance 300,000RWF per month
vi. During the month of July 2015, she received a salary advance of 12,000,000RWF
for six months. The university charged her an interest rate of 5% per year. The
interbank interest rate is 15%.
vii. During the month of October, Umwari attended a university meeting in Kigali for a
period of five days. She used 500,000RWF for accommodations which the
university reimbursed her.
viii. Before joining the University of Rwanda, Umwari was employed by INES-
Ruhengeri. She is receiving a pension of 300,000RWF per month from her previous
employment
ix. During the month of April, her husband got an accident the university contributed to
Umwari 2,500,000RWF on the cost treating the husband in India.
x. The university contributes 150,000RWF for Umwari in the statutory pension fund
and 100,000RWF in the private qualified pension fund.
26 | P a g e
xi. Umwari contributes 50,000RWF per month in the private qualified pension fund
xii. The employer withholds 400,000RWF per month as PAYE
Required:
i. Compute the taxable employment income of Umwari for the year ended
31/12/2015. Show by use of zero the non-allowable income.
ii. Compute her tax liability and tax.
Particulars Workings Amount RWF„000‟ Amount RWF„000‟

Salary 1,800,000 x 12 21,600,000
Add allowances:
Transport 200,000 x 12 2,400,000
Over time 300,000 x 12 3,600,000
Communication 150,000 x12 1,800,000
Pension payment 300,000 x 12 3,600,000 11,400,000
Employment income 33,000,000
Add benefits in kind:
Salary advance W1 187,500
Accommodation 0
Treatment 2,500,000
Statutory pension W2 178,200
Private pension W3 0
Personal allowance 50,000 x 12 (600,000) 2,265,700
Taxable employment
income 35,265,700
Tax liability
0 - 360,000 0% 0
360,001 - 1200,000 20% 168,000
1200,001 - 35,265,700 30% 10,219,710
Less PAYE 400,000 x 12 (4,800,000)
W1 Salary advance
33,000,000/12) X
3 = 8, 250,000
12,000,000 –
Amount received 8,250,000 3,750,000
3,750,000 x 10%
Interest x6/12 187,500
W2 Statutory pension
33,000,000 –
allowed contribution 2,400,000)5.3% 1,621,800
amount contributed 1,800,000
benefits 178,200
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W3 Private pension
amount contributed 1,200,000
rule 10% of 33,000,000
or 1,200,000 1,200,000
Benefit 0

1. Kabera is the Quality Assurance Manager with Manzi Construction Company Limited
(MCCL). MCCL has its headquarters in Kigali and branches in Kampala, Nairobi and
Arusha. Kabera oversees the quality assurance department and sits at the company
headquarters in Kigali. His effective date of appointment was 1 July, 2016. The
following is a summary of the remuneration and benefits as per his appointment letter:
1 Basic salary 2,500,000RWF per month payable in arrears at the end of each month.
2 Leave pay 1,500,000RWF when the month leave is taken. Kabera took his leave in
June, 2017.
3 Medical allowance 5,000RWF per month.
4 Travel allowance 750,000RWF. During the month of September, 2016, he travelled to
Arusha for inspection of completed road projects.
5 He was given a company vehicle, Nissan pickup for both private and official use. The
motor vehicle cost the company 37,500,000RWF.
6 In December, 2016 he requested for a salary advance of 8,000,000RWF to enable him
start a poultry business, which was approved. The advance was to be recovered by 1
April, 2017 at no interest.
7 In June, 2017 he was paid a bonus of 0.5 % of his annual salary.
8 House servant allowance 75,000RWF. His house servant does general cleaning of his
home.
9 The company paid his quarterly rent of 4,000,000RWF at his apartment located at
Gasabo.
10 School fee was paid for one of his daughters 125,000RWF under the ―support a girl
child at school mission‖ from his church. The church is not part of MCCL
11 Received his yearly subsistence allowance in June, 2017 amounting to
1,235,000RWF.
12 The central bank discount rate was 12.5% in December, 2016 as issued by the
National Bank of Rwanda.
Required
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(a) Compute Kabera‘s chargeable income and tax payable for the year ended 30 June,
2017.
(b) Compute the total amount of contributions that shall be paid to the Rwanda Social
Security Board (RSSB) in respect to Kabera‘s income.
(c) Explain the tax treatment for the interest free salary advance amounting to
8,000,000RWF repayable by 1 April, 2017.
2. Ntampaka, a water engineer graduate from the University of Rwanda, joined Geo
Consult Limited which provides geological services across Rwanda in January, 2016.
His employment contract includes the following terms:
(i) A monthly salary of Frw 1,000,000.

(ii) A motor vehicle provided by the company for his use since it is a long distance
between his home and the office with a market value of Frw 10,000,000.
(iii) Geo Consult Limited made a monthly retirement contribution on his behalf to
Rwanda social security fund of Frw 200,000.
(iv) Due to his busy work schedule during the year, he did not take his annual leave and
as a result he was paid Frw 800,000.
(v) He went to the field for an urgent official assignment and he paid for his
accommodation and lunch amounting to Frw 150,000 which was reimbursed by the
company when he returned.
(vi) The company gave him a plot of land located in Gisagara which was bought in 2012
at Frw 2,000,000 with a current market value of Frw 3,000,000 as a bonus for his
exceptional performance.
(vii) He is entitled to medical allowances and a bonus of Frw 600,000 and Frw 700,000
per annum respectively.
(viii) The company pays his house keeper a monthly salary of Frw 50,000.
(ix) Before joining Geo Consult Limited, Ntampaka was formally employed by one of
Geo Consult Limited‘s competitor from where he was head hunted with a promise of
Frw 1,200,000 which was paid in March, 2016.
Required
Compute Ntampaka‘s annual employment income and tax liability for the year ended 31
December, 2016.
3. Mrs. Kagabo Nicholas works with Inzuki SA, a well-known beverage company operating
in Rwanda and has provided you with the following information for the year ended 31
December 2013
1. Pension from previous employment Frw 20,000 per month.

2. Salary Frw 1,200,000 per month.
3. Mrs. Kagabo and her husband Mr. Kagabo own a company whose taxable income
was agreed at Frw 500,000 after charging husbands salary of Frw 250,000 per
month.
4. Inzuki SA provided a company house to Mrs. Kagabo in Kabuga, where rent of
similar houses was Frw 200,000 per month.
5. Mrs. Kagabo works over time and her overtime income averages Frw 100,000 per
month.
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6. Mrs. Kagabo enjoyed medical benefit of Frw 160,000 during the year. She is a senior
manager and the company has medical cover for all its employees
7. She obtained free consumables from the company as a Christmas gift worth Frw
300,000 during the year.
8. Mrs. Kagabo owns rental property at Kagugu estates and receives Frw 500,000 as a
rental income per month during the year; she incurred Frw 60,000 in renovation,
repairs and painting before letting the property. She had obtained a mortgage loan
from BRD amounting to Frw 3,000,000. She paid Frw 900,000 during the year of
which Frw 500,000 was principal.
9. Mrs. Kagabo owns 20% of the shares of Inzuki SA.
Required
(a) Calculate the taxable income of Mr. and Mrs. Kagabo for the year ended 31
December 2013.
(b) What is the tax payable on income computed in a) above?
4. Maviga Group is tax resident in the United Kingdom (UK) with subsidiaries spread
across various continents including Africa. The group is principally engaged in
assembling Maviga brand motor vehicles. Maviga Rwanda Ltd (MRL) was incorporated
in June, 2015 but commenced operations in January, 2016 in Nyarugenge District, Kigali
Province. James Kamau, a Kenyan citizen and former operations manager at Maviga
Kenya Ltd (MKL) was appointed Head of Business Development (HBD) at MRL
effective 1 March, 2016. Kamau has been staying in Rwanda since 1 April, 2016 and
received the following income and benefits in kind during the month of July, 2016:
(i) On 1 July, he was given a brand-new motor vehicle to facilitate his business
development activities. The vehicle was valued at Frw 100,000,000.
(ii) On 3 July, he received an interest-free loan from MRL of Frw 26,000,000
recoverable in four equal instalments in order to lease a plot of land in Gitarama
south province. The interbank interest rate was 8%.
(iii) On 4 July, he bought a return ticket from Rwanda Airlines at Frw 180,000 to
travel to Kenya to visit his family. While in Kenya on 5 July, Kamau bought three
air tickets for his wife and two sons to travel to Rwanda each at Ksh 80,000. MRL
reimbursed Kamau for all the four air ticket expenses.
The exchange rate on 5 July, 2016, was 1 Ksh = Frw 7.
(iv) On 10 July, his two sons enrolled for swimming classes at Turatsinze Swimming
Club (TSC). MRL paid to TSC the subscription fees for the month of July, 2016
of Frw 100,000.
(v) He was provided with a house in Gitarama town. On 31 July, MRL paid Frw
250,000 to the Land lord.
(vi) Kamau is also provided with a gardener, a housekeeper and a driver. On 31 July,
MRL paid each a salary of Frw 50,000.
(vii) On 31 July,
 Kamau was paid a basic salary of Frw 2,000,000.
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 MRL contributed Frw 100,000 to the Rwanda Social Security Board.
 He was also paid medical and responsibility allowances of Frw 70,000 and
Frw 150,000 respectively.
Required
(a) Determine the residence status of James Kamau in July, 2016 and give reasons to
support your answer.
(b) Compute Kamau‘s taxable employment income for July, 2016 and the tax liability.
(c) Compute the late payment penalty if MRL failed to pay Kamau‘s tax liability for July,
2016 on time and did not receive extension for filling from the Commissioner General.
5. Chantal, a medical doctor by profession was offered a five-year job contract with Amazing
Grace Health Care Ltd (AGHC). The effective date of contract was 1 st January, 2016 and
it is subjected to renewal upon satisfactory performance for another five-year period.
During the year ended 31st December, 2016, Chantal received the following benefits;
(a) A monthly basic salary Frw 5,000,000.

(b) Performance bonus Frw 12,000,000 per annum.
(c) Leave pay of Frw 6,000,000 payable in the last month of the year in the contract.
(d) Subsistence allowance Frw 700,000 per annum.
(e) A company car valued at Frw 10,000,000.
(f) A monthly fuel card Frw 1,200,000
Other relevant information:
1 Chantal travelled to Nairobi for holiday with her family and incurred Frw 900,000. The
company refunded her half of the costs incurred.
2 The company paid school fees for her daughter amounting to Frw 1,000,000.
3 Obtained a reimbursement on her medical expenses Frw 600,000.
4 Accommodation at Nyarugenge Frw 2,000,000 per annum.
Required
(a) Compute Chantal‘s chargeable income and tax payable for the year ended 31 st
December, 2016.
(b) Compute the total amount of contributions that shall be paid to the Rwanda Social
Security Board (RSSB) in respect to Chantal‘s income.
(c) Identify any five taxable payments that are specifically excluded from employment
5. You have been invited by a group of CPA students to discuss the matters listed below:
(i) A manager who is in full-time employment where he draws 800,000RWF per
month. He is housed by the employer in a rented house where rent payable to the
landlord is 960,000RWF per annum.
(ii) The manager whose employer makes an annual contribution of Frw 840,000 to
registered pension fund.
(iii) The manager is provided with a motor car which had a purchase cost of Frw
12,000,000 and his annual salary is Frw 18,000, 000.
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(iv) A high school boy aged 15 years inherits Frw 3,000,000 from his grandfather and
wins Frw 1,000,000 in the national lottery.
(v) A retired civil servant on annual pension of Frw 1,800,000 per annum signed a
service contract with effect from 1 st January, 2013. The contract was for three
years at an annual salary of Frw 4,400,000. The contract was terminated by the
employer on 31 st December, 2013. The employee was paid compensation
amounting to Frw 5,600,000.
Required
In each of the cases, provide explanatory notes and computations for use in your discussions
with the students.
1. Mr. Brown is an expert in the mining sector. He obtained a job with Mas Mining
Company, Rwanda (MMC) on 1 January, 2016 as a mine supervisor under the following
terms and conditions:
1 Annual salary 20,000,000RWF.

2 Furnished accommodation and a fueled car for private use.
3 He has two children attending school. His employer MMC provides an
education allowance of 7,200,000RWF per annum paid to him in equal monthly
installments.
4 The relocation cost was 5,235,000RWF to enable him and his family travel
from Italy to Rwanda.
5 Subsistence allowance 1,200,000RWF per month.
6 Obtained medical reimbursement 1,500,000RWF.
Other income sources:

1. While in Rwanda, Mr. Brown obtained an online teaching job from India where he
was paid 12,000,000RWF annually.
2. He also obtains 4,500,000RWF from the sale of his online journals in Rwanda
annually.
Required
(a) Compute Mr. Brown‘s chargeable income and tax payable for the year ended 31
December, 2016 including the amounts payable to the National Security Board.
(b) Assuming that Mr. Brown did not relocate to Rwanda in order to provide the mine
supervision services but only came to Rwanda for a total of 105 days in the year and
earned 20,000,000RWF as his salary from MMC, and he did not earn any other
allowances and benefits. The company only paid his accommodation costs of Hotel in
Kigali. However, he was able to conduct his online teaching job and to sell his online
journals while in the country. Advise Mr. Brown of his tax obligations on the income
earned while in Rwanda.
(c) Using examples, explain the meaning of foreign tax credit as provided in tax laws/ code.
(d) Explain the circumstances under which a taxpayer, who is an employer and is paying
taxes under the pay as you earn system, may be subjected to penalties and fines.
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PENSION SCHEME
Pension funds scheme is a scheme established by the government providing benefits for the
old, disabled by war or by work; or established by the former employer for employees after
long service. Provident fund scheme, on the other hand, is a scheme established by an
organisation providing for retirement benefits for the staff or contributors to the scheme;
An employee may be a member of his employer's occupational pension scheme. Any

individual whether a member of an occupational pension scheme or not, can take out a
'personal pension' plan with a financial institution such as an insurance company, bank or
building society.
An individual is encouraged by the Government to make financial provision to cover his

needs when he reaches a certain age. There are state pension arrangements which provide
some financial support, but the Government would prefer an individual to make his own
pension provision. Therefore, tax relief is given for private pension provision. This includes
relief for contributions to pension schemes and an exemption from tax on income and gains
arising in a pension fund.
PENSION ARRANGEMENTS
An individual may make pension provision in a number of ways.
Occupational Pension Scheme

Employers may set up an occupational pension scheme. Such schemes may either require
contributions from employees or be non-contributory. The employer may use the services of
an insurance company (an insured scheme) or may set up a totally self-administered pension
fund.
There are two kinds of occupational pension scheme – earnings-related (defined benefits
arrangements) and investment-related (money purchase arrangements). In defined benefits
arrangements – also known as a final salary scheme – the pension is generally based on
employees' earnings at retirement and linked to the number of years they have worked for the
firm.
A money purchase pension – also known as a defined contribution scheme – does not provide
any guarantee regarding the level of pension which will be available. The individual invests
in the pension scheme and the amount invested is used to build up a pension.
Personal Pensions
Personal pensions are money purchase schemes, which are provided by banks, insurance
companies and other financial institutions. Stakeholder pensions are a particular type of
personal pension scheme. They must satisfy certain rules, such as a maximum level of
charges, ease of transfer etc. Any individual (whether employed or not) may join a personal
pension scheme.
More than One Pension Arrangement

An individual may make a number of different pension arrangements depending on his
circumstances. For example, he may be a member of an occupational pension scheme and
also make pension arrangements independently with a financial provider. If the individual has
more than one pension arrangement, the rules we will be looking at in detail later apply to all
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the pension arrangements he makes. For example, there is a limit on the amount of
contributions that the individual can make in a tax year. This limit applies to all the pension
arrangements that he makes, not each of them. The rules below apply to registered pension
schemes
CONTRIBUTING TO A PENSION SCHEME

Contribution to pension scheme can be categorised into two, that is the statutory requirement
and the private personal contribution.
Statutory Pension Scheme

The law in Rwanda requires both the employer and the employee to contribute to the pension
fund. The law requires that the employer to contribute 5% of the basic salary minus the
transport allowance as a pension contribution and the employee to contribute 3% of the basic
salary.
Private Contribution
Anyone can contribute to a personal pension scheme, even if they are not earning, subject to
the contributions‘ threshold of 10% of his gross salary or 1,200,000RWF per year whichever
is smaller
METHODS OF GIVING TAX RELIEF

Contributions to personal pension plans are paid net of basic rate tax. Higher rate relief is
given through the personal tax computation. Contributions to occupational pension schemes
are usually paid under the net pay scheme.
Pension Contributions
Where the individual is an employee, his employer may make contributions to his pension
scheme as part of his employment benefits package. Such contributions are exempt benefits
for the employee.
Employer Employee
Pension 3% 3%
Occupation hazards 2% 0
Maternity 0.3% 0.3%
Total 5.3% 3.3%
Tax base = Gross salary – transport allowance + benefits in kind
QUALIFIED PENSION FUND

Qualified pension fund means any fund which fulfils the following:
a) one which was established according to Rwanda laws;
b) one which is operated for the principal purpose of providing pension payments to
residents in the country;
c) one which has effective management in Rwanda at any time during the tax period.
TAXATION OF BUSINESS PROFIT OF INDIVIDUALS
Article 19 section 3 of Law 16/2018 provides guidelines on the computation of business
profits. According to Article 19 of Law 16/2018 business profits are determined as the
income from all business activities reduced by all business expenses. Business profit also
includes proceeds of sale of any business asset and proceeds from asset sharing received
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during the tax period. Business profits are determined per tax period on the basis of the profit
or loss account drawn up in accordance with Generally Accepted Accounting Principles,
subject to the provisions of this Law. The Tax Administration may use any other accounting
method or other source of information in accordance with the law, to ensure the accuracy of
the taxpayer‘s profit.
TAX EXEMPTION FOR INDIVIDUAL INCOME

However, according to Article 20 of Law 16/2018 there is a tax exemption for income
accrued from savings and employees‘ shares scheme within a company. Income accruing
from savings in collective investment schemes and employees‘ shares scheme within a
company are exempted from income tax.
TAX EXEMPTION FOR PROFIT ON AGRICULTURAL AND LIVESTOCK

ACTIVITIES
Article 21 of Law 16/2018 also provides that income earned by an agriculturalist or a
pastoralist on agricultural or livestock activities is exempt if the turnover from agricultural or
livestock activities do not exceed twelve million Rwanda francs (12,000,000RWF) in a tax
period. In case the turnover exceeds twelve million Rwandan francs (12,000,000RWF), the
latter amount is excluded from the taxable income.
Example
Jaden owns a farm in Bugesera where he practices agriculture and livestock farming. During
the year ended 31/12/2018 he received the following incomes
Item Turnover in amount RWF

Sale of milk 8,120,000
Sale of bananas 5,000,000
Sale of beans 7,500,000
Sale of Irish potato 4,200,000
Required
Compute his taxable income and tax liability
Taxable income 24,820,000 – 12,000,000 = 12,820,000
Tax Liability since the turnover is below 50,000,000, Jaden can opt to be taxed in the lump
sum regime. And since the turnover is above 20,000,000RWF, the tax rate will be 3%
Tax liability 3% x 12,820,000 = 384,600
A taxpayer running a small business as mentioned under item 2° of Article 3, and Paragraph
2 and 3 of Article 12 of the Law 16/2018, may decide to pay a tax on actual profit derived
from business activities in accordance with a simplified accounting method to be determined
by an Order of the Minister. Such an option may be subject to change after three (3) years.
PROFIT ON ASSETS IN FOREIGN CURRENCY

Article 23 of Law 16/2018 provides that during the conclusion of the tax period, the
assets in foreign currency, including claims and debts, are valued at the exchange rate
on the last day of the tax period. The profits or loss therein are included in the
assessment of business profit for that period
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COMPUTATION OF TAXABLE PROFITS
Step1: Profits / loss +- xxx
Step 2: Consider each item of expenses which have been debited and deducted
Allowable - leave
Disallowable - add
Step 3: Consider each item of income which has been credited and deducted
Trading - leave
Non trading - deduct
ii. Consider any item which should be debited but are not and deduct e.g. premium paid
on short lease.
iii. Consider any item of income which should be credited and add.
Step 4: Deduct capital allowance on plant and machinery and industrial building.
DEDUCTIONS FROM TAXABLE INCOME/ALLOWABLE EXPENSES

Article 25 of Law 16/2018 provides that in determining profits on business activities,
expenses deducted from taxable income must fulfil the following conditions:
i. They are incurred for the direct purpose of the business and they are directly
chargeable to the income;
ii. They correspond to a real expense and can be substantiated with proper purchase
receipts;
iii. They lead to a decrease in the net assets of the business;
iv. They are used for activities related to the tax period in which they are incurred.
NON-DEDUCTIBLE EXPENSES FROM TAXABLE INCOME

According to Article 26 of Law 16/2018, the following expenses are not deductible from the
taxable business income:
i. Dividends declared and profits paid-out to their beneficiaries;
ii. Reserve allowances, savings and other special-purpose funds, unless otherwise
provided for by this Law;
iii. Fines and similar penalties; donations, save for donations given to non-profit making
organisations the value of which does not exceed one percent (1%) of the turnover;
iv. Income tax paid in accordance with this Law or paid abroad on business profit and
recoverable Value Added Tax (VAT);
v. Personal consumption expenses;
vi. Entertainment expenses except for expenses on general sporting activities for
employees;
vii. Twenty per cent (20%) of expenses paid on business overheads as in the case of
telephone, water, electricity and fuel whose private and business use cannot be
practically separable;
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viii. Management, technical services and royalty fees paid to a non-resident person
exceeding two percent (2%) of the turnover of the taxpayer;
ix. Interest arising from loans between related persons either paid or due on a total loan
which is greater than four (4) times the amount of equity. This equity should not
include provisions or reserves according to the balance sheet, which is drawn up in
accordance with the Generally Accepted Accounting Principles.
x. The provisions under item 10° of this Article do not apply to commercial banks,
financial institutions and insurance companies.
TRADING STOCK VALUE

According to Article 27, the trading stock is valued at the lower price between the cost price
and the market price on the last day of the tax period. However, the work in progress is
valued at cost price.
DEPRECIATION
Article 28 of Law 16/2018 provides that, in the determination of business profit, depreciation
for business assets is deducted from taxable income.
i. Buildings, heavy industrial equipment and machineries are depreciated annually, each
on its own, on the basis of the rate of depreciation equivalent to five percent (5%) of
the cost of acquisition, construction, refining, rehabilitation or reconstruction.
ii. Intangible assets including goodwill that is purchased from a third party are
depreciated annually, each on its own, on the basis of the rate of depreciation of ten
percent (10%) of the cost of acquisition, refining, rehabilitation or reconstruction.
iii. Information and communication systems whose life is over ten (10) years are
depreciated annually on the basis of the rate of depreciation of ten percent (10%) of
the cost of acquisition.
iv. Land, fine arts, antiquities, jewellery and any other assets that are not subject to wear
and tear or obsolescence are not depreciated.
v. The assets in the following two categories are depreciated in a pooling system on the
basis of the following rates:
a. Computers and accessories, information and communication systems whose life
is under ten (10) years: fifty percent (50%);
b. Any other business asset: twenty-five percent (25%).
Leased Assets
Depreciation of leased assets is allowed to the lessee in case of finance lease and to the lessor
in case of operating lease.
Depreciation Basis
According to Article 29 of Law 16/2018, the depreciation basis for assets is the acquisition
value. However, for the assets depreciated in the pooling system, their depreciation basis is
the book value in the balance sheet at the beginning of the tax period:
i. Increased by the cost of assets acquired or created and the cost of refining,
rehabilitation and reconstruction of the assets in the tax period;
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ii. Decreased by the sale price of assets sold and the compensation received for the loss
of assets due to natural calamities or other conversion during the tax period.
Computation of Depreciation
Cost/WDV XXX
Additional XX
Less disposal (sales price) (XX)
Depreciation Basis XXX
Apply appropriate depreciation rate X%
Depreciation XXX
However, if the depreciation basis is less than zero (0), that amount is added to the business
profit and the depreciation basis becomes zero (0). If the depreciation basis does not exceed
five hundred thousand (500,000) Rwanda francs, the entire depreciation basis is deemed to be
a deductible expense.
Training and Research Expenses

According to Article 30 of Law 16/2018, if during a tax period, all training and research
expenses incurred by a taxpayer, which promote business activities, are considered as
deductible from taxable income in accordance with provisions of Article 25 of the Law, if
they have been declared and planned in the activity plan of that tax period. However,
expenses on training and research for the promotion of business activities do not concern the
purchase of land, houses, buildings and other immovable properties including refining,
rehabilitation and reconstruction as well as assets exploration expenses.
Bad Debts
Article 31 of Law 16/2018 provides that in the determination of business profit, a deduction
is allowed for bad debts if the following conditions are fulfilled:
i. If an amount corresponding to the debt was previously included in the income of the
taxpayer;
ii. If the debt is written off in the books of accounts of the taxpayer;
iii. If the taxpayer has taken all possible steps in pursuing payment and has shown a court
decision declaring the insolvency of his/her debtor.
However, for an individual whose debt is less than three million Rwandan francs
(3,000,000RWF) in addition to the conditions referred to in points 1° and 2° of Paragraph
One of this Article, the taxpayer must provide proof that he has taken all reasonable steps
over a period of three (3) years to recover the debt.
Notwithstanding the provisions of Paragraph One of this Article, commercial banks and
leasing entities duly licensed as such are allowed to deduct from taxable income, any increase
of the mandatory reserve for non-performing loans as required by the directives related to
management of bank loans and similar institutions of the National Bank of Rwanda. The
business profit is increased by the entire amount recovered from bad debts deducted from
such reserves
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Example One
Mr. John Collins runs a snack shop in Kigali town. He submitted his return of income for
2016 showing losses of 64,000RWF. In support of this figure, the following receipts and
expenditure account and information were submitted:
Income: RWF
Sale of snacks 340,000
Sale of old furniture 30,000
Roto Rotary winnings 10,000
380,000
Expenses
Purchase of snacks 265,000
Electricity 20,000
Pension for employees 4,000
Wages for staff 60,000
Salary to wife 10,000
Rent 50,000
Insurance 10,000
Fuel expenses 25,000 444,000
Loss 64,000
Additional Information
 The family lives in the flat above the business premises; the rent is apportioned 3/5
flat and 2/5 for the shop.
 The insurance includes premiums amounting to 4,000RWF in respect of Mr. John life
insurance policy.
 It is estimated that Mr. John‘s personal use of the car is about 40% of the total
mileage; the fuel for the car was included as part of business expenses.
 Mr. John has not yet paid rent for December 2016 amounting to 2,000RWF and
snacks for the shop amounting to 5,000RWF.
 During the period he disposed of old business furniture
 The rotary income was received gross
Required
Calculate the adjusted profit/loss for the year of income tax purposes.
Solution
Computation of Adjusted Profit

RWF
Profit as per receipts and expenditure a/c (64,000)
Add back deductions not allowable RWF
Salary to wife W1 10,000
Rent- Flat W2 30,000
Insurance- PersonalW3 4,000
Fuel-personal W4 10,000 54,000
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(10,000)
Less deductions allowed but not paid
Accrued rent 2,000
Accrued snacks purchases 5,000 (7,000)
Taxable loss (17,000)
Example Two
The Following profit and loss account for the year ending 31 st December 2016 was
constructed from the ledger accounts of Mr. Harerimana who owns a shop in Musanze.
RWF
Gross profit 35,000,000
Less expense:
Wages and salaries 5,000,000
Electricity and water 300,000
Rent 1,000,000
Depreciation 800,000
Legal expenses 500,000
Sundry expenses 250,000 7,850,000
Net profit 27,150,000
Additional information
1. 20% of rent and electricity is to be considered as personal expenses for Mr.
Harerimanai.
2. Capital allowance allowable for the year is 1,500,000RWF
3. Legal expenses of 50,000RWF are not allowable for tax purposes
4. Sundry expenses of 120,000RWF are not allowable deductions.
Required
Calculate taxable profit of Harerimana and his tax liability for year 2006.
Hererimana
Computation of Taxable Income for the Year Ended 31/12/2016

Add Disallowable deductions:
Electricity W1 60,000
Legal expenses 50,000
Sundry expenses 120,000 1,030,000
Total income 28,180,000
Less allowable deductions:
Capital allowances (1,500,000)
Workings (W1 Electricity
20% of the electricity is for private use therefore it is not a business expense 20% x300,
000
Tax liability
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0 – 360,000 0% 0
360,001 – 1,200,000 20% 168,000
1,200,001 - 26,680,000 30% 7,644,000
Total liability 7,812,000
1. Mpanga Daniel is a professional medical doctor operating in Kigali. He has given the
following financial details of his clinic for the year ended 31 December 2014.
Description RWF
Gross professional fees received 3,000,000
Directors‘ fees received (deducted at source) 360,000
Interest income from AB Bank Ltd-gross 72,000
Dividend income (net) 102,000
Subscription to professional association and publication 60,000
Donations to destitute children‘s home 30,000
Subscription to wildlife magazine 6,000
Debt collection (patients) expenses 18,000
Wages for clinic assistant 360,000
Replacement of clinic instruments 120,000
Rent for the clinic premises 420,000
Electricity and water – clinic 120,000
General expenses- clinic 210,000
Car hire expenses- for use in practice 150,000
Uniform for staff 115,000
Payment of school fees for own children 120,000
Contribution pension fund for himself 180,000
Payment of life insurance premium for himself 60,000
Terminal benefits paid to the retired receptionist 150,000
Depreciation on furniture- clinic 36,000
Rent received from sub rentals 42,000
Rent collection expenses 6,000
Wages paid to cleaners on watchman-clinic 150,000
Tarmacking driving way-personal residence 240,000
Additional servant quarters-personal residence 420,000
Total 6,547,000
Required
(i) Compute Mpanga Daniel‘s taxable income.
(ii) Taxable payable by Mpanga Daniel and indicate the date when tax if any is
payable to RRA.
CHAPTER TWO
CAPITAL ALLOWANCES
Capital allowance may be defined as a form of standardized depreciation given under income
tax laws on certain specified qualifying capital expenditures. They are granted in place of
depreciation charges, which are disallowed by the government to the trader/businessman,
over a considerable period of time, in order to encourage automation in the industry.
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Capital allowances are allowances granted at approved specified rates on qualifying capital
expenditures and rates on assets in use for the purpose of business at the end of the relevant
basis period. Accordingly, the qualifying capital expenditure must have been incurred in a
basis period that is proceeding the basis period ending in the preceding tax year. The
allowance is allowed not as a deduction in computing assessable profit but as a deduction
from assessable profits in arriving at chargeable profits.
Capital allowances are available to give tax relief for certain capital expenditure. Capital
expenditure on plant and machinery qualifies for capital allowances. Capital Allowance is
claimed by the business. These allowances are given against profits and they reduce the
taxable profits. There are mainly three types of capital allowance or capital deductions and
these include;
i. Investment allowance
ii. Wear and tear
iii. Balancing allowance/ charge.
INVESTMENT ALLOWANCE
This is granted to provide an incentive to businessmen to invest in capital projects and
allowed only once in a year in which the asset is first used.
Accelerated Depreciation
A registered investor is entitled to a flat accelerated depreciation rate of fifty per cent (50%)
for the first year for new or used assets if he/she meets the following criteria:
1 Invest in business assets worth at least fifty thousand US dollars (USD 50,000) each;
2 Operate in at least one of the sectors below and meet the requirements:
a) Export projects;
b) Manufacturing;
c) Telecommunications;
d) Agro processing;
e) Education;
f) Health;
g) Transport excluding passenger vehicles with less than nine (9) people seating capacity;
h) Tourism investments worth at least one million eight hundred thousand United States
Dollars (USD 1, 800, 000);
i) Construction projects worth at least one million eight hundred thousand United States
dollars (USD 1,800,000);
j) Any other sectors provided the investment is worth at least one hundred thousand United
States dollars (USD 100,000);
k) Any other priority sector as may be determined by an Order of the Minister in charge of
finance;
3 Meet the obligations defined below:
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a) Keep the assets for at least three (3) years after benefiting from the accelerated
depreciation;
b) Inform the Commissioner General of the Rwanda Revenue Authority of the disposal of
the business assets in case such disposal is made before three (3) years. Where an investor
makes the disposal of such assets before the expiration of three (3) years, he/she shall pay
the difference from the reduction of corporate income tax caused by the accelerated
depreciation as well as any applicable penalties and interests. However, the investor shall
not be liable to pay any amount where it is determined that such disposal was the effect of
natural calamities, hazards or any other involuntary reason.
If the business asset that is granted an investment allowance is disposed before the end of the
period mentioned in point 2, the reduction of income tax caused by the investment allowance,
increased by an interest and penalties applicable to taxpayers who do not pay tax on time,
starting from when that investment allowance was granted to the time of disposal, must be
paid back to the Tax Administration unless such an asset is removed due to natural calamities
or other involuntary conversion.
WEAR AND TEAR ALLOWANCES/DEPRECIATION

It is the normal depreciation of the asset. The investment allowance reduces the depreciable
value of the asset.
The cost of land is disallowed but expenditure incurred in preparing land for building does
qualify. The cost of items which would not be included in a normal commercial lease (such
as rental guarantees) also does not qualify. Professional fees, for example architects' fees,
incurred in connection with the construction of an industrial building qualify. The cost of
repairs to industrial buildings also qualifies, provided that the expenditure is not deductible as
a trading expense.
Example
John purchased an industrial building for 600,000,000RWF. This cost was made up of:
RWF
Factory 450,000,000
Land 150,000,000
TOTAL 600,000,000
The costs attributable to showrooms and offices within the factory were 160,000,000RWF
and 30,000,000RWF respectively.
Required
What is the expenditure qualifying for industrial buildings allowances?
Solution
The Rwandan tax Law does not separate industrial and non industrial building. Therefore the
whole building will be considered for investment allowance
Plant and Machinery Allowances (Wear and Tear Allowance)

Capital expenditure on plant and machinery qualifies for capital allowances if the plant or
machinery is used for a qualifying activity, such as a trade. 'Plant' is not fully defined by the
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legislation, although some specific exclusions and inclusions are given. The word 'machinery'
may be taken to have its normal everyday meaning.
Machinery means any equipment used directly in the processing of manufacture and includes:
i. Generation and distribution of electricity
ii. Clean up and disposal of effluent and other waste products
iii. Reduction of environmental damage
iv. Water supply or disposal.
All heavy machinery has a wear and tear of 5% on acquisition cost.
Note
1. Computers and accessories, information and communication systems, software
products and data equipment: fifty percent (50 %); on WDV
2. All other business assets: twenty five percent (25%) on WDV
Computation of wear and tear

Written down value (W.D)/cost at the beginning of the year xxx
Add cost of new machine bought during the year xxx
Total cost xxx
Fair amounts realised on disposal of any part of machine (xxx)
Book value xxxx
Apply a wear and tear rate (X %) (X X)
Written down value (WDV) XXX
Example One
a. Madini enterprises limited is registered under Rwanda‘s commercial law and received an
RDB investment certificate worth 800,000,000RWF. The company is located in Burera
district and deals in the mining of Wolfam. The company started its operations on
1/1/2016. In the first year of operation, the company purchased and constructed the
following assets.
i. Plant and machineries 250,000,000RWF
ii. Two trucks at 80,000,000RWF each
iii. Computers 20,000,000RWF
iv. Software 8,000,000RWF
v. Furniture 8,500,000RWF
vi. Building 150,000,000RWF of which 20,000,000RWF is office block the
remaining part is factory block
In 2017, the company purchased additional assets which included:

i. Machineries 85,000,000RWF
ii. Two four sitter cars for the managers at 14,000,000RWF each
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iii. Extended the factory building at 40,000,000RWF
iv. Two computer software at 2,000,000RWF each
In 2018, two computers were sold at 2,500,000RWF. And some furniture was disposed of at
4,000,000RWF.
Required
Compute the capital allowances of Madini enterprises for the years ended 31/12/2016, 2017
and 2018.
Computation of Capital Allowance for the Year Ended

31/12/2016/2017/2018
RWF(000) RWF(000) RWF(000) RWF(000) RWF(000)
Building P &M Other Cap.
C &A assets Allow
COST 1/1/16 150,000 250,000 28,000 168,500
INVEST ALLOW 50% 50% 50% 50%
ALLOW. 75,000 125,000 0 80,000 280,000
DEP. VALUE 75,000 125,000 28,000 88,500
W & T Rate 5% 5% 50% 25%
W&T 3,750 6,250 14,000 22,125 46,125
Total Cap ALL. 286,125
cost/WDV 2017 75,000 125,000 14,000 66,375

additional assets 40,000 85,000 4,000 28,000
Invest allow 2017 0% 50% 0% 0%
Allowance 42,500 0 0 42,500
Dep. Value 115,000 167,500 18,000 94,375
W&T 5,750 8,375 9,000 23,584 46,709
Total Cap Allow. 89,209
Cost/ WDV 2018 115,000 167,500 9,000 70,791

disposal (2,500) (4,000)
Dep Value 115,000 167,500 6,500 66,791
W&T 5,750 8,375 3,250 16,698 34,073
Note: On other asset the investment allowance is calculated only on the motor vehicle
since the value of furniture is below 50,000USD
Example Two
Boringo received an investment certificate of 400,000,000RWF as a manufacturing company
on 1/12/2015. The company did not start its operations until 1/1/2016 when the installation of
machineries was finished. The company is located in Nyamagabe districts and it
manufactures hardware materials. The investment in assets were as below
i. Land 100,000,000RWF
ii. Buildings 180,000,000RWF of which 30,000,000RWF is an office block
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iii. Plant and machinery 250,000,000RWF
iv. Computers and accessories 11,500,000RWF
v. Furniture and fittings 20,800,000RWF
vi. Motor vehicles 85,000,000RWF. This figure includes two four sitter cars that
were purchased for the managers. The value of each car is 15,000,000RWF.
On 1/1/2017, the company purchased additional assets which include:

i. Extension of factory building 15,000,000RWF
ii. Furniture and equipment 2,500,000RWF
iii. Computer and accessories 3,500,000RWF
iv. Four, four sitter cars for the directors at 10,000,000RWF each
Required:
Compute the capital allowances for the tax purposes for Boringo Company for the years
ended 31/12/2016/2017.
Computation of Capital Allowances of Boringo for the Years Ended

31/12/2015/2016
(000)RWF (000)RWF (000)RWF (000)RWF (000)RWF (000)RWF
land buildings P &M C&A Other assets Cap allow
cost 1/1/16 100,000 180,000 250,000 11,500 105,800
invest Allow 0% 50% 50% 0% 50%
Allowance - 90,000 125,000 0 27,500 242,500

dep. Value 0 90,000 125,000 11,500 78,300
W & T Rate 0% 5% 5% 50% 25%
W&T - 4,500 6,250 5,750 19,575 36,075
total 278,575
cost/WDV1/1/17 90,000 125,000 5,750 58,725
additional 15,000 3,500 40,000
dep. Value 105,000 125,000 9,250 98,725
W&T 5,250 6,250 4,625 24,681 41,431
Example Three
MZA investment limited is registered under the Rwanda Company as a manufacturing
company located in Bugesera. The company manufactures and processes soft drinks. The
following information relates to the company for the year ended 31/12/2013.
Assets Land Buildings Machineries Motor Computers Furniture

vehicles and and
accessories fittings
Cost 40,800,000 85,000,000 61,600,000 38,300,000 15,750,000 10,900,000
Accumulated 20,400,000 14,500,000 17,550,000 10,100,000 8,650,000
depreciation
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WDV 40,800,000 64,600,000 47,100,000 20,750,00 5,650,000 2,250,000
31/12/2013
In 2014, the company purchased the following assets
Assets Machineries Motor vehicle Computers Furniture and

(lorry) and fittings
accessories
Cost 30,500,000 10,800,000 8,000,000 10,000,000
In 2015, they sold two computers which were bought at 1,500,000RWF each. The computers
were sold at 1,000,000RWF each. Old furniture that cost the company 3,000,000RWF was
sold at 2,500,000RWF.
Required:
Compute the capital allowances of the company for the years ended 31/12/2014/2015.
Solution
Computation of Capital Allowances of MZA Investment Limited for the

Period Ended 31/12/2014/2015
Assets Workings Buildings Machineries Other Computers Capital
assets and allowances
accessories
Cost/ WDV 85,000,000 61,600,000 23,000,000 5,650,000
1/1/2014
Additional 30,500,000 20,800,000 8,000,000
assets
Investment 50% 0 0 0 0
allowances
on new
assets
Depreciable 85,000,000 92,100,000 43,800,000 13,650,000
value
31/12/2014
W&T 5% 5% 25% 50%
rates
Wear and 4,250,000 4,605,000 10,950,000 6,825,000 33,455,000
Tear
allowances
Cost/WDV 85,000,000 92,100,000 32,850,000 6,825,000
1/1/2015
Disposals (2,500,000) (3,000,000)
Depreciable 85,000,000 92,100,000 30,350,000 3,825,000
value
W&T 4,250,000 4,605,000 7,587,500 1,912,500 18,355,000
allowances
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Test One
Mugisha is a new investor in Kigali and has incurred the following costs in setting up his
factory: construction of factory building 30,000,000RWF, purchase of machinery
45,000,000RWF, and one truck 35,000,000RWF.
Required
a) Determine his capital allowance in the first year and second year.
b) Suppose the factory was set up in Gisenyi what would be the capital allowance.
Test Two
Nyirakamana is a new investor in Musanze town has constructed a factory building at a cost
of 20,000,000RWF, office building at 3,000,000RWF, staff canteen at 5,000,000RWF. She
purchased machinery at 80,000,000RWF, paid transport for machineries 10,000,000RWF,
custom duty 20,000,000RWF and installation cost of 9,000,000RWF; purchased two trucks at
10,000,000RWF each, three computers at 800,000RWF each. She purchased furniture at
8,000,000RWF. During the year 2011 she sold one truck and one computer. In 2012 she
bought another truck at 25,000,000RWF.
Required
Determine her capital allowances in 2010, 2011 and 2012 assuming that the factory was set
up in 2010.
Test Three
APAN limited is manufacturer of consumer products. Until 31 st December, 2013, its business
was being carried out at leased premises in the Industrial Area Gikondo. With effect from 1 st
September, 2014 the company moved its operations to new premises in the Free Zone
industrial area. The company had constructed the new premises and the cost of constructions
was as follows:
RWF
Manufacturing building 80,000,000
Storage building for raw materials 20,000,000
Storage building newly manufactured products 40,000,000
An office block 45,000,000
In addition, the company had also constructed permanent paving around the building as
follows:
RWF
Paving around the manufacturing building 10,000,000
Paving around the office block 5,000,000
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The company‘s business assets which were moved from the industrial area in Gikondo to the
new premises at 1st September, 2014 were as follows:
RWF
Manufacturing machinery 10,000,000
Furniture and fittings 40,000,000
Delivery motor vehicles 80,000,000
Jewellery 25,000,000
During the 2014 financial year, the company had bought the following passenger motor
vehicles for use by the senior company employees as follows:
A Toyota for use by the managing director at a cost of 18,000,000RWF, and a Nissan for
use by the factory manager at a cost of 8,000,000RWF. These vehicles were availed to
the employees in August 2014 and they were used for both business and private.
Required:
Compute the capital allowances that APAN Limited can claim in respect of the 2014 tax year.
BALANCING ALLOWANCES
Balancing allowances results when an asset is disposed of and the amount realised on
disposal is less than the W. D value of the asset the difference granted is a balancing
allowance. This allowance can be deducted from the adjusted profits of the business to arrive
at taxable profits.
Example
If the asset has WDV of 1,000,000RWF and the assets are disposed of at 800,000RWF then,
the balancing allowance will be 800,000-1,000,000 = (200,000).
If the amount realised on disposal of an asset is more than its W.D value for the tax purposes
the difference is called a balancing charge. The balancing charge is treated as a taxable profit
for the business for the year in which the asset was sold.
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CHAPTER THREE
CORPORATE INCOME TAX
BASE FOR CORPORATE INCOME TAX
As per Article 44 of Law 16/2018, the corporate income tax is levied on business profits
received by companies. According to Article 45 of the same Law, the following entities are
subject to corporate income tax:
i. companies established in accordance with Rwandan or foreign law;
ii. cooperative societies and their branches;
iii. commercial public institutions;
iv. partnerships;
v. entities established by Districts and the City of Kigali, as long as these entities
perform an income generating activity;
vi. De facto companies or associations and any other type of entities that are established
to realize profits.
Entities mentioned under items (i), (ii) and (iii) of Paragraph One of this Article, are deemed
to conduct business with their whole equity. This means that all their revenues are received
from their business activities.
ENTITIES EXEMPTED FROM CORPORATE INCOME TAX

According to Article 46 of Law 16/2018, the Government of Rwanda and the following
Entities are exempted from corporate income tax:
i. the City of Kigali and Districts;
ii. the National Bank of Rwanda;
iii. entities that carry out only activities of a religious, humanitarian, charitable, scientific
or educational character, unless the revenue received exceeds the corresponding
expenses or if those entities conduct a business;
iv. international organizations, agencies of technical cooperation and their
representatives, if such exemption is provided for by international agreements;
v. qualified pension funds;
vi. public institution in charge of social security;
vii. Development Bank of Rwanda « BRD »;
viii. Agaciro Development Fund Corporate Trust;
ix. Business Development Fund limited ―BDF Ltd‖.
However, entities exempted from corporate income tax are required to submit to the Tax
Administration their financial statements not later than 31 st March following the tax period.
ZERO-RATED ENTITIES
According to Article 47 of Law 16/2018, companies and co-operatives that carry out micro-
finance activities approved by competent authorities pay corporate income tax at the rate of
zero percent (0%) for a period of five (5) years from the time of their approval. However, this
period may be renewed where entities fulfil the conditions prescribed by an Order of the
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Minister. However, Entities that are taxed at 0% are required to submit to the Tax
Administration their financial statements not later than 31 st March following the tax period.
SCOPE OF TAX LIABILITY TO CORPORATE INCOME TAX

As per Article 48 of Law 16/2018 all resident entities are liable to corporate income tax on
business profit per tax period, whether from domestic or foreign operations. However,
dividends paid between resident companies and which have been subject to the withholding
tax are not included in corporate taxable income. Non-resident entities shall be liable to
corporate income tax on business profit per tax period, which is equivalent to the income tax
applicable to resident entities, through their permanent establishments in the country.
CORPORATE INCOME TAX RATE

According to Article 49, the taxable Business profit is rounded down to the nearest one
thousand Rwandan Francs (1,000RWF) and taxable at a rate of thirty percent (30%).
However, newly listed companies on capital market shall be taxed for a period of five (5)
years on the following rates:
i. Twenty percent (20%) if those companies sell at least forty percent (40%) of their
shares to the public;
ii. Twenty-five percent (25%) if those companies sell at least thirty percent (30%) of
their shares to the public;
iii. Twenty-eight percent (28%) if those companies sell at least twenty percent (20%) of
their shares to the public.
Tax Declaration
As per Article 50 of Law 16/2018 a taxpayer who receives taxable business profit prepares an
annual tax declaration in accordance with the procedure determined by the Tax
Administration and presents it, at the same time, with the accounting balance sheet, profit and
loss statement for the tax period, the annexes thereto, as well as any other relevant document
required by the Tax Administration, not later than 31st March of the following tax period The
amount of tax to be paid is calculated on the basis of the annual basic declaration, reduced by:
i. 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 rate are
applied.
ii. The prepayments made every quarter.
Example
The taxable profit of the company is 30,000,000RWF for the year ended 31/12/2018. During
the year, the company made a quarterly prepayment of 2,500,000RWF and had a withholding
tax on imports of 2,000,000RWF.
Required
Compute the tax liability and the tax payable.
Solution
Particulars Amount ‗RWF‘
Tax liability 30,000,000 x 30% 9,000,000
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Less the quarterly prepayments (2,500,000)
Less withholding on imports (2,000,000)
The tax is paid to the Tax Administration on the date the tax declaration is submitted which is
31st March after the end of the tax period. If a withheld or prepaid tax exceeds the amount of
tax liability calculated on the basis of Paragraph One of this Article, it is considered by the
tax administration as liquidation of tax arrears or as the payment of any future tax obligations.
Upon a written request by the taxpayer and upon satisfaction that prior tax obligations have
been discharged, the Tax Administration returns to the taxpayer the excess amount within
thirty (30) days from the date of receipt of the request.
Corporate Income Taxation

According to Article 51 of Law 16/2018, the corporate income is taxable in the same way as
personal income as provided for in the previous Chapter. However, the following companies
are taxed as below:
i. small business companies pay a lump sum tax of three per cent ( 3%) of the turnover;
ii. micro-enterprise companies pay the flat tax whose amount is indicated in accordance
with the table referred to under Article 12 of Law 16/2018;
iii. Without prejudice to real profit tax regime, companies operating in the Transport of
persons and goods by road pay a flat tax calculated as indicated in chapter three.
Taxation of Income from the Rent of Movable and Immovable Assets

According to Article 52 of Law 16/2018, income from the rent of movable and immovable
assets incorporated as assets of entities which are subject to corporate income tax is
consolidated in the total taxable income.
Corporate Restructuring
Article 53 defines corporate restructuring as follows:
i. A merger of two or more resident companies into a separate company;
ii. The acquisition or a takeover of fifty percent (50%) or more of shares or voting rights,
by number or value in a resident company in exchange for shares of the purchasing
company;
iii. The acquisition of fifty percent (50%) or more of the assets and liabilities of a resident
company by another resident company solely in exchange of shares in the purchasing
company;
iv. The acquisition of the entire company‘s assets so that its existence is replaced by the
purchasing company;
v. Splitting of a resident company into two or more resident companies.
Taxation of Restructured Companies

According to Article 54, in case of restructuring of companies, the transferring company is
exempted 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.
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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.
Taxation in case of Liquidation

According to Article 55 of Law 16/2018, the liquidation proceeds of a company, after
payment of liabilities and distribution of dividends, the remainder, is considered as dividends
on shares in the last tax period of the company‘s existence.
Example
Company X was liquidated on 30/11/2018. The proceeds from the sale of the assets were
250,000,000RWF. The liabilities were 100,000,000RWF and the capital of the shareholders
were 80,000,000RWF.
Required
Compute the tax on the liquidation.
Particulars Amount ‗RWF‘

Proceeds 250,000,000
Less liabilities (100,000,000)
Less capital (80,000,000)
Net liquidation proceeds 70,000,000
The net liquidation proceeds are considered as a dividend and will be taxed at 15%
WHT 15% x 70,000,000 = 10,500,000RWF
TAXATION OF PARTNERSHIPS BUSINESS

Partnerships
A partnership is a group of individuals who are trading together. They will agree amongst
themselves how the business should be run and how profits and losses should be shared.
Profits from partnership business are taxed at corporate rates like companies (30%).
Example
Mutesi and Mbabazi have been trading in partnership sharing profit and losses in the
proportion of 2: 3. They have prepared the accounts of 2007 as follows:
Particulars RWF
Gross profit from trading 420,000
Dividend received (net) 12,000
432,000
Interest on Capital Mutesi 15,000
Interest on Capital Mbabazi 22,000
Goodwill written off 2,000
Bad debts 8,000
Audit and legal expenses 12,000
Motor vehicle expenses 5,000
Depreciation 10,000
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Partner salaries: Mutesi 50,000
Repairs and maintenance 16,000
Special expenses 8,000
Water and electricity 5,000
Net profit 279,000
Additional Notes
Bad debts:
General: 3,000
Specific: 5,000
8,000
Audit and legal expenses
Legal fees- Debt collection 8,000
Legal fees for making partnership deed 4,000
12,000
Special expenses
Penalty for breach of sales tax regulations 4,000
Christmas gifts to partner‘s friends 2,000
8,000
Repairs and maintenance
Office partitions 1,000
Office carpet 1,000
Replacement of adding machine 10,000
General repairs 4,000
16,000
Wear and tear allowances were computed to be 24,000RWF
Assume:
The withholding tax on dividend was 15%.
Required
Calculate the adjusted profit for tax purposes for each partner.
Solution
Particulars RWF RWF
Profit as per Profit and loss a/c 279,000
Add back deductions not allowable
Interest on Capital: Mutesi 15,000
Interest on Capital: Mbabazi 22,000
Goodwill written off 2,000
Depreciation 10,000
Bad debts- General 3,000
Christmas gifts 2,000
Penalty for breach of sales tax regulations 4,000
Office partitions 1,000
Replacement of adding machine 10,000 69,000
348,000
Less: amount not business income
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Dividend 12,000
336,000
Less: Capital allowances 24,000
Taxable partnership income 312,000
Tax liability (30% x 312,000) 93,600
Mutesi Mbabazi Total

Salary 50,000 Nil 50,000
Interest on capital 15,000 22,000 37,000
Dividend income (12,000x100/85) 5,648 8,470 14,118
Profit share 72,560 108,840 181,400
Taxable income 137,560 139,310 276,870
Income from partnership business is taxed at a corporate tax rate that is 30%
Example 2
Adeline, Nuru and Aisha are in partnership sharing profits and losses in the ratio of 3:2:1
respectively. Their statement of comprehensive income for the year ended 31/12/2017 is as
below.
Particulars Amount ‗RWF‘ Amount ‗RWF‘

Sales 120,000,000
Less cost of sales 45,000,000
Gross profits 75,000,000
Other Incomes Dividend(Net) 15,000,000
90,000,000
Less expenses
Salaries:
Adeline 5,000,000
Nuru 8,000,000
Aisha 9,000,000
Interest in Capital:
Adeline 2,000,000
Nuru 1,000,000
Aisha 3,000,000
Bad debt 1,500,000
Electricity 3,000,000
Audit fee 2,000,000
Rent 6,000,000
Legal fee 2,000,000
Depreciation 3,200,000
Repair and maintenance 1,200,000 (46,900,000)
Additional Information:
i. The repair and maintenance include 500,000RWF for the purchase of computer.
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ii. The dividend was received from a foreign investment in a Kenyan company net
of 15%
iii. Of the Bad debt 800,000RWF is still provisional
iv. On 1/9/2017 the new profit and loss sharing ratio was 1:1:1
v. Allowable capital allowance is 10,000,000RWF.
Required:
Compute the taxable profit of each partner and the tax liability.
Solution
Particulars Amount ‗RWF‘ Amount ‗RWF‘
Add back:
Interest on capital:
Adeline 2,000,000
Nuru 1,000,000
Aisha 3,000,000
Provision for bad debt 800,000
Repair and maintenance 500,000 10,500,000
53,600,000
Less amount not taxable income
Dividend Net (15,000,000)
38,600,000
Less capital Allowances (10,000,000)
Taxable partnership profits 28, 600,000
Add dividend income gross (100/85 x 15,000,000) 17,647,058
Total Taxable Income 46,247,058
Tax liability (30% x 46,247,058) = 13,874,117

Net profit (46,247,058 – 13,874,117) = 32,372,941x 8/12 = 21,581,961
4/12 x 22,472,941 = 10,790,980
Distribution Profit to Each Partner

Adeline Nuru Aisha Total
‗RWF‘ ‗RWF‘ ‗RWF‘ ‗RWF‘
Salary 5,000,000 8,000,000 9,000,000 22,000,000
Capital Interest 1,000,000 2,000,000 3,000,000 6,000,000
Profits to 31/08/2017 8,790,981 5,860,654 2,939326 17,581,961
Profits from 1/09/2017 2,930,327 2,930,326 2,930,327 8,790,980
Total 15,901726 15,166,118 16,735,608 54,372,941
Note: The total profit to be shared by the partners in the first period will be 21,581,961 –
(8/12 x 6,000, 000) and in the second period it will be 8,457,647 – (4/12x 6,000,000)
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TAXATION OF CORPORATIONS
The Scope of Corporation Tax
Companies pay corporation tax on their taxable total profits. Companies must pay
corporation tax on their taxable total profits for each accounting period. Looking at the
meaning of these terms below; a 'company' is any corporate body (limited or unlimited) or
unincorporated association, e.g. sports club.
Accounting Periods
An accounting period cannot exceed 12 months in length so a long period of account must be
split into two accounting periods. The first accounting period is always twelve months in
length. Corporation tax is chargeable in respect of accounting periods. It is important to
understand the difference between an accounting period and a period of account.
A period of account is any period for which a company prepares accounts; usually this will
be 12 months in length but it may be longer or shorter than this. An accounting period is the
period for which corporation tax is charged and cannot exceed 12 months. Special rules
determine when an accounting period starts and ends. For the Rwanda tax purpose an
accounting period starts from 1 st January and ends on 31st December.
An accounting period starts when a company starts to trade, or otherwise becomes liable to
corporation tax, or immediately after the previous accounting period ends. If a company has a
period of account exceeding 12 months (a long period), it is split into two accounting periods:
the first 12 months and the remainder. For example, if a company prepares accounts for the
sixteen months to 30 June, the two accounting periods for which the company will pay
corporation tax will be the twelve months to 31 December and the six months to 30 June.
Residence of Companies
A company is of Rwandan resident if it is incorporated in Rwanda or if it is incorporated
abroad and its central management and control is exercised in Rwanda.
Taxable Total Profits

Taxable total profits comprise of the company's income and chargeable gains (total profits)
less some losses and gift aid donations. It does not include dividends received from other
Rwandan resident companies.
Computation of Taxable Profits

Income includes trading income, property income, and income from non-trading loan
relationships (interest) and miscellaneous income. A company may have both income and
gains. As a general rule income arises from receipts which are expected to recur regularly
(such as the profits from a trade) whereas chargeable gains arise on the sale of capital assets
which have been owned for several years (such as the sale of a factory used in the trade).
A company may receive income from various sources. All income received must be classified
according to the nature of the income as different computational rules apply to different types
of income. The main types of income for a company are:
i. Profits of a trade
ii. Profits of a property business
57 | P a g e
iii. Investment income
iv. Miscellaneous income
The computation of chargeable gains for a company is dealt with later in this Text. At the
moment, you will be given a figure for chargeable gains in order to compute taxable total
profits. Losses are dealt with in detail later in this text, so, at the moment, some losses are
given tax relief by being deducted from total profits. A company's taxable total profits are
arrived at by aggregating its various sources of income and its chargeable gains and then
deducting losses and gift aid donations.
Here is a pro-forma computation.
Particulars RWF
Computation corporate tax
Profits from trading Xxxx
Less capital allowances (xxx)
Over sea incomes Xxxx
Rental income Xxx
Interest income from non-trading Xxx
Total profits xxx
Gifts and donations (xxx)
Taxable profits Xxx
Corporate tax 30% (xxx)
Less any relief xx
Corporate tax liability Xxx
TRADING INCOME
Adjustment of Profits
The adjustment of profits computation for companies broadly follows that for computing
business profits subject to income tax. There are, however, some minor differences. The
trading income of companies is derived from the profit before taxation figure in the income
statement, just as for individuals, adjusted as follows.
RWF
Profits before taxation X

Add expenditure not allowed for taxation purposes X
X
Less: Incomes not taxable as trading income X
Expenditure not charged in the accounts but allowable for the purposes of taxation X
Capital allowances X
(X)
Profit adjusted for tax purposes X
Allowable deductions
i. Director‘s fees paid out wholly and exclusively for the purpose of the business.
58 | P a g e
ii. The payment made between two associated companies.
iii. Director‘s salaries are also allowable.
Deductions not allowed.

1. Loans made to directors which become bad debt
2. Formation expenses
3. Dividends and other distribution from profits.
Property Business Income

Rental income is deducted in arriving at trading income but brought in again further down in
the computation as property business income. The calculation of property rental business
income follows income tax principles under article 43 of Law 16/2018. The income tax rules
for property businesses were set out earlier in this book.
Gross incomes XXX

Allowable expenses 10% (XX)
Depreciation (XX)
Interest expense (XX)
Taxable rental income XXX
Accounting Methods
Debits and credits must be brought into account using the Rwanda generally accepted
accounting practice (GAAP) or using the International Accounting Standards (IAS). This will
usually be the accruals basis.
Miscellaneous Income
Patent royalties received which do not relate to the trade are taxed as miscellaneous income.
Patent royalties which relate to the trade are included in trading income normally on an
accruals basis.
Example
Made in Rwanda limited operates a general merchandise shop for products that are made in
Rwanda. The accountant submitted the following information for the tax assessment
purposes:
Particulars RWF ‗000‘ RWF ‗000‘

Sales 450,000
Cost of sales (310,000)
Gross profit 140,000
Dividend 10,500
150,500
Less operating expenses
Salaries 40,800
Rent 25,500
Electricity 8,000
Insurance 1,500
59 | P a g e
Repair and maintenance 12,800
Bad debt 4,200
Office furniture 10,000
Communication 8,000
Dividends 25,500 (136,300)
Operating profit 14,200
Addition information:
i. The dividends were received from a local company net of 15% of withholding tax.
ii. Salaries amounting to 4,700,000RWF accrued
iii. Of the repair and maintenance 8,000,000RWF relates to extension of the building
iv. Of the bad debt, 2,500,000RWF is specific
v. Communication expenses relates to the money given to directors for
communication. It is difficult to separate the private and business transactions.
Required
Compute the taxable income and the corporate tax liability
Solution
Computation of Taxable Income and Tax Liability of Made in Rwanda

Limited for the Year Ended 31/12/2016
items Workings RWF „000‟ RWF „000‟
Operating profits 14,200
add back non allowable expenses
repair and maintenance 8,000
(4,200 -
bad debt 2,500) 1,700
office furniture 10,000
communication 20% x 8,000 1,600

dividends 25,500 46,800
61,000
less un recorded expenses
accrued salaries (4,700)
56,300
less un allowable income
dividend from local company (10,500)
Taxable income 45,800
30% x
Corporate tax 45,800 13,740
Example Four
The accountant of Nyange industries limited submitted the following for income tax
assessment for the year ended 31/12/2016.
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Items RWF ‗000‘
Sales 800,000
Purchases 540,000
Stock 1/1/2016 25,000
Stock 31/12/2016 42,000
Salaries 28,500
Rent 15,600
Depreciation 13,100
Insurance 8,500
Electricity 4,200
Drawings 1,500
Bad debt 2,000
Advertising 12,000
Communication 7,400
VAT 85,00
Dividends 12,750
Interest on a financing lease 4,300
Income tax 20,500
Dividend income 20,000
Accountancy and legal fees 6,000
Income from agriculture activities 18,000
Additional information:
i. The company has just listed 30% of its share in RSE
ii. The company employs 400 employees but only 250 employees earn a salary of
more than 30,000RWF
iii. The sales figure is inclusive of VAT
iv. The allowable capital allowance for tax purposes is 20,000,000RWF
v. Of the bad debt expenses, only 1,000,000RWF is specific
vi. The communication expenses relate to airtime loaded on the mobile telephones of
directors and it‘s hard to separate the private and business calls.
vii. The dividends income was received from a local subsidiary
viii. Of the legal and accountancy fees, include 2,000,000RWF for renewing the lease
agreement
Required
Compute the taxable income of the company for the year ended 31/12/2016 and the corporate
tax liability. Show by use of zero (0) the non-allowable expenses.
Solution
Computation of Taxable income and Tax Liability for Nyange for the Year Ended
31/12/2016
RWF
Items Workings „000‟ RWF „000‟
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800,000 x
Sales 100/118 677,966
cost of sales
opening stock 25,000
purchases 540,000
565,000
closing stock (42,000) 523,000
gross profit 154,966
less allowable expenses

salaries 28,500
rent 15,600
Depreciation 0
insurance 8,500
electricity 4,200
Drawings 0
bad debt 1,000
provision for bad debt 0
advertising 12,000
communication 80% x 7400 5,920
VAT 0
Dividends 0
interest on financing lease 4,300
income tax 0
accountance and legal fees 6000 – 2000 4,000 84,020
trading income 70,946
Add other incomes
dividends from local
companies O
18000 -
agricultural income 12000 6,000
taxable income 76,946
Corporate rate 30%
less share discount 5%
No. of employees discount 5%
applicable corporate rate 20%
tax liability 15,389
Example Five
Made in Rwanda limited is a registered company in Rwanda located in Bugesera district. The
company operates a number of branches and subsidiaries within and outside Rwanda. During
the year ended 31/12/2015, the accountant submitted the following information for tax
assessment.
Particulars RWF ‗000‘ RWF ‗000‘
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Sales 460,000
Cost of sales 280,000
Other incomes
Dividends 18,900
Profits 26,750
Interests 4,500 50,150
230,150
Operating expenses
Rent 38,890
Electricity 8,610
Donation 5,430
Salaries and wages 48,600
Depreciation 14,500
Bad debt 3,800
Advertising 13,800
Directors‘ allowances 20,700
Income tax 3,780
VAT 75,600
Communication 11,400
Dividends 8,200
(268,410)
Operating loss (38,260)
i. 10,000,000RWF of the dividend income was received from subsidiaries in Kenya.
The dividend was received net of 20%. The remainder was received net from the local
companies.
ii. The profit was received from the branch in Uganda and it was received net of 25%
income tax.
iii. The interest income was received from the long term government bond. The bond has
a maturity period of 10 years.
iv. Rent was paid 1/1/2015 to cover a period up to 30/3/2016.
v. The donation was made to charitable recognized organization.
vi. Salaries amounting to 6,470,000RWF remained outstanding. This amount has not
been recognized.
vii. The depreciation expenses relates to the following assets
Assets Land Building Computer Furniture Motor

and and fittings vehicle
accessories
Cost 50,000,000 120,500,000 12,800,000 10,700,000 25,960,000
Acc. Dep (15,500,000) (3,800,000) (1,500,000) (6,000,000)
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WDV 50,000,000 105,000,000 9,000,000 9,200,000 19,960,000
31/12/2014
viii. Included in the bad debt is the amount of 1,200,000 which is the provision for bad
debt which was made during the end of year after failing to meet the customer in
his shop.
ix. Included in the repair in maintenance is an amount of 6,000,000 for the extension
of the building. This amount has not been recognized in the cost of assets
x. The communication expenses relate to the money loaded on the mobile phones of
the directors which money is used for both private and business.
Required
Compute the taxable income, the tax liability and the tax payable.
Solution
Particulars Workings RWF ‗000‘ RWF ‗000‘
Add back non allowable
expenditure
Rent (38,890/15) x 3 7,778
Donation 1% x 460,000 = 830
4,600
5,430 – 4,600
Depreciation 14,500
Bad debt 1,200
Income tax 3,780
VAT 75,600
Communication 20% x 11,400 2,280
Dividends 8,200 120,168
81,908
Less non allowable income
Dividends 18,900 – 10,000 (8,900)
73,008
Less non trading income
Foreign dividends 10,000
Foreign profits 26,750
Interest 4,500 (41,250)
31,758
Less un recorded expenses
Salaries and wages (6,470)
25,288
Add back allowable business
income
Foreign dividends 10,000 x 100/80 12,500
Foreign profits 26,750 x 100/75 35,667
Interest 4,500 x 100/95 4,737 52,904
Business income 78,192
64 | P a g e
Less capital allowances N1 (18,115)
Tax liability 60,077 x 30% 18,023
Less double taxation relief
Tax on foreign profit 35,667 x 25% 8,916
Tax on dividend 12,500 x 15% 1,875
Withholding tax on interest 4,737 x 5% 237 (11,128)
Tax payable 6,895
Total
N1 Capital Allowances
Assets Land BuildingComputers Furniture Motor Total

and and vehicles
Bal b/d 50,000,000 120,500,000 9,000,000 9,200,000 19,960,000
Additional 6,000,000
Total 50,000,000 126,500,000 9,000,000 9,200,000 19,960,000
Dep rate 0 5% 50% 25% 25%
Depreciation 0 6,325 4,500 2,300 4,990 18,115
Example Six
Maddex limited is located in Nyamata it produces juice and water. The accountant submitted
the following information for the tax assessment for the period ended 31/12/2015.
Items RWF ‗000‘ RWF ‗000‘

Sales 300,000
Cost of sales (180,000)
Operating expenses
Salaries 30,000
Rent 18,000
Depreciation 10,800
Bad debt 8,000
Communication 2,900
Directors remuneration 8,300
Advertising 6,700
donation 5,400
Dividends 6,500
Income tax 12,800
Electricity 1,800
(125,700)
65 | P a g e
i. The closing stock at the end of the year was 28,600,000RWF. After the
preparation, they discovered that, the closing stock was over stated by 15%.
ii. The allowable expenditure for capital allowance is 11,950,000RWF
iii. Of the repair and maintenance, 8,000,000RWF was used to extend an additional
building to accommodate the new machinery.
iv. The communication expense is partly private and business. However, it is difficult
to differentiate the business calls from private calls.
v. The donation was made in the campaign for the Guma –Guma super star.
vi. The company has already made quarterly income tax contribution of
3,800,000RWF.
Required
a. Compute the taxable income of Maddex limited
b. Compute the income tax liability and the tax payable
Solution
Computation of Taxable Income of Maddex Limited for the Year Ended

31/12/2015
Particular Workings RWF ‗000‘ RWF ‗000‘
expenses
Depreciation 10,800
Communication 20% x 2,900 580
Donation 5,400
Dividends 6,500
Income tax 12,800 44,080
38,380
Less capital allowance (11,950)
Tax liability 30% x 26,430 7,929
Less quarterly payment (3,800)
Tax payable 4,129
Example Seven
Muvandimwe Ltd is a registered investor in Rwanda. The company is located in Huye and
maintains a branch in Burundi (Bujumbura) and other investments within East Africa. The
company processes and manufacture iron sheets, iron bars and other hardware materials. In
order to raise more capital to finance its operations, the company has just sold 20% of its
capital to the general public through Rwanda stock exchange market. The Accountant has
produced the following information for the tax purposes for the year ended 31/12/2017.
Particulars Notes RWF ‗000‘ RWF ‗000‘
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Sales 1 50,000,000
Cost of sales 2 (24,850,000)
Other incomes
Profit from the branch 3 650,000
Dividends 4 8,000
Interest 5 20,000 678,000
25,828,000
Operating expenses
Salaries and wages 6 6,000,000
Insurance 7 800,000
Directors‘ remunerations 8 650,000
Depreciation 9 185,000
Bad debt 10 5,000
Advertising 11 100,000
VAT 7,000,000
Income tax 12 450,000 (23,290,000)
Profit before tax 2,538,000
Notes:
1. The sales figure is VAT inclusive and during the year, the company exported
commodities worth 3,200,000USD. The average exchange rate during the year was
1USD = 720RWF.
2. Within the cost of sales, the opening stock is 100,000,000RWF and the closing stock
is 620,000,000RWF. Both the closing stock and the opening stock were overvalued
by 12%.
3. The profit from the branch is net of income tax of 25%
4. 30% of the dividends was received from the local companies and the remainder was
received from foreign companies and were received net of 20%withholding tax
5. The company made investment in Rwanda government securities. 50% of the interest
income was received from securities with a maturity period which are less than three
years; the remainder comes from securities with a maturity period of more than three
years.
6. Only ¾ of the insurance expired
7. Included in the directors‘ remuneration, is 5,000,000RWF for meeting allowances.
8. The depreciation expense was calculated on the following assets: the value of the
assets at the beginning of the period.
Assets Land Buildings Plant and Computer Other assets

machinery and
accessories
67 | P a g e
Cost 450,0000 800,000,000 1,000,000,000 250,000,000 690,000,000
WDV31/12/2016 450,000,000 680,000,000 850,000,000 95,000,000 518,000,000
During the year 2017, the company constructed another factory in Karongi and
incurred the following costs
Assets RWF ‗000‘

Land 200,000,000
Factory building 570,000,000
Plant and machinery 780,000,000
Computers and accessories 85,000,000
Motor vehicle three heavy trucks and one 320,000,000
small car for the manger. The cost of the
small car is 6,000,000RWF,
Furniture and fittings 28,000,000
9. A debtor of 1,680,000RWF was declared bankrupt by the court, the remainder of the
bad debt is a provision that was made at the end of the year after failing to trace the
customers.
10. Included in the advertising expenses, is a cost of 5,000,000RWFfor constructing a
sign post at the main load showing where the company is located.
11. The income tax relates to the unpaid tax of the previous year
12. During the year a debtor of 10,000,000RWF that had been written off was recovered
13. December salaries amounting to 20,000,000RWF accrued.
Required:
As a tax consultant, advise the company on its taxable income, tax liability and tax payable
for the year ended 31/12/2017.
Solution
Computation of Taxable Income and Tax Liability for Muvandimwe Limited

for the Year Ended 31/12/2017
Particulars Workings RWF „000‟ RWF „000‟
Add Back Non-
Allowable expenditures
Un expired insurance N7 200,000
Meeting allowances 5,000
Bad debt 3,320
Advertising 5,000
Income tax 450,000 848,320
Less VAT N1 (7,275,661)

68 | P a g e
Add VAT 7,000,000 (275,661)
Overvalue of opening N2 10,715
stock
Overvalued closing N2 (66,429) (55,714)
stock
Un recorded salaries (20,000)
Add bad debt recovered 10,000
3,044,945
Less non allowable
income
Dividend from local N4 (2,400)
companies
3,042,545
Less no operating
income
Foreign profits 650,000
Dividends 5,600
Interests 20,000 (675,600)
Profit from business 2,366,945
operations
Add allowable business
income
Foreign profit N3 866,667
Foreign dividends N4 7,000
Interest income N5 22,291 895,958
Total business income 3,262,903
Less capital allowances N9 (1,244,250)
Taxable business
income 2,018,653
Tax liability and Tax Payable

Taxable business income Tax rate 2,018,653
Corporate tax rate (since it 28%
sales 20% if its capital)
0%
Applicable corporate tax rate 28% 565,223
Less tax paid at source
Tax on foreign profit N10 216,667
Withholding tax on dividends N11 1,050
Withholding tax on interest 2,291 (220,008)
Tax Payable 345,215
Total
Workings:
N1 VAT on the sales
Exports are zero rated
69 | P a g e
Vatable sales = 50,000,000 – (3,200,000 x 720) = 47,696,000
VAT 47,696,000 x 18/118 = 7,275,661
Exclusive sales 50,000,000 – 7,275,661 = 42,724,339
N2 Overvalued closing and opening stock
Opening stock 100,000 – (100,000 x 100/112) = 10,715
Closing stock 620,000 – (620,000 x 100/112) = 66,429
N3 profit from the branch
Gross profit from the branch
650,000 x 100/75 = 866,667
N4 Dividends income
30% received from local company is not taxable
0.3 x 8,000 = 2,400
Gross dividends received from the foreign investments = 5,600 x 100/80 = 7,000
N5 interest income:
50% of the interest income which matures in less than one year is taxed at 15%
The gross interest income received will be 0.5 x20, 000 x100/85 = 11,765
Securities that matures in more than three years are taxed at 5% the gross income received
will be
10,000 x 100/95 = 10,526
N7 insurance
¾ x 800,000 = 600,000 800,000 – 600,000 = 200,000
N9 Depreciation and investment Allowances Figures in thousands RWF
Assets Land BuildingsPlant and Computers Other Total

machinery and assets
accessory
COST/WDV 450,000 800,000 1,000,000 95,000 518,000
Additional 200,000 570,000 780,000 85,000 348,000
assets
Investment 0 874,500
allowances 285,000 390,000 42,500 157,000
(50%)
Depreciable 650,000 1,085,000 1,390,000 137,500 709,000
value
Depreciation - 5% 5% 50% 25%
rate
Wear and 0 54,250 69,500 68,750 177,250 369,750
Tear
Total capital 1,244,250
allowances
70 | P a g e
N10 Foreign tax on foreign profit: Since the foreign tax rate is less than the local tax rate
then, the foreign tax rate is applied (25%).
N11 Withholding tax on foreign dividends: Since the foreign tax is higher than the local tax
rate, then the local tax rate is applied on the dividends (15%).
Example Eight
Mangingi limited is a manufacturing company located in Burera district. The company
started its operation on 1/9/2015. The company has not submitted its financial statement for
corporation tax assessment until 31/12/2016. The accountant of the company has provided
the following information for the tax purpose for the period ended 31/12/2016 as below:
Particulars Notes RWF ‗000‘ RWF ‗000‘

Sales 1 650,800
Cost of sales 2 (385,000)
Other incomes
Profits 3 64,200
Dividends 4 11,500
Interest 5 20,600 96,300
Gross income 362,100
Operating expenses
Deprecation 6 71,500
Salaries and wages 7 50,800
Electricity 12,100
Insurance 8 8,600
Donation 9 6,800
Transport 4,200
Communication 9,000
Advertising 21,100
Bad debt 10 8,700 (206,100)
Profit before tax 156,000
Notes to the Financial Statement

1. The sales figure is inclusive of VAT
2. Included in the cost of sales is the closing stock of 55,600,000RWF at the end of the
year they realized that the closing was understated by 8%
3. The profit was received from the branch in Kenya and it was received net of 35%
corporate tax.
4. 60% of the dividend income was received from local subsidiaries whereas the
remaining dividend was received from foreign subsidiaries. It was received net of
15% tax
5. During the period the company made investment in government bonds. The interest
income was received from long term government bond and it was received net of tax.
6. The depreciation was calculated from the following assets:
Assets Land Building Computers Other assets Plant and

71 | P a g e
and machineries
accessories
1/9/2015 50,000,000 150,000,000 30,000,700 117,870,000 105,895,500
cost
i. The motor vehicles include small car for the manager at a cost of
20,000,000RWF, others are heavy trucks
ii. Plant and machineries are heavy industrial equipment
iii. The company had purchased 20 hectors of land at 50,000,000RWF. During the
year 2016 it disposed of 5 hectors that had no use at 12,000,000RWF the value
of remaining land is 48, 000,000RWF. The incidental cost on sale is
800,000RWF.
7. 5,000,000RWF of the salaries and wages remained outstanding and therefore not
accounted for
8. 40% of the insurance expense relates to the accounting period commencing 1/1/2016
9. The donation was made to recognized charitable organization
10. The bad debt expense is a provision that was made at the end of the period after
failing trace the customers
Note: all expenses and revenues accrue evenly during the period
Required:
Advise the company on the taxable income, tax liability and tax payable
Solution
Computation of Taxable Income, Tax Liability and Tax Payable for Mungingi Limited
for the Period Ended 31/12/2016
Particulars Working Period ending 31/12/2015 Period ending 31/12/2016

PBT 156,000x 39,000 117,000
4/16
Add back non
allowable
expenses
Depreciation 71,500/4 17,875 53,625
Salaries and 0 0
wages
Electricity 0 0
Insurance 40% x 860
8,600)/4
Donation 1% x 321 964
551,526)/4
– 6,800
Repair and 0 0
maintenance
Transport 0 0
Communication 0 0
Advertising 0 0
Bad debt 8,700/4 2,175 21,231 6,525 60,814
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60,231 177,814
Less non
allowable
income
Dividend from 60% x (1,725) (5,175)
local industries 11,500/4
58,508 172,639
Less VAT 99,274/4 (24,819) (74,455)
33,689 98,184
Add under 55,600 x 4,835
stated stock 100/92
103,019
Less foreign 64,200/4 16,050 48,150
profit
Foreign 40% x 1,150 3,450
dividends 11,500/4
Interest 20,600/4 5,150 (22,350) 15,450 (67,050)
Operating 11,339 35,969
income
Less unpaid (5,000)
salaries
Net promoting 11,339 30,969
income
Add back
allowable
income
Foreign Profits 64,200 x 24,692 74,077
100/65 =
98,769/4
Interest 20,600 x 5,421 16,263
100/95 =
21,684/4
Dividend 4,600 x 1,353 31,466 4,059 94,399
100/85 =
5,412/4
Capital gain N2 1,200
Business 56,644 126,568
income
Less capital N3 (189,819) (34,636)
allowance
Profit before (133,175) 91,932
tax
Loss relief 133,175 (133,175)
Taxable profit 0 (41,988)
Tax liability 0 0
Tax paid at
source
Foreign tax At 30% 7,408 22,223
Withholding At 5% 271 813
73 | P a g e
tax on interest
Withholding At 15% 203 609
tax on
dividends
Tax claimable 7,882 23645
N1 VAT
VAT on sales 650,800 x 18/118 = 99,274.
N2 Capital gain
Cost of the land sold total cost x value sold)/ value of sold part +value of remaining part
(50,000,000 x 12,000,000)/ (12,000,000 + 48,000,000) = 10,000,000
Sales proceeds 12,000,000
Less incidental cost on sale 800,000
Net sales proceeds 11,200,000
Less allowable cost (10,000,000)
Capital gain 1,200,000
N3 Capital allowance
Assets Land Building Computers Other assets Plant and total

and machineries
accessories
Cost 50,000,00 150,000,000 30,000,000 117,870,000 105,895,000
1/9/2014 0
Investment 0 75,000,000 0 49,000,000 52,947,500 176,947,50
allowance 0
50%
Depreciabl 0 75,000,000 30,000,000 68,870,000 52,947,500
e value
Depreciatio 0 5% 50% 25% 5%
n rate
Depreciatio 0 3,750,000/ 15,000,000/ 17,217,500/ 2,647,375/ 12,871,625
n 3= 3 3= 3=
1,250,000 =5,000,000 5,739,167 882,458
Bal b/d 50,00,000 75,000,000 25,000,000 63,130,833 52,065,042
1/1/2016
Depreciatio 0 3,750,000 12,500,000 15,782,708 2,603,252 34,635,960
n
Note: The balance b/d is the total cost of the assets minus the total capital allowances. On the
other hand, the total capital allowances are the summation of depreciation and the investment
allowances.
Example Eight
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Century international limited is a registered investor in Rwanda located in Nyamagabe
district. The company owns a number of branches and subsidiaries within and outside the
country. The company deals in manufacturing of cement. The following transactions took
place during the year ended 31/12/2017.
i. Import CIF 580,000,000RWF
ii. Local purchase 140,600,000RWF inclusive of VAT
iii. Sales 1,500,000,000RWF inclusive of VAT of which 20% was exports
iv. Electricity exclusive of VAT 10,000,000RWF
v. Withholding tax on imports 12,400,000RWF
vi. Rent exclusive of VAT 32,800,000RWF
vii. Salaries 41,600,000RWF
viii. Donation 8,700,000RWF to allowable charitable organization
ix. Debit note on goods returned inclusive of VAT 3,500,000RWF
x. Advertisement exclusive 11,200,000RWF
xi. Bad debt 2,500,000RWF of which only one million relates to the customer that
was declared bankrupt
xii. Directors meeting allowances 14,650,000RWF
xiii. Repair and maintenance 25,300,000RWF this value includes extension of building
to accommodate a new machinery the cost of extension was 16,000,000RWF
xiv. Dividend from subsidiaries 18,000,000RWF of which 40% was received from
local subsidiaries. The dividend from foreign subsidiary in Uganda and was
received net of 25% withholding tax
xv. Profit foreign from a foreign branch in Kenya 85,650,000RWF received net of
20% income tax.
xvi. Depreciation of assets 28,500,000RWF
xvii. Loss from the previous year 120,000,000RWF
Other relevant information

a. The values of the assets are as below:
Assets Land Buildings Plant and Motor Computer Furniture

machineries vehicles and and
Cost 85,000,000 150,890,000 147,500,000 85,320,000 21,300,000 11,200,000

Accumulated 18,600,000 14,500,000 28,500,000 15,400,000 9,100,000
depreciation
WDV 85,000,000 132,290,000 133,000,000 56,820,000 5,900,000 2,100,000

31/12/2016
i. During the month of 1/4/2017, the company invested in other assets which
include building of 50,000,000RWF which includes an office valued at
6,000,000RWF, plant machineries 35,000,000RWF and a lorry at
40,000,000RWF.
75 | P a g e
ii. The company disposed of the old furniture at 3,400,000RWF
iii. Land was purchased in 2005 and it was 15 hectors. During the year 2015, the
company disposed of 5 hectors that is not used at 30,000,000RWF. The value
of the remaining land is 80,000,000RWF.
b. The company has just been listed on RSE market and it sold 20% of its stock
c. The company owns two properties in Nyarugenge which it rents various individuals.
The monthly rent per property 2,800,000RWF. The company pays all the expenses
related to the maintenance of the assets. The properties were purchased at
44,000,000RWF
Required:
As a tax consultant, advice the company on the taxable income of the company, the tax
liability and the tax payable indicate by use of Zero for the non-allowable expenses and
incomes.
Solution
Computation of Taxable Income, Tax Liability and Tax Payable of Century
International Limited for The Year Ended 31/12/2017
Particulars Workings RWF ‗000‘ RWF ‗000‘

Sales N1 Sales 1,316,949
Debit note 3,500 x 100/118 (2,966)
Net sales 1,313,983
Less allowable
expenses
CIF 580,000
Local purchases 140,600 x 100/118 119,153
Electricity 10,000
Rent 32,800
Salaries 41,600
Donation 1% x 1,313,983 8,700
Advertising 11,200
Bad debt 1,000
Director meeting 14,650
allowances
Repair & 25,300 – 16,000 9,300
maintenance
Depreciation 0 (828,402)
Trading income 485,581
Add other
incomes allowable
incomes
Dividend from 60% x 18,000 x 14,400
foreign subsidiary 100/75
Profit from 47,458 + 85,650 154,521
subsidiary x100/80
76 | P a g e
Gain on sale of 1,300
furniture
Gain on sale of N2 6,818
land
Rental income N3 28,040 205,079
Total business 690,660
income
Less capital N4 (69,750)
allowances
Less allowable (120,000)
loss relief
Taxable business 500,910
income
Tax Liability
CIT Rate 28% 140,254.8
Less double tax
relief
Tax on foreign 14,400 x15% (2,160)
dividend
Tax on foreign 154,521 x20% (30,904)
profits
Tax payable 107,190.8
N1 Sales amount in thousands RWF
Export 1,500,000 x 20% 300,000

VAT is 0%
Other sales 1,200,000 x 100/118 1,016,949
Total 1,316,949
N2 Gain on sale of Land amount in thousands RWF
Proceed from sale of land 30,000

Less the cost of land 85,000 x 30,000 (23,182)
disposed 30,000 + 80,000
Gain on disposal 6,818
N3 Rental Income amount in thousands RWF
Gross rent 2,800 x 12 33,600

Less allowable expenses 10% x 33,600 (3,360)
Depreciation (5% x 44,000) (2,200)
Taxable rental income 28,040
N4 Capital allowances amounts in thousands RWF
Assets Buildings Plant and Computer Other Capital

Machinery and assets allowances
accessories
77 | P a g e
Cost/ WDV 1/1/2015 150,890 147,500 5,900 58,920
Additional assets 50,000 35,000
Total 200,890 182,500 5,900 98,920
Disposal (3,400)
Investment 25,000 25,000
allowances
Depreciable value 175,890 182,500 5,900 95,520
Wear and Tear rate 5% 5% 50% 25%
Wear and Tear 8,795 9,125 2,950 23,880 44,750
Total capital 69,750
allowances
Example Nine
Aqua limited processes and manufactures soft drinks which include Aqua water, Aqua juice,
Aqua soda and Aqua energy drink. The company is registered and has its central management
in Kigali Rwanda. The company owns two subsidiaries one in Mauritius and another in
Southern Sudan. There is a double tax agreement between Mauritius and Rwanda but no such
agreement with Southern Sudan. The subsidiaries are 100% owned. Below is the consolidated
income statement of Aqua limited and group for the year ended 31/12/2016.
Items Note RWF ‗000‘

Sales 1 72,000,000
Purchases 2 55,000,000
Profit from branches 3 23,500,0000
Sale of old machineries 4 50,000
Interest income 5 800,000
Capital gain 6 250,000
Property income 7 400,000
Salaries 9 1,200,000
Advertising 10 800,600
Electricity 11 400,000
Rent 12 780,000
Insurance 13 647,000
Repair and maintenance 14 470,000
Legal and accountancy fees 15 500,000
Interest 16 240,000
Bad debt 17 18,000
Property expenses 18 230,000
Fuel 45,000
Transfer to reserves 30,000
Income tax 112,000
Fines and penalties 19 20,000
Research and development 20 44,000
Staff development 21 55,000
Donations 22 142,000
Contribution to state pension 800,000
fund
78 | P a g e
Notes:
i. The sales are VAT inclusive and are categorized as below:
Items Amount RWF ‗000‘

Local sales 57,000,000
Export to external market 15,000,000
Total 72,000,000
ii. The purchases are categorized as below:

CIF 46,000,000
Local purchases inclusive of VAT 9,000,000
Total 55,000,000
iii. Profits from branches is categorized as below

Profits from Mauritius 15,000,000 Net of 40%
Profits from southern 8,500,000 Net of 25%
Sudan
Total 23,500,000
iv. The interest income is categorized as below:

Fixed deposits from Bank of Kigali net 250,000
Short term government securities net 150,000
Long term government securities 400,000
Total 800,000
v. The capital gain is categorized as below

Shares in Kampala stock exchange 100,000 net 15%
market
Shares in Rwanda stock exchange 150,000 net 20%
market
Total 250,000
vi. The company owns two properties in Gasabo district. The property income was
received from these properties.
vii. The depreciation was calculated on the following assets
Assets Buildings Plant and Computer Motor Furniture

Machinery and vehicles and fittings
fixed accessories
Cost/WDV 540,000 885,000 85,000 500,000 45,000
(000) RWF
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Additions 260,000 250,000 15,000 450,000 20,000
on 1/7/2016
Disposal 50,000
viii. Salaries amounting to 400,000,000RWF remained outstanding during the year and
there is no record for this amount.
ix. Adverting is inclusive of VAT
x. Electricity is inclusive of VAT
xi. Rent was paid on 1/1/2016 to cover a period up to 31/3/2016
xii. 20% of the insurance expense has not yet expired
xiii. The repair and maintenance is categorized as under

Repair of motor vehicles 270,000
Painting the buildings 50,000
Extension of the buildings 150,000
Total 470,000
xiv. The legal and accountancy is categorized as under

Renewal of lease agreement 200,000
Audit fees 150,000
Bad debt collection 50,000
Defending the company for breach of 100,000
contract
Total 500,000
xv. 50% of the interest expense is on a finance lease and another 50% is on the
debenture issued by the company.
xvi. The bad debt expense is a provision that was made after failing to trace the
customer for a period of three years
xvii. The property expenses relate to maintenance of properties located in Gasabo
xviii. The fines and penalties was charged to the drivers of the company for overloading
and speeding
xix. The research and development relate to the scientific research that was made to
improve the company‘s products in the market
xx. The staff development expenses are categorized as under
Items Amount (000)

Staff training on new software 30,000
School fees Sponsorship to two 25,000
employees on master‘s program
Total 55,000
xxi. The donation was made to recognized charitable organization
xxii. A bad debt of 40,000,000Rwf that was previously written off was recovered.
80 | P a g e
Required:
a. Compute the taxable income of Aqua limited and group for the year ended
31/12/2016
b. Compute the tax liability and the tax payable for the group for the year ended
31/12/2016
Computation of Taxable Income, Tax Liability and Tax Payable of Aqua Limited and
Group for the Year Ended 31/12/2016 [Figures in (000) RWF]
Amount amount
Workings (000) (000)
SALES N1 63,305,085
Add other incomes
profits from branches N2 36,333,333

sale of old
machineries 50,000
capital gain on shares
at RSE 0
capital gain on shares
at KSE 100,000x100/80 125,000
Interest N3 891,641
property income N4 200,000
bad debt recovered 40,000 39,973,307
gross income 103,278,392
Less allowable costs

purchases N5 53,627,119
Depreciation 0
1,200,000 +
salaries 400,000 1,600,000
800,600 x
advertising 100/118 678,475
400,000 x
electricity 100/118 338,983
rent 780,000 x 12/15 624,000
insurance 647,000 x 80% 517,600
repair of motor
vehicle 270,000
painting of the
building 50,000
extension of the
building 0
Renewal of lease
agreement 0
Audit fees 150,000
Bad debt collection 50,000
81 | P a g e
defending company 0
interest 240,000
bad debt 18,000
property expenses 0
communication 85,000
Fuel 45,000
Transfer to reserves 0
income tax 0
fines and penalties 0
Research and
Development 44,000
staff training 30,000
school fees 0
donations 142,000 58,510,176
business income 44,768,216
less capital allowances N6 (811,500)
Taxable business
profits 43,956,716
Tax Liability
Corporate Rate 30%
less export credit 0%
Applicable rate 30% 13,187,015
less Double tax relief
profit from Mauritius 7,500,000
profit from Southern
Sudan 2,833,333
capital gain on KSE 25,000
withholding tax on
deposits 44,118
withholding tax on
short sec. 26,471
witholding on long
sec. 21,053 (10,449,975)
tax payable 2,737,040
N1 SALES
(57,000,000
Local sales 57,000,000 x100/118) 48,305,085
exports 15,000,000 Zero rated 15,000,000
63,305,085
N2 profit from
Branches
Mauritius 15,000,000x100/60 25,000,000
southern Sudan 8,5,00,000x100/75 11,333,333
36,333,333
82 | P a g e
N3 interest income
fixed deposit from BK 250,000 294,118
short gvt securities 150,000 176,471
long term securities 400,000 421,053
total 891,641
N4 property income
gross property income
gross income 400,000
less allowable
expenses 200,000
200,000
N5 purchases
CIF 46,000,000 46,000,000
local purchases 9,000,000 7,627,119
53,627,119
N6 Capital Allowances
Other Capital
building Machineries computers assets allowance
Cost/WDV 540,000 885,000 85,000 545,000
additional 260,000 250,000 15,000 470,000
Investment all. 50% 50% 0% 50%
130,000 125,000 225,000 480,000
disposal (50,000)
dep Value 670,000 1,010,000 100,000 725,000
W &T rate 5% 5% 50% 25%
W &T 33,500 50,500 50,000 181,250 331,500
Total Cap Allow. 811,500

1. Vangado Ltd is a prominent transport company with its office located in the central
business district of Rwanda. The following is the statement of profit or loss and other
comprehensive income for its operations for the year ended 31 December, 2016.
Particulars Notes RWF ―000‖ RWF―000‖
Revenue 600,000
Other Income 5 200,000
Less: operating expenses:
Salaries & wages 100,000
Rent 50,000
Telephone expenses 1 40,000
Repairs and maintenance 2 200,000
Directors allowances & expenses 60,000
Bad debts provision 30,000
Electricity and water 3 20,000
83 | P a g e
Traffic penalties/ fines 10,000
Depreciation 5,000
Transport licenses fees 15,000
Pay as you earn (PAYE) 30,000
Total operating expenses 560,000
Net profit 240,000
(i) The company‘s telephone was used for both business and private purposes.
(ii) The figure for repairs and maintenance includes Frw 50,000 for replacement of
company truck engine.
(iii) During the company‘s external audit, it was discovered that 50% of the expenses
for electricity and water did not have supporting accounting documentation.
(iv) The company had capital allowances of Frw 4,500 for the period.
(v) Other income includes Frw 40,000 relating to foreign exchange gains.
2. Delta Manufacturers Rwanda Ltd (DMRL) is a privately-owned water purifying and

bottling company, incorporated in Rwanda. Its head office is located in Kigali city and
has branches in Gisenyi, Butare, Byumba and Rwamagana. DMRL is not a registered
investor.
The following is DMRL‘s statement of profit or loss and other comprehensive income for
the year ended 31st December, 2015:
Notes Frw “000”

Revenue 6,980,187
Cost of sales (2,920,037)
Other income 1 892,800
Operating income 4,952,950
Operating expenses:
Staff costs 2 (1,282,946)
Depreciation and 3 (484,976)
amortization
Rent (230,000)
Provision for bad debts 4
Advertising (944,500)
Donations 5 (50,000)
Repairs and maintenance 6 (85,000)
Other operating expenses 7 (676,672)
Total operating expenses (3,807,094)
Notes:
1. Other income includes:
a) Foreign exchange gains Frw 566,725,000.
b) Gain on sale of shares held in Bralirwa Ltd, a company listed on the Rwanda
Securities Exchange of Frw 126,075,000.
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c) Interest income on fixed deposit account in the bank Frw 200,000,000.
2. An amount of Frw100,000,000 paid to the directors as their bonus and sitting allowances
for the year ended 31 December, 2015 has been included in staff costs.
3. The book value of the depreciable assets owned by the company as at 1 January, 2015
were:
Frw ―00‖
Computers and software 350,425
Other assets 2,735,450
The cost of the factory building that was constructed in 2010 when the company
commenced production was Frw 200,000,000. The company did not purchase any
other assets during the year.
4. The company sold packed water to Mr. Karekezi who had a wholesale shop in Remera,
Kigali for Frw53,000,000 on credit during the month of February, 2015. Mr. Karekezi
travelled to the United States in march, 2015 and had not returned by the end of the year.
The wholesale shop has been closed and it is not clear whether he will come back into the
country.
5. The donation was made to Vuruga Ltd, one of the customers for the company who is
engaged in general trading business.
6. Included in repairs is an amount of Frw 50,000,000 for the reconstruction of the main
factory store in Kigali.
7. Other operating expenses include:
Frw “000”
Fines to Rwanda Environment Management Authority (REMA) 40,000
Mobile telephone expenses (the company is unable to track the 35,000
business and private use)
Other expenses (all deductible) 601,672
Total 676,672
The company made the quarterly tax payment of Frw 200,000,000 during the year.
Required
(a) Compute the taxable income and the tax liability for Delta Manufacturers Rwanda Ltd
for the year ended 31 December, 2015.
(b) Indicate the due date for the payment of the tax.
3. XYZ Ltd runs a business selling construction materials. The company‘s summarized the
statement of profit or loss for the year ended 31 st December, 2013 is as follows:
Frw (000) Frw (000)
Operating expenses 250,000
Depreciation Note 4 30,000
Personal consumption expenses Note 1 40,000
Donation and gifts Note 2 30,000
Other expenses Note 3 280,000 (630,000)
Operating profit 124,000
Notes:
85 | P a g e
1. Personal consumption expenses include 10,000,000 Frw paid for medical expenses of
the Managing Director of the XYZ ltd, 20,000,000 Frw paid for entertainment of the
wife and children of the sales representative.
2. Donations are given to the charity organization
3. Other expenses include the following:
Cash bonuses and attendance fees paid to members of board of directors 15,000,000
Political donations 5,000,000
Gifts to customers (pen and clocks costing displaying the company 1,000,000
name
4. Depreciation was calculated using the company depreciation policy on 31st December,
2013
Cost of acquisition Net book value Tax

depreciation
Plant and machinery 30,000,000 15,000.000 25%
Building 40,000,000 20,000,000 5%
Computer and IT equipment 15,000,000 7,000,000 50%
Moto vehicle 10,000,000 6,000,000 25%
Furniture and fittings 3,000,000 1,500,000 25%
Required
Calculate XYZ Company‘s tax adjusted trading profit for the year ended 31 st December, 2013
and corporate income tax to be paid by XYZ Company.
5. Melinda Ltd is registered in Rwanda, and deals with trade of goods and services. The
company's 2014 annual turnover was Frw 1 billion inclusive of VAT. The company
incurred the following expenses: Rent of expatriate staff Frw 30 Million, mobile
telephone expense for expatriate staff Frw 16 Million, and withholding tax on foreign
payments Frw 30 Million, Reverse Charge VAT not claimable Frw 14 Million.
In addition, the company bought a new building in the same year at a cost of 1 billion Francs
which was commissioned in October 2014 and started being used in November 2014. In the
same year, the company bought three five sitter cars at a cost of Frw 8 Million each and two
busses of 24 sitters at a cost of Frw 40 Million each. In March 2014, Melinda Ltd bought
computers worth Frw 70 Million and softwares worth Frw 32 Million were installed a month
later.
1. Bellinda Ltd has a valid investment certificate of Frw 300 Million and has listed 35%
of its shares in the Rwanda Stock exchange.
2. Bellinda Ltd paid Frw 40 Million as withholding tax of 5% at customs in the same
year and had no tax clearance certificate (quitus fiscal). Software can be downloaded
on website without being cleared through customs since it is an intangible asset.
Customs penalized Bellinda Ltd Frw 5 Million for not declaring the software in the
customs system.
3. The company had 200 employees, out of which 20 were declared on payroll for six
months.
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4. The company had trade payables totalling to Frw 150 Million as at 31 December
2014, just waiting for invoices to pay. No VAT was claimed because although the
service had been rendered, the requirement of the supplier is that you cannot pay
without an invoice.
5. Bellinda's turnover for VAT from January to December 2014 and that of Profit and
Loss do not agree as the turnover for VAT is higher than that recorded in the Profit
and Loss account by Frw 150 Million. The accountant could not explain the
difference to the RRA as he had failed to make reconciliation.
Required
Compute the Corporate Income Tax to be paid by Bellinda Ltd for the year ended 31
December 2014 and subsequent quarterly prepayments, and show the dates the tax and
prepayments are due and payable.
6. The following information relates to Skol limited for the financial year ended 31/12/2012
Trading profits 380,000,000

Interest receivable 9,000,000
Property income 12,000,000
Chargeable gain 21,000,000
Dividend income 45,000,000
Gift and donations 2,200,000
Compute the taxable profit and the tax liability of the company
7. The following statement of comprehensive income was prepared by the accountant of

Horizons limited
Gross profit from trading 25,620,000
Profits from sale of premises 1,750,000
27,370,000
Expenses
Advertising 642,000
Bad debt 75,000
Light and heat 372,000
Miscellaneous Exp, 347,000
Motorcar expenses 555,000
Repair and maintenance 1,057,000
Repair and Renewals 2,598,000
Staff wage 12,124,000
Telephone 351,000 20,502,000
PBT 6,868,000
Additional Information
i. The profits on the sale of premises relates to the sale of industrial unit in which the
company stored papers.
ii. Miscellaneous expense include:
Subscriptions to printers association 45,000
Contribution to the local enterprise agency 50,000
87 | P a g e
Gifts to customers:
Calendars 75,000
Two foods hamper 95,000
iii. Directors use the motorcar 75% for the business purpose and 25% for private
purposes.
iv. Repair and renewal include the following
Repair of motor vehicle 522,000
Redecoration of office 429,000
Building extension 1,647,000
Required
Calculate the company‘s taxable profits and tax liability
8. Jogo limited is incorporated in Rwanda and acquired an investment certificate of

800,000,000rwf as a manufacturing company. The company is located in Bugesera
district. The company started its operation on 01/1/2014. The company operates a
number of subsidiaries and branches within and outside the country. In order, to improve
on its operations, the company issued 20% of its stock to the general public. Below is the
submitted income statement for tax purpose for the year ended 31/12/2015.
Particulars Notes Amount (000) Amount (000) RWF

RWF
Sales 1 16,500,000
Cost of goods sold 2 (10,400,000)
Other incomes
Profits from subsidiaries 3 76,100
Dividends 4 58,000
Interest 5 33,700 167,800
6,267,800
Operating expenses
Rent 7 258,300
Insurance 60,500
Bad debt 8 120,700
Electricity 85,600
Repair and maintenance 9 144,000
Donation 10 104,000
Machineries expenses 12 35,800
Property expenses 13 78,000
Directors remuneration 14 18,5000
Transfer to reserves 185,000
VAT 15 5,000,000
Accountancy and legal fees 16 8,000,000
Agricultural expenses 17 15,500 14,763,900
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Operating loss 8,496,100
Notes:
i. The sales figure is inclusive of VAT and 50% of the sales revenue is from exports
ii. The value of cost of goods sold includes an amount of 185,000,000RWF which the
director gave out as bonus to the employees at the end of year party. The market of
this stock is 200,000,000RWF.
iii. 40% of the profits received is from a local branch where JOGO owns 100% of stock.
The remaining 60% is from a foreign subsidiary and it was received net 35% income
tax.
iv. 60% of the dividend income was received from a local subsidiary, the remainder is
from a foreign subsidiary and it was received net of 10% withholding tax.
v. During the period company invested in government securities with a maturity period
of 2 year. The interest income was received from those securities
vi. 20,000,000RWf of the salaries and wages accrued there are no records relating to this
figure.
vii. Rent was paid on 1/1/2015 to cover a period up to 31/3/2016
viii. 80% of the bad debt expenses, relates to the provision that was made on 31/12/2015
after failing to trace the customer anywhere.
ix. Of the repair and maintenance, 8,000,000Rwf relates to expenses incurred during the
partitioning of the offices for the new employees
x. The donation was made to charitable organisation
xi. The depreciation expenses, relates to the following assets
 Building acquired on 1/1/2015 at 120,000,000. This building contains an
administration block valued at 45,000,000rwf.
 Machineries were purchased on 1/1/2015 at 165,800,000Rwf
 Two heavy trucks at a cost of 50,00,000rwf each a 15 sitter vehicle at
20,000,000rwf, two four sitter vehicles at a cost of 8,000,000rwf each all on
1/1/2015
 Ten computers at a cost of 1,200,000rwf each a software at 4,000,000 and
other computer accessories at 2,000,000rwf. On 1/1/2015
 Furniture and fittings at 17,500,000rwf on 1/1/2015
xii. The company owns machineries which are rented to various individuals the
machineries expenses relates to maintenance of these machineries
xiii. The property expenses relates to the maintenance of the property
xiv. The directors‘ remuneration includes 4,000,000rwf for meeting allowances. The
remainder are official emoluments of the directors.
xv. The VAT for the period was not paid
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xvi. Legal and accountancy fees include; 3,800,000 audit fees, 2,000,000 company
registration fees, 1,600,000 for the renewal of lease agreement, and 1,600,000 debt
collection fees.
xvii. The company owns a farm in Bugesera it carries out agricultural activities. The
agricultural expenses relates to the farm.
Other relevant Information not considered

xviii. The company owns machineries that it rents to various individuals. The machineries
where purchased on 1/1/2015 at a cost of 407,800,000Rwf. During the purchase, the
company borrowed 20,000,000RWF from BK and pays an annual interest rate of
15%. During the year, the company received a gross income of 2,000,000,000RWF.
xix. The company owns a property in Nyamata. Which it rents to various individuals.
During the year, the company received a gross income of 4,500,000,000RWF. The
properties are registered under the company‘s names and were purchased using
equity.
xx. The company owns a farm in Nyamata where it carries out agricultural and livestock
activities. The company received a gross income of 1,500,000,000RWF and incurred
expenses of 200,000,000RWF in the maintenance of the farm.
xxi. The company had 10 hectares of land carrying on florist business. The land was
purchased in 2014 at a cost of 50,000,000RWF. During the year ended 31/12/2015,
the company disposed of 4 hectares at 25,000,000RWf and the value of the remaining
land is 40,000,000RWF.
xxii. Debtor of 14,000,000RWF that was written off in full in 2014, appeared and settled
his amount in full
xxiii. The company disposed of old furniture at 11,000,000RWF.
Required
Determine the taxable income and the corporate tax payable for the period use zero for the
allowable expenses and non-allowable incomes
9. Drop Rwanda limited is a registered company in Rwanda and received a RDB investment
certificate 1,000,000,000RWF to operate as a manufacturing company. The company
manufactures a number of products which are sold both locally and exported. The
company operates a number of subsidiaries and branches both within and outside
Rwanda. In order to finance its growth, the company listed 30% of its stock on RSE in
2010. Below is the submitted income statement for the year ended 31/12/2016 tax
purposes.
Particulars Notes Amount (000) RWF Amount (000) RWF

Revenues 1 90,000,000
Cost of sales 2 (88,000,000)
Other incomes
Interest 3 25,000
Dividends 4 10,000
Profits 5 54,500
Agriculture 6 11,000
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Less expenses
Salaries 7 485,000
Electricity 10,200
Insurance 9 29,600
Donation 10 16,800
Entertainment 11 20,800
Interest 12 600,000
Bad debt 13 65,000
Research development 14 150,000
Advertising 289,000
Sales commission 120,500
Accountancy and legal 15 20,800
General expenses 16 60,000
Fines and penalties 300,000
Notes:
1. 50% of the sales are exports
2. The cost of sales was calculated under the following ways
Opening stock 150,000,000

Purchases:
CIF 65,000,000,000
Exercise duty 2,500,000,000
VAT 800,000,000
Customs duty 200,0000,000
Customs storage 100,000,000
Transport from Dar - Kgl 320,000,000
Clearing and forwarding 12,000,000
Infrastructure tax 2,500,000
Local purchases 20,000,000,000 88,934,500,000
Closing stock 1,084,500,000
Cost of sales 88,000,000,000
3. The interest were received from short term government securities with a maturity
period of two years
4. 40% of the dividends were received from a local subsidiary and 60% from a foreign
subsidiary in Kenya and it was received net 20% withholding tax
5. The profits were received from a subsidiary in Uganda and it was received net of 25%
income tax
6. The company owns a farm in Bugesera. The agriculture income was received from
that farm gross
7. The salary expense is classified as under
Salaries to the employees 300,000,000

Salaries to the directors 100,000,000
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Meeting allowances directors 30,000,000
Bonuses to directors 20,000,000
8. The depreciation was calculated from the following assets
Assets Land Buildings Plant and Motor Comp. & Furniture

machinery vehicle accessories & fittings
Cost/WDV 200,000 950,000 800,000 350,000 18,000 30,000
(000)
RWF
1/1/16
Additions 100,000 400,000 250,000 200,000 20,000 38,000
(000)
RWF
Note i.
i. The motor vehicles are classified as under
Two trucks which carries 20 tones 130,000,000

One minibus 25 sits 40,000,000
Rav4 new model 30,000,000
Total 200,000,000
9. A third of the insurance expense has not yet expired
10. The donation was made to charitable recognized organization
11. The entertainment expenses are classified as under
Labour day party for the employees 8,400,000

End of year part for the employees 5,000,000
Party for the customers 7,400,000
Total 20,800,000
12. The company‘s equity capital is 30,000,000,000RWF. The company issued a debt of
150,000,000,000RWf. The interest expense relates to this debt.
13. The bad debt expenses are classified as below:
Customer declared bankrupt by the court 38,000,000

Provision made at the end of the year for 27,000,000
a customer who has disappeared for two
years
Total 65,000,000
14. The research and development is categorized as below
Market research 50,000,000

Architectural plan for the new building 25,000,000
Training employees on new software 20,000,000
Development of new product 55,000,000
Total 150,000,000
15. The accountancy and legal is classified as under
Audit fees 6,400,000
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Renewal of finance lease agreement 4,000,000
Revaluation of assets 4,400,000
Debt collection 6,000,000
Total 20,800,000
16. All expenses with no supporting documents were classified as general
Required: Compute the taxable business income, tax liability and tax payable of Drop
Rwanda limited for the year ended 31/12/2016.
10. Real Manufacturers Rwanda Ltd (RMRL), a Rwanda resident company manufactures
various concrete building products. The main factory is located in Gisenyi in the Western
Province of Rwanda. The company manufactures bricks, roofing tiles and paving blocks
using special technology developed in South Africa by Real Manufacturers International
Ltd, a company incorporated in South Africa. RMRL is a subsidiary of Real
Manufacturers International Ltd (RMIL) which holds 100% shares in RMRL. RMRL has
an investment license issued by the Rwanda Development Board. RMRL is therefore a
registered investor. Rwanda and South Africa have an agreement for the avoidance of
double taxation (DTA) in either country that became effective on 3 August, 2010.
The sand that is used as the major raw material is supplied by Majambere Ltd, a company
incorporated in Rwanda and located in Gisenyi. All the sand is mined within Rwanda.
However, ensure the maintenance of the required standard per the patent, the other raw
materials including cement, gypsum and ash fly are imported from South Africa and
supplied by RMIL, the parent company. The patent for the concrete products is held by
RMIL and is registered in South Africa. RMRL pays a royalty fee to RMIL for the
permission to manufacture the concrete products in Rwanda. The company also pays
technical fees to RMIL for the service the company provides in form of seconding
engineers and supervisors to RMRL. The following is RMRL‘s statement of profit or loss
and other comprehensive income for the year ended 31 December, 2016.
Notes Frw ―000‖ Frw ―000‖

Turnover 10,000,000
Interest Income 277,500
10,277,500
Expenses:
Manufacturing 1 5,555,000
Selling and distribution 2 1,590,000
Administrative 3 685,000
Finance 4 40,500
Other operating expenses 5 500,000 (8,370,500)
Notes:
1. Included in the manufacturing expenses:
Frw ―000‘
Depreciation of plant and machinery 1,625,000
Raw material costs 1,000,000
Salaries and wages 1,250,000
Royalty payment to RMIL 625,000
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Technical fees (paid to RMIL) 250,000
Electricity and water 800,000
Total 5,550,000
2. Included in selling and distribution expenses:
Frw ―000‖
Advertising 500,000
Transport 390,000
Bad debts written off (i) 100,000
Donations (ii) 180,000
Entertainment ( prospective customers) 40,000
Branding 380,000
Total 1,590,000
(i) Bad debts written off:

Frw 80,000,000 has been written off in the books of accounts and the company has gone
through the court process to recover the money. The case in court was decided against the
company and there is no hope of ever recovering the money. The remaining Frw 20,000,000
represents the amounts that are doubtful but no measures have been taken to recover the
outstanding amount yet.
(ii) Donations:
Frw 130,000,000 was donated to Gisenyi Development Association a registered charitable
organization, while Frw 50,000,000 was made to Manzi Ltd, a trading company that deals
with building materials.
3. Administrative expenses comprised:
Frw “000”
Salaries and wages 225,000
Directors‘ bonus and allowances 125,000
Fines paid to the local authority 5,000
Telephone expenses (iii) 12,000
Office supplies 30,000
Motor running costs 120,000
Auditors fees 20,000
Other professional fees 148,000
Total 685,000
(iii) The company mainly uses mobile phones. The expenses related to the subscription and
airtime loaded on the staff phones on a weekly basis. The company does not have a system to
allow staff account for the time spent on private and official calls.
4. Finance costs included:

a) Interest paid on the loan that was given to the company by RMIL. RMRL got a loan
of Frw 125,000,000 at an interest rate of 10% per annum. The interest for the year
2016 of Frw 12,500,000 is included in the finance costs. The total share capital of
RMRL comprises of 100,000 shares of Frw 250 per share.
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b) The remaining amount of Frw 28,000,000 relates to interest paid to commercial banks
in Rwanda in relation to the loans obtained. The amount borrowed was used for
business purposes.
5. Other operating expenses represent an amount that was paid to Worldwide Researchers
Ltd (WWRL), a company incorporated in France that was engaged to carry out research
on the effectiveness and suitability of the building products in Rwanda. The researchers
conducted their work in Rwanda but the money was paid to France.
1. Information relating to fixed assets:
(a) The cost of constructing the factory building was Frw 500,000,000 and was first used
with effect from 1 January, 2014. An extension to the factory was constructed for Frw
200,000,000 and put to use commencing on 1 January, 2016.
(b) The written down values of the assets as at 1 January, 2016 were:
Frw ―000‖
Computers and accessories, information and communication 62,500
systems, software products and data equipment
Other business assets 2,881,250
(c) Additions during the year:
Frw ―000‖
Machinery ( not fixed to the walls) 102,000
Computers 10,000
3 Distribution trucks each at Frw 50,500,000 151,500
One 5-seater salon car (for the Finance Director) 20,000
(d) Disposals during the year:

Two delivery trucks that were purchased for Frw 40,000,000 each on 1 January, 2015
were sold for Frw 35,000,000 each on 30 June, 2016. This was because they were
found unsuitable for the purpose they had been purchased.
2. The company paid the quarterly tax prepayment for 2016 of Frw 720,000,000. The
balance of tax payable for 2015 and 2016 were all paid in time.
3. The company employs an average of 180 Rwandans in addition to other staff from
Uganda, the Democratic Republic of Congo and South Africa.
Required
(a) Advice RMRL on the taxable income and the corporate tax payable for the year ended
31 December, 2016.
(b) Comment on implications of the DTA between Rwanda and South Africa on the
withholding tax obligations of the company and compute the withholding tax that was
paid to the revenue authority, given that the company was compliant with all their
withholding tax obligations during the year 2016.
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LOSS CARRIED FORWARD
According to Article 32 of Law 16/2018 if the computation of business profit results in a loss
during a tax period, the loss may be deducted from the business profit in the next five (5) tax
periods, earlier losses being deducted before later losses.
However, the Tax Administration may authorise the taxpayer who so applied for, the loss
carried forward of more than five (5) tax periods if s/he fulfils requirements determined by an
Order of the Minister.
During a tax period, foreign sourced losses cannot be deducted from either present or future
domestic sourced business profits. If during a tax period, the direct and indirect ownership of
the share capital or the voting rights of a company, whose shares are not traded on a
recognized stock exchange changes more than twenty five per cent (25%) by value or by
number, the provisions of Paragraph one of this Article ceases to apply to losses incurred by
that company in the tax period and previous tax periods.
The Computation of the Loss

The trade loss for a tax year is the trade loss in the basis period for that tax year. Example:
computation of trade loss. Here is an example of a trader with a 31 December year end who
has been trading for many years. During the year ended 31/12/2010 the business made a loss
of 1,000,000rwf and during the year ended 31/12/2012 he made a loss of 2,500,000rwf.
2011 2012
Profit/loss (1,000,000) 2,500,000
Loss relief 1,000,000 (1,000,000)
Taxable profit 1,500,000
Loss relief is given by deducting the loss from total income to calculate net income. Carry
forward loss relief and terminal loss relief can only be set against the trading profits of the
same trade. Other loss relief may be set against general income (i.e. any component of total
income).
Example: Dusabimina is a business lady in Gisenyi for many years. Her profits and losses for
three years are as indicated below:
Year 2006 2007 2008

Profit/Loss (500,000) 200,000 1,000,000
Compute her taxable profits
Year 2006 2007 2008
Profits/loss (500,000) 200,000 1,000,000
Loss relief 500,000 (200,000) (300,000)
Taxable profits 0 0 700,000
The loss in 2006 will be carried forward to 2007. But because the profits in 2007 cannot
cover all the loss, the remaining balance will be carried to 2008.
Example: the following information was extracted from the financial statements of highlands
limited for the years ended 2013, 2014 and 2015. Show how the losses will be carried
forward.
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Particulars 2013 2014 2015
Trading Profit/loss (8,550,000) 3,000,000 6,000,000
Property income 0 1,000,000 1,000,000
Total (8,550,000) 4,000,000 7,000,000
Solution:
Particulars 2013 2014 2015

Total profits (8,550,000) 4,000,000 7,000,000
Loss carried forward 4,000,000 (4,000,000)
Taxable profits (4,550,000) 0 7,000,000
Loss c/f 4,550,000 0 (4,550,000)
Taxable profits 0 0 2,450,000
REQUIREMENTS FOR AUTHORISATION TO A TAXPAYER TO CARRY

FORWARD THE LOSS FOR MORE THAN FIVE (5) TAX PERIODS
A taxpayer who applies for carrying forward the loss for more than five (5) tax periods must:
1° submit a written application to the Commissioner General of Rwanda Revenue Authority

for carrying forward the loss for more than five (5) tax periods;
2° submit his or her application with the declaration of tax for the fifth tax period;
3° present sound reasons that caused the loss for which he or she is requesting to carry
forward and reliable strategies to overcome such a loss;
4° prove that the loss was derived from the investments carried out;
5° submit the certified financial statements of the tax period corresponding to the loss;
6° be a credible taxpayer who declares and promptly pays tax and not guilty of tax evasion in
the previous five (5) years;
7° not to have distributed any profits in the previous five (5) years.
The Commissioner General of Rwanda Revenue Authority responds in not later than the end
of the year of the tax period during which the application was filed. In case that period
expires without any response, the loss is considered to have been authorised to be carried
forward for one (1) year only. The period for carrying forward the loss cannot be extended
for more than five (5) years.
Withdrawal of authorization to carry forward the loss

The tax administration may withdraw from the taxpayer the authorisation to carry forward the
loss for more than five (5) tax periods if the taxpayer:
1° does not declare and does not pay taxes on time;
2° is guilty of tax evasion;
3° distributed profits
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1. Joseph is a business man in Kigali city and has been in operation for many years. His
profits and losses for the years 2005-2009 is as below:
Year 2005 2006 200 2008 2009

Profits/loss (1,000,000) (500,000) 300,000 (100,000) 1,800,000
Compute his taxable profits.
2. Mandazi Limited owns a supermarket in Kigali town. The company has been in business
for the last four years. In the first two years, the company registered a loss of
2,000,000rwf and 3,000,000rwf respectively. In the third year and fourth year, the
company made a profit of 1,500,000rwf, and 3,000,000rwf respectively. Explain his
taxable benefits that are provided by the tax laws
3. Made in Europe, Rwanda limited imports and exports commodities from, and to Europe.
The company has been operating since 2010. The following information relates to the
company for the last five years
2010 2011 2012 2013 2014

Profit/loss (14,205,000) 6,000,000 9,850,000 (8,210,000) 10,000,000
before tax
Withholding 7,850,000 11,300,000 14,780,000 6,420,100 5,790,000
tax on
imports
Installment 2,150,000 1,050,200 3,420,000 1,700,000 2,500,000
income tax
Required: Prepare a tax payment plan
SPECIAL INCENTIVES FOR REGISTERED INVESTORS IN RWANDA

I. Preferential Corporate Income Tax Rate of Zero Percent (0%)
An international company which has its headquarters or regional office in Rwanda is entitled
to a preferential corporate income tax rate of zero percent (0%) if it fulfils the following
requirements:
1) To invest the equivalent of at least ten million United States Dollars (USD 10,000,000),
in both tangible and intangible assets, in Rwanda;
2) To provide employment and training to Rwandans;
3) To conduct international financial transactions equivalent to at least five million United
States Dollars (USD 5,000,000) a year for commercial operations through a licensed
commercial bank in Rwanda;
4) To be well established in the sector within which it operates;
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5) To use the equivalent of at least two million United States Dollars (USD 2,000,000) per
year in Rwanda;
6) To set up actual and effective administration and coordination of operations in Rwanda
and perform at least three (3) of the following services in Rwanda:
a) Procurement of raw materials, components or finished products;
b) Market control and sales promotion planning;
c) Information and data management services;
d) Treasury management services;
e) Research and development work;
f) Training and personnel management.
II. Preferential Corporate Income Tax Rate of Fifteen Percent (15%)

A preferential corporate income tax rate of fifteen percent (15%) is accorded to:
1. A registered investor, exporting at least fifty percent (50%) of turnover of goods and
services produced in Rwanda, including business processing outsourcing. This
incentive excludes unprocessed minerals, tea and coffee without value addition
according to the provisions of this Law.
2. A registered investor undertaking one of the following operations: energy generation,
transmission and distribution from peat, solar, geothermal, hydro, biomass, methane
and wind. This incentive excludes an investor having an engineering procurement
contract executed on behalf of the Government of Rwanda;
3. A registered investor in the sector of transport of goods and related activities whose
business is operating a fleet of at least five (5) trucks registered in the investor‘s name,
each with a capacity of at least twenty (20) tons.
4. A registered investor operating in mass transportation of passengers and goods with a
fleet of at least ten (10) buses registered in the investor‘s name, each with a capacity of
at least twenty five (25) seats;
5. A registered investor in the Information and Communication Technology (ICT) Sector
with an investment involving one of the following activities: service, manufacturing or
assembly. This incentive excludes ICT retail and wholesale trade as well as ICT repair
industries and telecommunications;
6. A registered investor operating in the following financial services: global business
activities, private equity funds, fund management, wealth management; mutual funds,
collective investment schemes, captive insurance schemes, venture capital, and asset
backed securities. This incentive excludes locally oriented fund and wealth
management, retail banking and insurance activities.
7. An investor registered in building low-cost housing and upon fulfilling the criteria
provided under the instructions of the Minister in charge of housing.
III. Corporate Income Tax Holiday of Seven Years

A registered investor investing an equivalent of at least fifty million United States Dollars
(USD 50,000,000) and contributing at least thirty percent (30%) of this investment in form of
equity in the sectors specified below is entitled to a maximum of seven (7) year corporate
income tax holiday. The preferred sectors for investment include:
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1) Energy projects producing at least twenty five megawatts (25 MW); This incentive
excludes an investor having an engineering procurement contract executed on behalf
of the Government of Rwanda and fuel produced energy;
2) Manufacturing;
3) Tourism;
4) Health;
5) Information and Communication Technology (ICT) Sector with an investment
involving manufacturing, assembly and service; This incentive excludes
communication, ICT retail and wholesale trade as well as ICT repair companies or
enterprises and Telecommunications;
6) Export related investment projects;
7) An investor registered in another priority economic sector as may be determined by an
Order of the Minister in charge of finance.
IV. Corporate Income Tax Holiday of up to Five (5) Years

Microfinance institutions approved by competent authorities will be entitled to a tax holiday
of a period of five years (5 years) from the time of their approval. However, this period may
be renewed upon fulfilling conditions prescribed in the Order of the Minister in charge of
finance.
V. Exemption of Customs Tax for Products Used in Export Processing Zones

A registered investor investing in products used in Export Processing Zones shall be
exempted from customs taxes and duties according to the provisions of customs rules and
regulations of the East African Community.
VI. Exemption of Capital Gains Tax

A registered investor shall not pay capital gains tax. However, income derived from the sale
of a commercial immovable property shall be included in the taxable income of the investor.
VII. Value Added Tax Refund

The refund of the Value Added Tax paid by investors is made within a period not exceeding
fifteen (15) days upon receipt of the relevant documents by the tax administration authority.
VIII. Immigration Incentives

1) A registered investor and his/her dependants shall be issued with a residence permit in
accordance with relevant laws.
2) A registered investor who invests an equivalent of at least two hundred and fifty thousand
United States Dollars (USD 250,000) may recruit three (3) foreign employees without
necessarily demonstrating that their skills are lacking or insufficient on the labour market
in Rwanda.
TAXATION OF CONSTRUCTION COMPANIES
Construction companies are usually engaged in contracts that are long term in nature. It can
undertake a contract work that lasts for years. The payment for such contracts is either in
instalments (as the degree of completed work is ascertained) or at the end of the entire
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work. Whatever the case, the tax authority expects these companies to declare their profits or
losses (by means of returns) on yearly basis. Thus, the accounting standard board has provided
two methods for this purpose.
TAXATION OF PROFITS FROM LONG-TERM CONTRACT

―Long term contract‖ means a contract for work, manufacture, installation of construction,
the performance of related services, which is not completed in the tax period in which work
under the contract commenced, or other than a contract estimated to be completed within the
twelve months as of the date on which work under the contract commenced. The timing of
inclusion in and deduction from business profit relating to a long-term contract is accounted
for on the basis of the percentage of the contract completed during any tax period.
Computation of Taxable Profit

The computation of taxable profit for a construction company is the same with other
companies in the sense that allowable and non- allowable expenses applicable to the latter
also applies to the former. This is more so if the contract work being undertaken by the
company is short-term contract and the amount for the contract is payable within a reasonable
time frame.
However, where the contract is contrary to the above description or long-term in nature,
certificate of work done and the amount payable thereto shall be considered as
revenue/turnover for the relevant year of assessment and the expenses to be matched with
revenue shall be determined based on the degree of completion or work done which must be
in proportion to the revenue realised due to certification.
Capital Allowances
Capital allowances for construction companies are pro-rated according to the degree of work
done and according to the number of months in the basis period. However, for the initial
allowance, it is given wholly in the year of assessment in which the qualifying expenditure
was procured. Any equipment procured for the construction contract but not used within the
basis period that covers the year of assessment shall not be considered for any capital
allowance for the purpose of taxation for the relevant tax year.
The percentage of completion is determined by comparing the total expenses allocated to the
contract and incurred before the end of the tax period with the estimated total contract
expenses including any variations of fluctuations or comparing the value of the work certified
and the contract price.
Percentage of completion = expenses of the work certified

Estimated contract cost
A loss in tax period in which a long-term contract is completed may be carried back and
offset against previously taxed business profit from that contract to the extent it cannot be
absorbed by business profit in the tax period of completion
Example One
On 1/1/2014 Twegerane Limited started the construction of road from Gisenyi to Kigali. The
agreed contact price was 30,000,000,000RWF. Twegerane estimated a cost of
27,000,000,000RWF to the complete the road. During the year ended 31/12/2014, the road
was only complete up to Mukamira and the following costs were incurred up to that point:
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salaries and wages 350,000,000RWF, Materials 4,500,000,000RWF, Administration and
General Expenses 800,000,000RWF and other miscellaneous expenses 200,000,000RWF.
Required:
a) Compute the Taxable income for Twegerane limited for the year ended 31/12/2014.
b) Differentiate between accounting period and period of accounts
Solution
Computation of Taxable Income for Twegerane Limited for the Accounting Period
Ended 31/12/2014
Particulars Workings Amount (RWF) Amount (RWF)

Contract price 30,000,000,000
Estimated cost 27,000,000,000
Costs incurred
during the
period
Salaries 350,000,000
Materials 4,500,000,000
Administration 800,000,000
Miscellaneous 200,000,000 5,850,000,000
Percentage of Cost incurred 5,850,000,000 21.67%

completion Estimated cost 27,000,000,000
Revenues Percentage of 21.67% x 6,501,000,000
accruing to the completion x contract 30,000,000,000
period price
Less cost during (5,850,000,000)
the period
Taxable 651,000,000
Income for the
period
Total
b). An accounting period is a period under which companies are supposed to declare and
submit their accounts for the tax assessment. The period starts from 1 January to 31
December. A period of accounts is a period when companies prepare their accounts. A period
of accounts may be more than one year.
Example Two
a. Starroads Construction Company limited was awarded a contract 800,000,000RWF to
construct a road from Gatuna to Kigali on 1/1/2015. The company estimated a cost of
650,000,000RWF to complete the Job. The government withheld 3% on the contract
price. By 31/12/2015, the company had reached Gicumbi and had incurred the following
costs:
i. Salaries and wages 28,800,000RWF
ii. Purchase of machineries 150,000,000RWF
iii. Hire or machineries 55,000,000RWF
iv. Utilities 8,500,000RWF
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v. Communication 5,800,000RWF
vi. Fuel 40,000,000RWF
vii. Raw materials 101,200,000RWF
viii. Stationaries 2,300,000RWF
ix. Repair and maintenance 12,100,000RWF
x. Allowable capital allowance for tax purpose is 5,950,000RWF
Required:
Compute the taxable incomes of the company for the period ended 31/12/2015 and the tax
liability
Solution
a. Computation of Taxable Income of Starroads Construction Company Limited for
the Period Ended 31/12/2015
Particulars Workings Amount (000) Amount (000)

RWF RWF
Revenues 61.8% x 800,000 494,400
Less allowable expenses
Salaries 28,800
Hire of machineries 55,000
Communications 5,800
Purchase of raw 101,200
materials
Utilities 8,500
Capital allowance 5,950 (217,350)
CIT 30% x 277,050 83,115
Less withholding tax 3% x 800,000 x (14,832)
61.8%
Tax payable 68,283
Total
Workings
Percentage of completion = actual contract price x 100
Estimated costs
=401,400/650,000 = 61.8%
b. Tax treatment of a loss at the end of the contract

 The loss can be carried for the future profits for a period of five years
 The loss can also be carried back on the profits declared.
Example Three
Dorp Construction Company limited entered into a contract with the government of Rwanda
to construct a road from Ngororero to Kigali for a contract price of 100,000,000,000RWF.
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The company‘s cost accountant estimated a cost of 78,000,000,000RWF to complete the job
the company estimated to finish the road in two years. On 1 st January 2015, the company
started the construction of the road. By 31/12/2015, the company had only reached Muhanga.
The following costs had been incurred up to Muhanga.
Items Costs (RWF)

Purchase of materials 20,500,000,000
Salaries and wages 15,780,000,000
Depreciation of machinery 8,000,000,000
Directors‘ remuneration 5,000,800,000
Two heavy trucks 600,000,000
Communication 40,000,000
Rent of machinery 850,000,000
Utilities 420,000,000
Fuel 2,500,000,000
Other miscellaneous expenses 1,000,000,000
Required:
Compute the taxable income and the tax liability of the company for the year ended
31/12/2015.
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Solution
Computation of Taxable Income and Taxable Liability
Particulars Working Marks RWF (000) RWF (000)

Revenues W2 2 37,400,000
Less operating
expenses
Depreciation machinery 8,000,000
Communications 40,000
Utilities 420,000
Rent of machinery 850,000
Fuel 2,500,000
Other miscellaneous 1,000,000 28,590,000
Tax liability 30% x 2,643,000
8,810,000
Percentage of W1 2
completion
Total
W1 percentage of completion
Total cost incurred = 29,190,000
Total estimated cost = 78,000,000
Percentage of completion = 29,190,000/78,000,000 = 37.4%
W2 Revenue
Contract price x percentage of completion
100,000,000 x 37.4% = 37,400,000
Test
a. Starroads Construction Company limited was awarded a contract 800,000,000rwf to
construct a road from Gatuna to Kigali on 1/1/2015. The company estimated a cost of
650,000,000rwf to complete the Job. The government withheld 3% on the contract price.
By 31/12/2015, the company had reached Gicumbi and had incurred the following costs:
xi. Salaries and wages 28,800,000
xii. Purchase of machineries 150,000,000
xiii. Hire or machineries 55,000,000
xiv. Utilities 8,500,000
xv. Communication 5,800,000
xvi. Fuel 40,000,000
xvii. Raw materials 101,200,000
xviii. Stationaries 2,300,000
xix. Repair and maintenance 12,100,000
xx. Allowable capital allowance for tax purpose is 5,950,000
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Required: Compute the taxable incomes of the company for the period ended 31/12/2015
and the tax liability. Explain the tax treatment of contract loss at the end of the period.
Test Three
Tupo limited is a construction company registered under the Rwanda commercial laws. In
2014, the company received an RDB certificated as a registered investor of
5,000,000,000RWF. On 1/1/2016, the company entered into a contract with the government
of Rwanda to construct a road from Nyamashake to Kigali at a contract price of
120,000,000,000RWF. The company estimated a cost of 110,000,000,000RWF to complete
the job. The construction started immediately and by 31/12/2016, the company had reached
Huye and it was estimated to 100% complete. The following costs were incurred for the
work certified.
Particulars Notes Amounts (000,000)RWF

Purchase of raw material‘s 20,000
Equipment 2 25,000
Electricity 4
Water 80
Communication 10
Technical expertise 3 400
Interest 4 250
Lease of equipment 5 300
Compensations 6 200
Donation 7 12
Repair and maintenance 8 20
Accountancy and legal 9 11
Stationaries 2
Fuel 800
Entertainment 5
Staff costs 10 80
Notes:
1. The salaries and wages is classified as below:
Salaries to employees 12,000,000,000

Official Emoluments of the directors 7,000,000,000
Bonuses and attendance fees of the 3,000,000,000
directors
Total 20,000,000,000
2. The equipment was purchased on 2/1/2016 in order to facilitate the project. And are
classified as below:
Asset Machineries Motor vehicles IT equipment Furniture and

fittings
Costs 13,000,000,000 11,000,000,000 980,000,000 20,000,000
Note i.
i. The motor vehicles are classified as under
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Trucks 15 tons Min bus (20 4 V8 for Saloon cars for
sitters) directors managers
10,000,000,000 200,000,000 500,000,000 300,000,000
3. Tupo Construction Company limited is a subsidiary of Twende limited with a head

office in Nairobi. During the period received technical experts from Twende limited.
During the comparability analysis, it was discovered similar services were offered to
Ndaku construction company in Rwanda at a cost 250,000,000RWF
4. During the year Tupo acquired a loan of 25,000,000,000RWf from BK limited at an
interest rate of 10%. The issued and fully paid up share capital of Tupo limited is
5,000,000,000RWf. The interest expense was calculated on that loan
5. During the period the company leased machineries for one year
6. The compensation is classified as under:
Compensation to affected individuals 150,000,000

Fines from labour inspector for not 50,000,000
providing protective gears to employees
200,000,000
7. The donation was made to a recognized charitable organization
8. The repair and maintenance include the following
Repair of machineries 5,000,000

Repair of motor vehicles 3,000,000
Overhaul of motor vehicle 12,000,000
20,000,000
9. The accountancy and legal fees include the following:
Audit fees 5,000,000

Renewal of lease agreement 6,000,000
11,000,000
10. The company lunch to all employees in the company‘s canteen. The lunch is uniform
to all employees.
Required: Advise the company on the taxable income and tax liability.
TAXATION OF BANKS AND INSURANCE COMPANIES
TAXATION OF BANKS
Taxation of the banking sector follows the same tax law as other companies. There is no
fundamental difference between the taxation of the banking sector and taxation of other non-
financial service companies. The allowable deductions and disallowable deductions are the
same. However, in the banking sector, thin capitalization does not apply. Banks are taxed like
any other business at a corporate tax rate of 30%. Banks engage in the following activities.
A bank can be defined as a deposit taking financial institution for purposes of lending and
investing. The primary functions of a bank include:
 Safe custody of customer‘s deposit while allowing for withdrawals;
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 Issuing of cheque books to facilitate payment and settlement process;
 Provide personal loans, commercial loans and mortgage loans;
 Issuing of credit cards and processing credit transactions;
 Provide wire transfer of funds and electronic funds transfer between banks;
 Facilitation of standing orders and direct debits to enable automatic payments;
 Provide overdraft to customers on their current account. This involves temporary
advancement of Bank‘s money;
 Provision of internet banking services;
 Guarantee credit worthiness of a customer;
 Accepting of deposits from customers and providing credit facilities to them;
 Provide money and capital markets services such as foreign exchange services and
stock brokerage services;
 Other fee generating activities for commissions;
 Trade financing.
The term ―commercial bank‖ is what is commonly referred to as a bank to distinguish it from
investment bank. An investment bank is type of financial services entity, which instead of
lending money directly to business, helps business to raise money from other firms in the
form of a bond and stock.
Income Streams
The main source of income for banks is interest and similar income. As per International
Financial Reporting Standards (IFRS), interest revenue is recognised to the extent that it is
probable that the economic benefits will flow to the Bank and that the revenue can be reliably
measured.
A bank‘s interest income constitutes interest earned on loans and advances, treasury bills,
development bonds and on placements and other bank balances. A key financing cost
incurred by the bank is interest paid on saving accounts, term deposit accounts or deposits by
other banks.
Interest income or expense is recorded in the income statement by applying the effective
interest rate, which is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument, to the net carrying amount of
the financial asset or liability. The calculation takes into account all contractual terms of the
financial instrument and includes any fees or incremental costs that are directly attributable to
the instrument and are an integral part of the effective interest rate, but not future credit
losses.
In addition to interest, banks also earn fee and commission income from a diverse range of
services which it provides to its customers. Fees incomes from services that are provided over
a certain period are accrued over that period. Fees and commission income is earned from the
following sources
 Local and international cash transfers;
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 Credit related fees and commissions;
 Current account ledger fees;
 Commissions on loan service;
 Commissions on guarantees and letters of credit;
 Fees from e-banking transactions;
The above fees are offset against related expenses to determine the net fees and commissions.
Banks also earn other operating income that has tax implications. These include the
following:
 Gain on sale of property and equipment;
 Income on foreign exchange transactions;
 Rental income;
 Miscellaneous income.
Expenses
The list below provides a summary of the key expense items for a bank which would be of
interest to the tax;
(i) Interest expense – this relates to interest paid on client deposits or placements with other
banks;
(ii) Provision for bad debts – IFRS 9 requires banks to assess their financial assets at each
reporting date to assess whether there is objective evidence that the financial asset is
impaired. BNR regulations also require a bank to make a bad debts provision. The provision
for bad debts, also known as the provision for impairment, constitutes a significant expense in
the bank‘s books.
(iii) Staff expenses – staff expenses are disclosed separately in the financial statements;
(iv) IT and consultancy fees – Banking operations are highly automated and therefore banks
make payment of significant amounts for IT and consultancy services. In most instances, the
payments are made to non-resident persons resulting in reverse VAT and withholding tax
implications;
(v) Management fees – A number of local banks are part of regional or international banking
groups. They may make payments for technical or management services rendered by non-
resident related parties. Management fees and other payments made to related parties are
normally disclosed in the financial statements;
(vi) Provisions - In addition to provisions for bad debts, banks also make provisions for
expenses such as those arising on litigation. IAS 39 requires that a bank makes a provision
for any present legal or constructive obligation arising as a result of past events for which the
bank expects to make payment to a third party;
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(vii) Other expenses – The notes to the financial statements will analyse the key expenses in
addition to those described above.
Example One
The management of INES commercial bank limited seeks professional advice on the bank‘s
tax liability for the year ended 31/12/2016. They have provided you with the following
information
PARTICULARS AMOUNT IN AMOUNT IN

(000,000) (000,000) RWF
RWF
Interest on loans and advances to customers 540,800
Interest on government securities 120,600
Interest on placements with other banks and 40,650
institutions
Fees and commission income 39,360
Rental income 2,190
Income from foreign exchange 31,980
Gain on disposal of property 12,300
Other operating income 42,950
Total income 830,830
Expenses
Salaries and employee benefits 360,400
Occupancy expenses 20,350
Deposit protection fund contribution fund 12,360
Interest on deposits from other banks & institutions 80,200
Depreciation 43,700
Interest on customer deposits 202,450
Director‘s emoluments:
a. Fees 11,200
b. Others 3,600 14,800
Auditors remuneration:
a. Current year 2,100
b. Previous year 300 2,400
Operating lease rental 16,300
Loss on disposal 7,250
Other administrative expenses 20,620
Provision for bad and doubtful debts 80,500
Provision for interest suspense 20,950
Total expenses (882,280)
Loss for the year (51,450)
1. Salaries and employee benefits include:
RWF (000,000)
Leave benefits 720
Pension contribution 1,460
Termination costs 2,860
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Provision for staff leave accrual 4,860
9,960
2. Included in directors emoluments
RWF (000,000)
School fees for chairman‘s children 1,200
Entertainment allowance used on clients 1,800
Travelling costs for newly recruited 600
expatriate director
3. The movements in provisions for bad and doubtful debts during the year was as
follows:
Specific provision General provision Total (000,000)

(000,000) RWF (000,000) RWF RWF
1/1/2016 630,500 630 631,130
Changes for the 83,800 15,300 99,100
year
Released during the (18,600) - (18,600)
year
31/12/2016 695,700 15,930 711,630
4. Provision for interest suspense represents non-performing loans and advances on
which interest has been suspended. The management has confirmed that the loan and
advances are fully secured.
5. Capital allowances for the year ended 31/12/2016 amounted 18,900,000,000.
6. Lease rental charges relate to office equipment leased from AB office solution for use
in the entire bank network.
Solution
Computation of Taxable Income and Tax Liability of INES Commercial Bank Limited
for the Year Ended 31/12/2016
AMOUNT IN (000,000) AMOUNT IN (000,000)

RWF RWF
Reported loss (51,450)
Add back non allowable expenses
Salaries – provision for staff leave 4,920
accruals
School fees for children of 1,200
directors
Provision for interest expense 20,950
Depreciation 43,700 70,770
Less
Capital allowances 18,900
Rental income 2,190 (21,090)
Trading income
Add other allowable taxable 2,190
income
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TAXABLE INCOME 420
Tax liability = 30% x 420 = 126
TAX TREATMENT AND FOCUS AREAS – BANKS AND INSURANCE

COMPANIES
1. VAT treatment of income streams – the income received by bank is subject to different
VAT treatment. Some are exempt from VAT whereas others are taxable. This impacts on
the input VAT recovery as input VAT claim is restricted.
2. Imported services – Due to nature of business, banks and insurance companies make
significant payments to non-resident persons. The nature of payments may include
management fees, payment for IT consultancy services, licence fee payments for software
among others. These payments attract reverse VAT and withholding tax.
3. Provisions – whereas provisions for bad debts are allowed for corporate tax purposes,
banks and insurance companies usually make other provisions in accounts. These may
include items such as provisions for restructuring costs, legal fees etc.
4. Staff loans – Banks provide loans to staff. In most instances, these are provided at low
interest rate below the prescribed rate. A low interest benefit arises in such a case and is
taxable on the employee. A review should be done to check whether this is being treated
correctly.
5. Staff costs – Banks and insurance companies normally have expatriate staff. Some of the
staff are paid offshore and provided with other benefits in kind such as housing and car
benefit. The auditor should review payroll and focus on expatriate staff to check whether
the taxes are being accounted for payment;
6. Interest payments – Banks can borrow externally to boast their available funds.
Withholding tax becomes due on payment of interest. The interest payment would also
arise in instances of syndicated loan arrangement where the bank is the arrangement
manager or where the bank has issued a bond;
7. Dividend payment – payment of dividends is subject to withholding tax. Whereas the risk
of non-compliance in this area is low, any omission would involve significant amounts.
The auditor can review this to confirm compliance;
8. Current account – Banks maintain a current account with their related parties.
Transactions between the bank and related parties are carried out within the current
account. In certain instances, the settlements are offset within the current account without
actual payment of cash. The auditor would need to review the current account to
determine the tax implications of the transactions particularly in instances where the tax
point is based on payments.
9. Withholding tax and Mauritius Double Tax Treaty (―DTA‖) – The Mauritius DTA is only
enforceable on satisfaction of certain conditions. Key among them is that the recipient of
the service should be a company resident in Mauritius. Where the entity has taken
advantage of the DTA, the auditor should review whether they are eligible to claim the
tax treaty relief.
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10. Shareholder changes – any shareholder changes may result in capital gains tax or impact
on the losses carried forward (where this is applicable);
11. Investment income – these could either be in form of rental income from investment
properties or dividends from shareholding. The auditor should review to assess whether
these have been accorded correct tax treatment.
12. Non-deductible expenses – as is common with other tax audits – the auditor should
review both the Trial balance and ledgers to check whether all non-deductible expenses
have been disallowed in accordance with article 21 and 22 of the law on direct taxes.
TEST YOURSELF
Test One
Gasabo Commercial Bank Rwanda Limited (GCBRL) is a commercial bank licensed to
operate by the National Bank of Rwanda. The bank‘s headquarters are in Kigali City with 20
branches that are spread across the various districts of the country. The bank commenced
operations in 2010 and is supervised by the National Bank of Rwanda. All the shareholders
of the bank are citizens of Rwanda and usually reside in Rwanda. The bank is not a
registered investor nor is its shares listed on the Rwanda Securities Exchange. GCBRL‘s
statement of profit or loss and other comprehensive income for the year ended 31 December,
2016 was as shown below:
Note Frw "000

Interest income 1 29,984,000
Interest expense (6,863,540)
Net interest income 23,120,460
Net fees and commission income 5,942,140
Foreign exchange related income 2,650,620
Other operating income 2 146,300
Operating income before impairment losses 31,859,520
Net impairment on loans and advances 3 (3,773,830)
Net operating income 28,085,690
Employment costs 4 (7,514,996)
Depreciation and amortization (1,903,560)
Administration and general expenses 5 (5,797,900)
Notes:
1. Interest income comprises:
Frw “000”
Loans and advances 24,800,000
Government securities 2,570,000
Deposits with other banks 2,614,000
29,984,000
National Bank of Rwanda deducts 15% withholding tax from any interest payments
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made. The interest earned is recorded gross of withholding tax where applicable.
2. Other operating income includes:

Particulars Frw “000”
Rental income 68,990
Dividends from investments* 33,807
Gain on sale of fixed assets 37,890
Other income from banking activities 5,613
146,300
*Dividend income was earned from shares held in Cyangungu Limited, a company
whose shares have been listed on the Rwanda Securities Exchange since 2010.
3. Net impairment on loans and advances is made up of:
Frw “000”
Additional specific provisions 4,393,670
Increase of collective (general) provisions 505,436
Recovery of previously written off loans (1,125,276)
3,773,830
4. Employment costs include:
Frw “000”
Directors‘ sitting allowances 98,816
Medical expenses 229,820
Pension scheme contribution 373,560
7,514,996
5. Administration and general expenses include:
Notes Frw “000”

Directors remuneration (a) 167,300
Audit fees 41,600
Travel and accommodation 228,900
Consultancy fees (b) 217,000
Insurance 169,000
Security and cash in transit costs 669,000
Rent, repairs and maintenance 630,000
Marketing and publicity (c) 715,000
Telephone and internet expenses (d) 123,000
Electricity and Fuel expenses (e) 302,000
Other general expenses (f) 2,535,100
5,797,900
a) Directors‟ remuneration:
Included is Frw 50,000,000 that relates to the payment of cash bonuses for the
year.
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b) Consultancy fees:
Included is Frw 120,000,000 that was paid to BRV Consultants, a company
based in Belgium, for carrying out research on a new banking product that the
bank intends to roll out in 2018.
c) Marketing and publicity:

Included are the following amounts:
 Donation Frw 150,000,000 to Mubano Youth Development
Association, a registered charitable organization.
 Donation Frw 12,500,000 to Gasabo Trading Company, a customer of
the bank who requested for some contribution to carry out community
activities.
 Cost of a signpost and billboard for the branch of the bank in Gisenyi
at Frw 5,000,000.
d) Telephone and internet expenses:

An amount of Frw 38,000,000 relates to mobile telephone expenses by the
staff. There is no system in place to determine the private and business
portions of the expense.
e) Electricity and fuel expenses:

Fuel of Frw 85,000,000 was provided to staff for use in company cars but
which were also used for private purposes by the staff.
f) Other general expenses:

Included are penalties and fines of Frw 10,000,000 for not adhering to the
National Bank of Rwanda regulations.
6. Information relating to property, plant and machinery: Additions during the year:
Frw ―000‖
New building for the bank branch in Gisenyi 2,500,000
(including the cost of land Frw 200,000,000)
Computers 80,000
Computer software 500,000
Motor vehicles (5 saloon cars of Frw 30 million 150,000
each)
Furniture and fittings 90,000
Disposal during the year:
Frw “000”
Computers 25,200
Furniture and fittings 12,600
The tax written down values as at 1 January, 2016:
Frw ―000‖
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Computers and accessories, information and communication 425,000
systems, software products and data equipment
Other business assets 1,050,000
The bank owns the main branch building that cost Frw 6,000,000 to construct in 2009.
It was first used on 1 January 2010. All the other branches are located in rented
premises with the exception of the new branch in Gisenyi which was put to use on 1
January, 2016.
7. The bank paid the quarterly tax prepayment for 2016 of Frw 3,120,000,000. The
balance of tax payable for 2015 and 2016 were all paid in time.
Required:
(a) Advise GCBRL on the taxable income and the corporate tax payable for the year
ended 31 December, 2016.
(b) (i) State who qualifies to be a foreign investor according to Rwandan Law on
investment promotion and facilitation.
(ii) Explain the obligations that the Rwanda Law on Investment Promotion and
Facilitation impose on a registered investor.
TAXABLE BUSINESS
INCOME
PBT 12,869,234
expences
increase in general
provision 505,436
depreciation and
armotisation 1,903,560
cash bonuses 50,000
consultancy fees 120,000
donation to Gasabo
trading 12,500
Telephone (20%x38000) 7600
Fuel (20%x85000) 17000
Fines and penalty 10,000
15,495,330
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Less non allowable
incomes
Dividend Cyangungu -33,807
15,461,523
Less capital allowances W2 934550
Tax 30% 4,358,092

less tax paid:
Quarterly prepayment (3,120,000)

WHT on interest
(15%x2570,000) (385,500)
Tax payable 852,592
W1: Donation to
Umubano
Amounted 150,000
Donation allowed 1% 231,205
W2 Capital
allowances
Comp and
Building Access Other asset cap allo
Cost/NBV 6,000.00 425,000 1,050,000
New assets 2,500,000 580,000 240,000
Disposal -25,200 -12,600
Dep values 2,506,000 979,800 1,277,400
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dep rate 5% 50% 25%
Depreciation 125,300 489,900 319,350 934,550
Test Two
Vision 2020 Company Ltd operates in banking sector activities and it is located at Kimironko
area. For the year ended December 31, 2014, the Finance Director has approached you as an
expert in taxation to advise his company on different taxes to be paid for such year and
provided the following:
Vision 2020
Statement of comprehensive income
For the year ended December 32, 2014
Notes 2014 2013
Frw Frw
Interest income 1 51,909,827 45,210,752
Interest expense 2 (12,654,600) (10,015,908)
Net interest income 39,255,227 35,194,844
Net fees and commission income 3 10,899,154 10,801,253
Foreign exchange related income 7,724,325 7,476,135
Other operating income 4 301,838 281,008
18,925,317 18,558,396
Operating income before impairment losses 58,180,544 53,753,240
(7,542,957) (8,993,999)
Net operating income 50,637,587 44,759,241

Personnel costs 5 (14,427,737) (11,707,238)
Depreciation and amortization 6 (3,663,534) (4,639,637)
Administration and general expenses 7 (9,787,611) (9,656,130)
Total operating expenses (27,878,882) (26,003,005)
Profit before income tax 22,758,705 18,756,236
Notes on the accounts
2014 2013
Frw Frw
1 Interest income
Interest on overdrawn accounts 10,016,733 9,882,349
Interest on treasury loans 4,765,373 4,235,125
Interest on equipment loans 4,871,114 3,838,218
Interest on consumer loans 7,049,062 6,465,347
Interest on mortgage loans 15,545,839 12,259,456
Other interest on loans to clients 4,687,629 4,904,323
Interest on deposits with banks 980,580 262,585
Interest received from reverse purchase 771,890 1,423,824
agreements
Interest on assets held to maturity 3,221,607 1,940
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51, 909,827 43,273,167
2 Interest expense
Interest on borrowing (BARCLAYS BANK- 2,475,389 1,621,764
UK)
Interest on current accounts and saving 981,936 1,089,855
accounts
Interest on fixed deposits 9,197,275 7,304,289
12,654,600 10,015,908
3 NET FEES AND COMMISSION
INCOME
Fees and commission income
Commission on operations of accounts 2,358,216 2,639,702
Commission on payment facilities 2,718,969 3,178,971
Commission on loans services 2,812,701 2,168,032
Commission received from financing 498,853 595,613
commitments
Commission received from guarantees 989,272 1,078,380
commitments
Income from transactions with other banks 321,348 309,383
Other fees from services 1,387,494 1,206,525
11,086,853 11,196,606
Fees and commission expense
Commission on credit services (86,304) (320,524)
Commission for a consultant from England (101,395) (74,829)
(187,699) (395,353)
Net fees and Commission 10,899,154 10,801,253
4 Other operating income
Rental income 154,064 256,149
Dividend received from investment 54,254 -
Gain on asset disposal 84,496 24,753
Other income from banking activities 9,024 105
301,838 281,007
5 Personnel costs
Salaries and wages (Gross) 13,139,596 10,768,740
Medical expenses 401,361 267,395
Pension scheme contributions 612,140 501,736
PAYE 274,640 169,367
14,427,737 11,707,238
6 Depreciation (according to company
policy)
Depreciation of property and equipment 3,469,943 4,303,044
Amortization of intangible assets 193,591 336,593
3,663,534 4,639,637
Total depreciation allowed by RRA 3,752,000 4,892,000
7 Administration and general expenses
Directors‘ Remuneration 357,209 400,945
Audit fees 38,263 50,485
Rent, repairs and maintenance 1,126,239 989,909
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Utilities 424,148 413,575
Postage, photocopying and printing 1,019,184 976,003
Travel and accommodation expenses 387,965 365,550
Security and cash in transit costs 1,318,946 1,075,778
Insurance 104,423 94,716
Marketing and publicity 583,618 468,987
Legal and consultancy fees 405,289 362,978
Unclaimed VAT on expenditure 727,212 721,802
Telephone and internet costs 774,395 737,361
Credit and Visa card costs 1,256,392 1,179,237
1,264,328 1,818,804
9,787,611 9,656,130
 Included other general expenses are fine for late declaration and payment of VAT
declaration for the month July 2014 for the amount of Frw 300,000.
 The account Marketing and publicity includes an invoice of Frw 200,000 related to
the overseas publicity in Jeune Africa magazine.
 Telephone expenses does not include the invoice of December 2014 equivalent to Frw
70,400.
 The bank has contracted a foreign loan in BACLAYS UK which he pays monthly
interest of Frw 206,284.
 The bank received dividend from a resident company of Frw 30,000 and the
remaining dividend was received from investment in a foreign company.
 Rental income is derived from the rent of buildings and the latter are incorporated as
assets.
Required
a) Determine the adjusted taxable profit/loss for the company
b) Advise the Finance Director on other taxes resulting from the information provided,
and calculate them if any.
TAXATION OF INSURANCE COMPANIES
Important Terms in Insurance Companies

Re-insurance
The term ―Reinsurance‖ is defined by M. Grossmann, in his book Reinsurance – An

Introduction as the ―transfer of part of the hazards or risks that a direct insurer assumes by
way of insurance contract or legal provision on behalf of an insured, to a second insurance
carrier, the reinsurer, who has no direct contractual relationship with the insured‘
The direct insurer needs reinsurance so as:

 To limit (as much as possible) annual fluctuations in the losses he must bear on
his own account;
 To be protected in case of catastrophe.
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The direct insurer cedes part of the premium received from policy holder (the insured), to the
reinsurer.
General Insurance
General insurance can be defined as ―all types of insurances other than long term business‖.
The different forms of general insurance are fire, marine, motor, accident and other
miscellaneous non-life insurance.
The income of general insurance business is made up of gross premiums received reduced by
premiums ceded to reinsurers. Other income sources include commissions earned (for
business transferred to the reinsurer), investment income (rent) and other income such as
insurance policy fees.
Commission on Reinsurance Ceded

This is the commission received from other insurance companies or reinsurance companies
for acting as their agents
Commission on Reinsurance Accepted

This is the commission payable to other insurance or reinsurance companies for acting as our
agents which have accepted
Reserves for Unexpired Risks or Unearned Premium

This is the premium received for contracts that have not yet expired as at the year end. This
reserve is maintained to cover the occurrence of the risks
Premium
This is the consideration paid by the insured for the cover.
Bonuses
This is the share of profits to the policy holder usually paid on life policies. It includes:
 Cash bonus: which is bonus paid in cash or cheque.
 Bonus in reduction of premium: bonus which is not paid to the policy holder that it is
used to reduce the premium payable.
DETERMINING THE TAXABLE INCOME OF INSURANCE COMPANIES

1. Life insurance business of an insurance company is treated as a separate business
from any other class of the business
2. The gains or the profits of a resident insurance business other than life insurance
business consists of:
a. Gross premium less any premium returned to the insured and premium paid on
reinsurance
b. Other incomes including commission or expenses allowances received or
receivable from reinsurers and investment income
c. A reduction in respect of a reserve for unexpired risks at the end of the previous
year
Expenses:
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a. Additional reserve deducted in respect of a reserve for unexpired risk at the end of the
previous year.
b. A deduction of claims admitted net of any claim recovered from reinsurance
companies
c. A deduction of agency expenses
d. Other allowable expenses
The taxable income is arrived at by taking into:

a. A gross premium
b. Commission or expenses allowances received or receivable ie. Commission ceded
c. Investment income as a result of investing in general insurance fund
d. Bonus received
e. Recoverable from reinsurance companies
f. Reduction in premium for unexpired risks or unearned premiums provided the
provisions are arrived at using actuarial principles
Allowable Deductions
a. Claims admitted for the year under consideration
b. Agent fees and commission paid
c. Other allowable expenses
d. Increase in the provision for unexpired risks provided that the provisions is estimated
using actuarial principles
e. Reinsurance premium paid
Proforma
Taxable income of KB insurance company
Incomes
Gross premium XXX
Less premium returned (XX) XXX
Commission on reinsurance XXX
ceded
Recoveries from insurance XXX
claims
Bonus in reduction of XXX
premium
Reduction in expired risks XXX
Un earned premium XXX
XXXX
Deductions allowed
Claims payable for the year XXX
Commission accepted XXX
Re insurance premium paid XXX
Management expenses XXX
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Agency fees XXX
Increase in provision for XXX (XXX)
unexpired risks
TRADING INCOME XXX
Other source of income
Rental income XXX
Dividends XXX
Interest XXX
Others XXX XXX
TAXABLE TRADING XXX
INCOME
Insurance companies are taxed like any other company at corporate of 30%
Life Insurance Business

The income from the life insurance business comprises of:
1. Investment income of the life insurance fund except that part of the life fund which
relates to annuity funds less the management expenses including commissions. The
investment income is defined as the dividend and interest income but does not include
qualifying dividends.
2. The amount of interest received by the company on surrender of policies or on the
return of the premiums other than premiums in relation to a registered annuity
contract, registered trust scheme or a registered pension fund.
Example on Re-insurance
Let us assume that the insurance, Ms Juliet Mbabazi has taken an insurance policy for the
period 1 July 2013 to 30 June 2014. The annual premium paid is Rwf 1,000,000. The
insurance company has transferred 30% of the premium to the reinsurer. The gross premiums
for the year ended 31 December 2013 will be as follows:
Gross premiums
RWF
Comments
Gross Written Premium 1,000,000
Unearned premiums (500,000) 50% for 1 July to 31 Dec 2013
Gross earned premiums 500,000
Reinsurance (300,000) 30% of Rwf 1,000,000
Reinsurer share of unearned premiums 150,000 30% of unearned preimums
(150,000)
Net Earned Premium 350,000
Example
Korar insurance company has provided the following details with respect to its financial year
ended 31/12/2016
Gross premium 19,000,000

Claims paid 5,400,000
Outstanding claim:
1/1/2016 740,000
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31/12/2016 1,640,000
Claims recovered on insurance 400,000
Legal expenses related to claim 540,000
Commission on reinsurance accepted 2,800,000
Commission on insurance ceded 860,000
Reserves for unexpired risks 1/1/2016 980,000
Agency expenses 1,560,000
Bad debts 450,000
Life insurance fund 1,540,000
Foreign exchange gains 420,000
Dividend from life insurance fund 180,000
Management salaries 1,670,000
Bonus utilized in reduction of premium 425,000
Rental income on premises 1,260,000
Repair of rented premises 280,000
Advertisement 124,000
Purchase of furniture 120,000
Returned premium 1,230,000
Reinsurance premium paid 670,000
1. The company acquired a salon car for the general manager for 2,000,000RWF on
1/7/2016
2. The bad debt relates to compensation due from reinsurance company under
receivership
3. Management salaries include wages amounting to 670,000RWF for part time
employees working in the life insurance department
Required: Advise the company on the taxable income and tax liability for the year ended
31/12/2016.
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Solution
Computation of taxable income of KB insurance company for the year ended 31/12/2016
RWF RWF RWF

Gross premium 19,000,000
Less returned premium (1,230,000)
Reinsurance premium paid (670,000) 17,100,000
Commission on reinsurance 860,000
ceded
Reserve for unexpected risks 980,000
Foreign exchange gain 420,000
Bonus utilized in reduction of 425,000
premium
19,785,000
Less allowable expenses:
Claim paid 5,400,000
Accrual 2016 1,640,000
Accrual 2015 (740,000)
Claims recovered reinsurance (400,000) 5,900,000
Legal expenses 5,40,000
Commission on re-insurance 2,800,000
accepted
Bad debt 450,000
Management salary 1,670,000- 1,000,000
670,000
Agency fees 1,560,000
Repair of rented premises 280,000
Advertising 124,000
WTA 2016 515,000 (13,169,000)
Add other income
Rental income 1,260,000
CIT 30% x 7,876,000 2,362,8000
TEST YOURSELF
Test One
Sorerr is an insurance company located in Rwanda with a head office in South Africa. The
company deals in both life insurance and non-life insurance products and the company
operate a number of branches across the country. The following information was submitted
for income tax assessment for the period ended 31/12/2015
i. Total investment income 128, 000,000
ii. Total premium receivable 65,000,000 of which 32, 000,000 is receivable in
Rwanda.
iii. Agency expenses in Rwanda 12, 000,000
iv. Head office expenses chargeable to Rwandan branch 8, 000,000
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v. Disallowable expenses in agency expenses amounting to 5, 000,000
vi. Capital allowances available 7,500,000
You are required to compute the chargeable profit of the agency in Rwanda and the tax
liability.
CHAPTER FOUR
VALUE ADDED TAX (VAT)
INTRODUCTION
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.
EXCLUSIVE AND INCLUSIVE OF VAT

Exclusive of VAT means that VAT is excluded in the price or amount. VAT exclusive on
exclusive is equal to the price or amount times the VAT rate. For example, John purchased
goods of 10,000,000RWF exclusive of VAT. Compute the amount of VAT.
VAT = 10,000,000 x 18% = 1,800,000
Inclusive of VAT: under this case, VAT is included in the price. To calculate VAT on
inclusive we use a VAT fraction.
VAT Fraction = VAT Rate = 18

VAT rate + 100 118
Mary purchased goods of 10,000,000RWF inclusive of VAT. Compute the VAT
VAT = 18/118 x 10,000,000 = 1,525,425
INPUT AND OUTPUT VAT

Input VAT is the VAT on purchases whereas Output VAT is the VAT on the sales. 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 TAX 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 TAX of the taxpayer. When output tax exceeds input tax, the
difference is the VAT payable to Rwanda Revenue Authority.
VAT payable or claimable = output VAT – input VAT
Example
Let us take two businessmen, A and B registered for VAT who trade in sugar. Trader A sells
to trader B a bag of sugar at 20,000RWF without VAT and charges him VAT of 18%, which
is 3,600RWF. The selling price of trader A is 23,600RWF. Trader B buys sugar at
23,600RWF VAT inclusive. The VAT paid is called input tax. Price without VAT to trader B
is 20,000RWF plus his profit margin of 1,000RWF = 21,000RWF. He then charges VAT at
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18% to his customer (output tax). Trader B‘s selling price will be 21,000RWF plus VAT
(18%) of 3,780RWF = 24,780RWF.
VAT PAYABLE = OUTPUT TAX – INPUT TAX

3,780RWF – 3,600RWF
=180RWF
Example 2
Rukundo sells wood to a furniture maker for 100,000RWF VAT, the furniture maker uses this
wood to make a table and sells the table to a shop for 150,000RWF VAT. The shop then sells
the table to the final consumer for 300,000RWF plus VAT of 18%. Determine the VAT
payable to RRA.
Solution
Cost will be 100, 000RWF and 150,000RWF respectively
Input VAT will be 18%x100, 000 = 18,000 and 150,000x 18% = 27,000
Output VAT will be 18%x100, 000, and 150,000 x 18% and 300,000x18%
VAT Payable RRA will be the value added at each stage
The first stage 18,000 Second stage (27,000 – 18,000) and the third stage it will be
(54,000-27,000) Total VAT payable will be 18,000 + 9,000+ 27,000 = 54,000RWF
Value of Supply
The value of a supply is the VAT-exclusive price on which VAT is charged. The
consideration for a supply is the amount paid in money or money's worth.
Thus with a standard rate of 18%:

Value + VAT = consideration
Example
100 + 18 = 118RWF
The VAT proportion of the consideration is known as the 'VAT fraction'.
VAT Fraction = Rate of Tax

100 + rate of tax
For example, for standard rated products
VAT fraction = 18 = 18
100 +18 118
If a company sells goods which are inclusive of VAT, then the VAT fraction is used to
determine the amount of VAT payable and the exclusive amount.
Examples
1. Ndwayezu sold goods worth 50,000RWF to Mary inclusive of VAT. Determine the
amount of VAT payable to RRA.
Solution
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Since the amount is inclusive of VAT and VAT is calculated on exclusive amount then a
VAT fraction is used to determine the VAT payable
VAT payable will be VAT fraction x the amount inclusive of VAT
= 18 x50, 000 = 7,627

118
Therefore, the amount exclusive of VAT will be determined using the formula for value
supply as below:
Value +VAT = consideration

Value + 7,627 = 50,000RWF
Value = 50,000 -7,627 = 42,373RWF
Note: Remember that the amount should be rounded to the nearest thousands therefore 7,627
should be rounded off to 8,000RWF. If you apply a rate of 18% on the VAT exclusive
amount you must be able to get the amount of VAT calculated above using the VAT fraction.
2. Shumbusho supplied materials to Burlarirwa worth 10,000,000RWF inclusive of VAT.

Burlarirwa also supplied the final products to the wholesalers for 20,000,000RWF
inclusive of VAT. The wholesaler supplied the goods to the final consumer for
26,000,000RWF inclusive of VAT. Determine the amount of VAT payable to RRA.
Input VAT:
Since the amounts are inclusive of VAT we are using the VAT fraction
18 x 10,000,000 + 18 x 20,000,000 = 1,525,424 + 3,050,845

118 118
= 4,576,269
Output VAT:
18 x 10,000,000 +18 x 20,000,000 + 18 x 26,000,000
118 118 118
= 1,525,424 + 3,050,845 + 3,966,102

= 8,542,371
VAT payable will be Output VAT – Input VAT
8,542,371 - 4,576,269 = 3,966,102
Taxable Supplies
VAT is chargeable on taxable supplies made by a taxable person in the course or furtherance
of any business carried on by him. Supplies may be of goods or services.
Article 3 defines a taxable supply as a supply of goods or services made in the Rwanda, other
than an exempt supply.
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A taxable supply is either standard-rated or zero-rated. The standard rate is 18%.
Zero-rated supplies are taxable at 0%. A taxable supplier whose outputs are zero-rated
but whose inputs are standard-rated will obtain repayments of the VAT paid on
purchases.
Zero-rated Goods and Services

The following goods and services shall be zero- rated:
1. Exported goods and services:

a) Exported goods bearing stamps recognised by the Commissioner General;
b) Transportation services and other related services with regard to export goods
referred to in item a) of this Article;
c) Transportation services of goods in transit in Rwanda to other countries including
related services.
d) Aircraft benzene;
e) Services rendered abroad;
f) Goods used in aircrafts from Rwanda to abroad;
2. Goods sold in shops that are exempted from tax as provided for by the law governing
customs;
3. Services rendered to a tourist for which value added tax has been paid;
4. Goods and services intended for special persons:
a) Goods and services intended for diplomats accredited to Rwanda that are used in
their missions but whose countries should also give the same privileges to the
Rwandan diplomats;
b) Goods and services intended for international organizations that have signed
agreements with Rwanda;
c) Goods and services intended for projects funded by partners that have signed
agreements with the Government of Rwanda.
An exempt supply is not chargeable to VAT. A person making exempt supplies is unable
to recover VAT on inputs. The exempt supplier thus has to shoulder the burden of VAT. Of
course, he may increase his prices to pass on the charge, but he cannot issue a VAT invoice
which would enable a taxable customer to obtain a credit for VAT, since no VAT is
chargeable on his supplies.
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 and with exception of sewage pumping out services;
2. Goods and services related to health purposes:
a) health and medical services;
b) Equipment designed for persons with disabilities;
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c) Goods and drugs appearing on the list provided for by an Order of the Minister.
3. Educational materials and services:
a) Educational services provided to students of nursery, primary, secondary and higher
institutions of learning;
b) Educational services provided by social welfare organizations to students and other
youths, meant for promoting the social, intellectual and spiritual development and
for non- profit making purposes;
c) Educational services provided for vocational institutions;
d) Educational materials supplied directly to institutions of learning.
4. Books, newspapers, journals and other electronic equipment used as educational materials.
5. Transportation services:
a) Transportation of persons by road in a bus and a coach licensed under the law on
vehicles in traffic and which have a seating capacity for fourteen (14) persons or
more.
b) Transportation of persons by air;
c) Transportation of persons or goods by boat;
d) Transport of goods by road;
6 Lending, lease and sale:
a) Sale or lease of a land property;
b) Sale of a whole or part of a building meant for residential purposes;
c) Renting of or grant of the right to occupy a house used predominantly 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;
7. Financial and insurance services:
a) premium charged on life and medical insurance services;
b) Fees charged on the operation of current accounts;
c) Transfer of shares;
8. Precious metals: sale of gold in bullion form to the National Bank of Rwanda;
9. Any goods or services in the course of burial or cremation of a body, including the
provision of any related licence or certificate;
10. Energy supply equipment:
a) Energy saving lamps;
b) Solar water-heaters;
c) Wind energy systems;
d) Gas, gas cylinders and related materials;
e) Equipment used in the supply of biogas energy;
f) Kerosene intended for domestic use, premium and gasoil.
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11. Trade union subscriptions;
12. Leasing of exempted goods;
13. All agricultural and livestock products, except processed ones, which are exempted from
value added tax. However, milk which is processed in local industries is exempted from
this tax;
14. Agricultural input and other agricultural and livestock equipment provided by an Order of
the Minister;
15. The following goods and services imported by persons with investment certificate are
exempted from value added tax:
a) Industrial machinery;
b) Raw materials for industries;
c) Building and finishing materials imported by an investor fulfilling the requirements
determined by an Order of the Minister;
d) Refrigerating vehicles, tourist vehicles, ambulances, fire- extinguishing vehicles
and hearses;
e) Vehicles and movable property and equipment for foreign investors and Rwandans
living abroad and their expatriate staff;
f) Equipment for tourism and hotel industry and relaxation places appearing on the list
determined by an Order of the Minister;
g) Goods and services meant for free economic zone;
h) Medical equipment, drugs, agricultural equipment input, livestock and fishing
equipment and agricultural input; i) didactical equipment;
j) Special tourist aeroplanes.
16. Mobile telephones and SIM card;
17. Information, communication and technology equipment appearing on annex of this law.
REQUIREMENTS FOR AN INDUSTRY TO BE ENTITLED TO THE VALUE

ADDED TAX EXEMPTION
In order for an industry to be eligible for the value added tax exemption on machinery, capital
goods and raw materials, the following requirements must be fulfilled:
1º the industry must be registered in Rwanda as a company, a cooperative or an individual
enterprise;
the industry must aims at processing raw materials or assembling parts to produce goods for
sale or for mining and quarry exploitation activity;
3º exemption must only be applied for machinery, capital goods or raw materials appearing
on the list established by the Minister in charge of industry and approved by the Minister in
charge of taxes;
4º the application must indicate the direct link between goods for which exemption is sought
and the industrial activity carried out or that will be carried out;
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5º the application must be addressed to the Commissioner General in accordance with the
procedure established by the Tax Administration, if the exemption applied for concerns
machinery, capital goods or raw materials that are produced in Rwanda
6º submit a declaration form to the Commissioner for Customs if the exemption is applied for
machinery, capital goods or raw materials that are imported;
7º demonstrate proper management of applicant business indicating revenues and expenses;
8º to have a separate store of raw materials or assembly parts;
9º prove that the added value to raw materials is equal to at least thirty per cent (30%);
10º have a recognized head office of the industry;
11º file the application in January or June, if the industry requests for exemption of additional
machinery, equipment or raw materials;
12º for assembling industry, parts to assemble must be completely separate.
The industry applies for the renewal of its eligibility for exemption from value-added tax,
each two (2) years from the date of publication of this Order.
If the industry has benefited from the exemption after the publication of this Order, the
application for renewal of its eligibility for the exemption provided for in Paragraph 2 of this
Article is made after two (2) years from the date on which the industry obtained the
exemption
Example
Uwineza is a registered VAT tax payer in Rwanda. She deals in both exempt and standard
taxable supply. Her transactions for the month May 2018 are as shown below.
Items Purchases inclusive of Sales inclusive of VAT

VAT RWF RWF
Wines 12,450,000 15,600,000
Milk processed in 3,800,000 3,790,000
Rwanda
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 4,120,300 6,950,100
Kenya
Fuel 3,870,900
Rent 1,782,300
Computers 11,456,700 17,850,000
Cooking oil 9,230,600 13,400,500
Total
Output VAT
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Items Standard Rated Zero Exempt Output VAT
rated
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 tomatoes 6,700,600
Tomato source from Kenya 6,950,100 1,060,185
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 Rated Zero 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 10,800,000 1,647,457
Unprocessed tomatoes 2,562,000
Tomato source from Kenya 4,120,300 628,520
Electricity 2,320,400 353,959
Fuel 3,870,900
Rent 1,782,300 271,876
Cooking oil 9,230,600 1,408,058
Total purchases 37,364,100 32,489,600 7,347,066
VAT payable/claimable = output VAT – Input VAT = 9,254,837 – 7,347,066 = 1,907,771
Ndimwe is a VAT registered tax payer in Nyarugenge District. His supplies are both exempt
and standard rated. His supply for the month of April is as below;
Items Purchases inclusive Sales inclusive
Computers 10,000,000 15,800,000

Clothes 25,750,000 32,800,000
Sugar 14,500,000 18,600,000
Unprocessed milk 4,100,000 4,750,000
Telephones 8,200,000 12,620,000
Fridges 28,740,000 30,485,000
Total 91,290,000 115,055,000
Purchases
Item Exempt Standard VAT
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Clothes 25,750,000 3,927,966
Sugar 14,500,000 2,211,864
Unprocessed milk 4,100,000
Telephones 8,200,000
Fridges 28,740,000 4,384,068
total 22,300,000 68,990,000 10,523,898
Sales
Item Exempt Standard VAT

Computers 15,800,000 -
Clothes 32,800,000 5,003,389.83
Sugar 18,600,000 2,837,288.14
unprocessed milk 4,750,000 -
telephones 12,620,000 -
fridges 30,485,000 4,650,254.24
total 33,170,000 81,885,000 12,490,932
Allowed Input VAT = (Taxable goods/Taxable Business) x input tax
VAT payable 8,866,626.90

VAT payable 3,624,305.30

1. Kamanzi Traders Ltd (KTL) operates a grocery shop in Ruhengeri Town. They sell
assorted goods ranging from household items, scholastic materials, foods and beverages.
They are registered for VAT and have been filling and paying taxes ever since January,
2016.
During January, 2017 they had the following transactions:
1. Sales (VAT Exclusive):

(i) Cooking oil 9,000,000RWF
(ii) School books 1,500,000RWF
(iii) Tinned milk that was imported from Denmark 1,100,000RWF
(iv) Energy saving lamps 1,200,000RWF
(v) Soda 3,800,000RWF
(vi) Beans 2,200,000RWF
(vii) Sugar 4,620,000RWF
(viii) Bananas 120,000RWF
2. Donated sugar worth 100,000RWF to neighbours as part of burial contributions.

Purchases (VAT exclusive & from VAT registered persons where VAT applicable).
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3. Purchases (VAT exclusive & from VAT registered persons where VAT
applicable).
(i) Two fridge 4,000,000RWF
(ii) School books worth Frw 2,300,000
(iii) Soda Frw 4,100,000
(iv) Bananas Frw 100,000
(v) Energy saving lamps Frw 2,000,000
(vi) Sugar Frw 3,000,000
(vii) Tinned milk from Denmark Frw 2,000,000
(viii) Beans Frw 3,100,000
Required
Compute the VAT payable or claimable for January, 2017.
2. Mrs. Umutoni retired early this year from civil service of the Rwandan Government
where she has been working for the last 20 years and opened up a company called PPP
Supermarket Limited dealing in a variety of items. The company had the following
transactions during the month of August, 2017.
Purchases/ Expenses (Inclusive of VAT)

S/N Items RWF
1 Toilet papers 300,000
2 Solar water heaters 3,000,000
3 Telephone expense 2,000,000
4 Bicycles 1,000,000
5 Educational books 5,000,000
6 Television sets 9,000,000
7 Gas cylinders 8,000,000
8 Carpets 7,500,000
9 Tooth brushes 2,500,000
10 Buckets 1,500,000
Sales (all Exclusive of VAT)
S/N Items RWF

1 Shoes 7,000,000
2 Energy saving lamps 10,000,000
3 Carpets 9,000,000
4 Television sets 10,000,000
5 Cartons of salt 5,000,000
6 Newspapers used as educational materials 3,000,000
7 Sweets 6,500,000
8 Gas cylinders 15,000,000
9 Bread 7,500,000
10 Basins 6,000,000
Required
(i) Compute PPP Supermarket Ltd.‘s VAT payable or claimable for the month of
August, 2017.
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(ii) State the due date for filing of its VAT return for the same month
3. Gakara operates an electronics shop in Kigali City. He undertook the following

transactions for the month of March 2015.
1st March 2015 Purchased 10 Cameras for a total of 500, 000RWF

4th March 2015 Purchased Flashbulbs for a total of Frw 200,000
4th March 2015 Purchased 5 Slide Projectors for a total of Frw 1,000,000
5th March 2015 Sold 5 Cameras each at 25% above cost price
6th March 2015 Purchased 200 Wrist Watches at Frw 1,500 each
8th March 2015 Sold 2 Slide Projectors for a total of Frw 500,000
9th March 2015 Sold Flashbulbs that cost Frw100,000 for Frw 150,000
12th March 2015 Purchased 50 Stop Watches for a total of Frw 50,000
15th March 2015 Purchased 100 alarm clocks at total value of Frw 80,000
18th March 2015 Sold remaining 5 Cameras each at 25% above cost price
20th March 2015 Sold 3 Slide Projectors for a total of Frw 750,000
22th March 2015 Sold 100 Wrist Watches at Frw 2,000 per watch
25th March 2015 Sold 70 alarm clocks each at 30% above cost
27th March 2015 Sold 50 Stop Watches for a total of Frw 75,000
All VAT inclusive
Required
(i) Prepare VAT Account clearly showing the VAT payable (refundable).
RULES RELATING TO SUPPLY OF GOODS AND SERVICES

Goods and Services
The following acts constitute the supply of goods as per the VAT Law.
i. Sale, exchange, or other transfer of the right to dispose goods by the owner;
ii. Lease of goods under a leasing agreement;
Any act done but not supply of goods or money is considered as an act of service delivery
which include:
i. The transfer or surrender of any right to any other person;
ii. Provision of any means for facilitation;
iii. The toleration of any situation;
iv. The refraining from doing any act;
v. The lease of goods under operating leasing agreement
Taxation Period
The taxation period for the supply of goods and services is the earliest of one of 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
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constructors who later reimburse 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.
Taxation of goods or services under Article 4 of this Law used for personal purpose or used
as exempted goods and services occurs on the date on which goods or services are consumed.
Value of Goods and Services

The taxable value of each good or service is determined as follows:
i. Except where this Law provides otherwise, the taxable value on goods or services is
the consideration paid in money by the recipient;
ii. The taxable value on goods and services is the fair market value, exclusive of the
value added tax, if goods or services are supplied for:
a) A non-monetary consideration;
b) A monetary consideration for one part and non-monetary for the other;
c) Consideration that is less than the market value of the goods or services.
Acquisition of Foreign Services

If a taxpayer gets services from a person who is outside Rwanda, the taxpayer is considered
as if he/she has delivered taxable services and has received an output tax from that person
residing outside Rwanda. The service delivery is treated as it was made on the date on which
the services were performed by the person residing outside Rwanda for a value determined
under Article 11 of this Law. The output tax is payable on the date of filing the value added
tax declaration for the value added tax period in which those services were performed. The
output tax must appear on the receipt that justified the payment to the foreign services
provider, and that document is considered to be the value added tax invoice.
Notwithstanding the provisions of Paragraphs One and 2 of Article 11, the recipients of
foreign services which are not available in Rwanda are allowed to deduct input tax on output
tax. Services are considered not to be available in Rwanda if there is no any person who can
deliver identical or similar services on the local market.
Example 1
Shanika is a business woman in Kigali. During the quarter ended 31/5/2018, she hired a
foreign consultant to install new business management software; similar consultants who can
offer similar services are available in Rwanda. The consultant was paid 10,000,000RWF
exclusive of VAT compute the VAT.
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Answer
Since similar services can be offered in Rwanda then it is considered as an output VAT
Output VAT = 10,000,000 x 18% = 1,800,000
Example 2
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 30,000,000 inclusive of
VAT.; No similar service is available in Rwanda.
Required
Compute the VAT
Answer
Since there is no similar service that is available in Rwanda, the VAT is considered an input
VAT
Input VAT = 20,000,000 x 18/118 = 3,050,845
RULES RELATING TO IMPORTED GOODS AND SERVICES

Time for Importation of Goods
Importation of goods occurs on the date on which the goods enter Rwandan territory under
the Customs legislation.
Basic Value for Taxation of Imported Goods

The basic value of imported goods is the sum of:
i. The value of the goods for the implementation of customs duty under the customs
legislation, whether or not such a duty is payable on such imported goods;
ii. For matters not specified under the above point:
a) The cost of insurance and freight incurred in bringing the goods to Rwanda;
b) The cost for services which facilitate the import of goods.
iii. The amount of customs duty, excise, port charges, or other fiscal charges other than
value added tax payable in respect of the import. If goods are re-imported after being
exported for repair, renovation or improvement, and the nature of the goods has not
changed, the value of the import is the amount of the increase in value of the goods as
a result of the repair, renovation or improvement.
Example One
1. Mugisha 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 =
830RWF.
Tax Rate
Excise tax 10%
Import duty 25%
VAT 18%
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Required
Compute the VAT
CIF = FOB + I + F
CIF = 40,000 + 4,500 + 8000
52,500 x 830 = 43,575,000
Import duty = CIF x rate
= 43,675,000 x 25% = 10,918,750
Excise tax = (CIF + import duty)
(43,675,000 + 10,918,750) 10%
5,459,376
Port charges (10RWF per kilogram)
30,000 x10 = 300,000
VAT = (CIF +import duty + excise tax + port charges) 18%
(43,675,000 + 10,918,750 + 6,459,376 +300,000) 18%
VAT = 10,809,563

Mr. Mukunzi, an employee of Toto Kigali Limited was confirmed as a permanent member of
staff in May, 2017. In June, 2017 Mukunzi applied for an employer guaranteed car loan from
Success Bank Rwanda Limited to enable him import a personal car from Japan for his private
use. In July, 2017 Mukunzi placed an order with Kismai Japan Limited for a Toyota Probox,
engine capacity 1,300 CC, model 2005. In August, 2017, Kismai sent the following
particulars to Mukunzi:
Details USD
Cost of the vehicle 14,300
Insurance from Japan to the port of Mombasa 1,000
Freight from Japan to Mombasa 1,500
After reviewing the above details, Mukunzi confirmed to Kismai his acceptance of the terms
in totality and then effected payment. Kismai delivered the car at the port of Mombasa on 28
September, 2017 and then arranged for its transportation by road to Kampala in accordance
with the terms of the agreed contract. On 30 September, 2017, Mukunzi engaged Swift
Forwarders Uganda Limited to transport the car from Kampala to Kigali. After payment of
the relevant taxes and registration fees on 5 October, 2017, the car was issued with a number
plate and a registration certificate by the Rwanda Revenue Authority.
Hint: Import duty rate = 25%, Excise duty rate = 10%, Withholding tax rate = 5% and the
exchange rate on 5 October, 2017 was USD 1 = Frw 900.
Required
(a) Compute the customs duties paid to the Rwanda Revenue Authority (RRA) on 5
October, 2017.
INPUT TAX
Allowance of Input Tax
If all goods or services supplied by a taxpayer during a value added tax period are taxable
goods and services, the taxpayer is allowed a credit of the input tax paid in respect of taxable
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acquisitions or taxable imported goods during the tax period for the purposes of selling or
delivering taxable goods and services.
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.
No input tax is allowed if goods purchased in the country or taxable imported goods or
services are for personal purposes.
Input VAT allowance = Total input x taxable sale

Total sales
Example
Kayishema imported raw materials worth Fwr 200,000,000 exclusive of VAT. The materials
were used to manufacture two products that are standard and exempted. The standard goods
were sold at Frw180,000,000 exclusive of VAT and exempted were sold at Frw100, 000,000
Required
Compute the VAT payable
Total input VAT = 200,000,000 x 18% = 36,000,000
Allowable input VAT = 36,000,000 x180,000,000

280,000,000
= 23,142,857
Output VAT = 180,000,000 x 18% = 32,400,000
VAT payable = 32,400,000 – 23,142,857 = 9,257,143

Hagenimana is a trader in Musanze. The following are his transaction for the quarter ended
31/8/2018
FRW
Standard sales 120,000,000
Zero rated sales 200,000,000
Exempted sales 80,000,000
Purchases 220,000,000
The purchases were used to produce all supplies.
Required
Compute the VAT payable or claimable
An input tax is allowed when the taxable goods are acquired or imported. However, if at the
time of a value added tax declaration for a tax period in which an input tax would otherwise
be allowed under this Law, a taxpayer who does not have the relevant documents for input
tax claim, the input tax is not allowed in that period but instead it is allowed in the first value
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added tax period in which the taxpayer holds such documents provided that they are not
exceeding two (2) years after the time of the taxable goods are acquired or imported for
which the credit relates.
Value Added Tax Violations

Article 63 of Law N°25/2005 of 04/12/2005 on tax procedures relates to the administrative
fines imposed to persons who do not comply with provisions of Value Added Tax:
1) In the event of operation without VAT registration where VAT registration is
required, fifty percent (50%) of the amount of VAT payable for the entire period of
operation without VAT registration;
2) In the event of the incorrect issuance of a VAT invoice resulting in a decrease in the
amount of VAT payable or in an increase of the VAT input credit, or in the event of
the failure to issue a VAT invoice, one hundred percent (100%) of the amount of
VAT for the invoice or on the transaction;
3) For issuing of a VAT invoice by a person who is not registered for VAT is assessed a
penalty of one hundred fifty percent (150%) of the VAT which is indicated in that
VAT
If the amount of tax shown on a tax declaration or the amount of tax which is the
result of an adjusted assessment by the Tax Administration is not paid in time, the
taxpayer is subject to a fine of ten percent (10%) of the tax payable.
The taxpayer is not subject to this fine if the Commissioner General provided an extension
for filing the tax declaration according to article sixteen (16) of this law.
VAT Refund
Tax refund is a result of having taxes withheld on earnings that amount to more than what a
person owes in income taxes for a calendar year. There are times when a taxpayer pays more
than what he/she is required to pay. When tax administration receives excess payment of
taxes from any taxpayer, it cross checks the documents of the tax filed and verifies the cause
of over payment, and the surplus amount discovered is what is referred to as tax refund.
If during a particular prescribed taxation period, the input tax exceeds the 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
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 when the claim was lodged.
For Large Taxpayers

When the amount to be refunded is less than Frw200,000, the taxpayer shall deduct that
amount during the next filing period;
When the requested refund is between frw200,000 and frw2,000,000, as well as the money
that was retained in the Office of the treasury, the taxpayer shall be refunded that money by
the Rwanda Revenue Authority before any audit is carried out;
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When a taxpayer requests for refund of more than Frw2,000,000, or between frw200,000
and frw200,000,000 for more than three consecutive times or even suspected of not rightfully
demanding for the VAT refund, the RRA carries out an audit to verify the validity of refund
request;
Prior to the refund, the auditor is required to carry out desk audit without going to the
taxpayer‘s premises.
For Medium Taxpayers

When the amount to be refunded is less than Frw100.000, the taxpayer shall deduct that
When the amount to be refunded is between frw200.000 and frw1,000,000, as well as the
money that was retained by the Office of the treasury, the taxpayer shall be refunded that
money by the Rwanda Revenue Authority before any audit is carried out.
For Small Taxpayers

When the amount to be refunded is less than Frw50,000, the taxpayer shall deduct that
When the amount to be refunded is more than frw50,000 and less than frw500.000, the
authority refunds that amount with immediate effect;
When a taxpayer requests for refund of more than Frw500,000, for more than three
consecutive times, the RRA carries out an audit to verify the validity of refund request; and
this is done in a period of three months.
When a taxpayer requests for refund of more than Frw 500.000, before that money is
refunded, the RRA carries out an audit to verify the validity of refund request. Prior to the
audit, the taxpayer is informed in writing of the audit to be done in not less than seven
working days.
Privileged and exempted persons such as diplomats, projects funded by international

organizations and Non-Governmental Organizations that have a convention with the
Government of Rwanda of not paying taxes are refunded the money paid as VAT not less
than ten working days after filing the form obtained at RRA offices.
The requirements include an authentic document allowing him/her that exemption or a

service card for these Diplomats representing their countries in Rwanda, copies of all
invoices and proof of payment for an amount more than Frw100.000.
The Ministerial Order establishes a list of exempted goods and those zero rated in accordance
with articles 86 and 87 of law no 6/2001 of 20/1/2001.
When an individual/taxpayer receives a tender from organizations/institutions that are

exempted from paying VAT, s/he deducts the VAT as provided for by the law then thereafter
files in refund request for VAT from Rwanda Revenue Authority.
Taxable Persons
The term 'person' includes individuals, partnerships (which are treated as single entities,
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ignoring the individual partners) and companies. If a person is in business making taxable
supplies, then the value of these supplies is called the taxable turnover. If a person's taxable
turnover exceeds certain limits then he is a taxable person and should be registered for VAT.
REGISTRATION FOR VAT

A person whose taxable transaction in the preceding calendar year or preceding quarter has
reached at least 20,000,0000 (twenty million) or 5,000,000 (five million) RWF, 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 month without registering for VAT.
However, as soon as the taxable transactions reach 5,000,000rwf or more, it must be
registered any time before the end of the 3 month period. If a person has different businesses
in the same or different locations he shall combine all the activities and register as one single
taxable unit.
Example
Ndwayezu 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 Ndwayezu register for the VAT?
Quarterly Registration Rule
Month Monthly sales Cumulative sales

Amount (RWF) Amount (RWF)
January 1,800,000 1,800,000
February 800,000 2,600,000
March 2,000,000 4,600,000
April 2,500,000 2,500,000
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May 2,000,000 4,500,000
June 1,800,000 6,300,000
Since Ndwayezu reaches 5,000,000rwf in the second quarter, he must register for VAT in
seven days of month July.
Annual Registration Rule
Month Sales Amount Cumulative sales

(RWF) Amount (RWF)
January 1,800,00 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 10,900,000
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, Ndwayezu reaches 20,000,000rwf in the month of
September; therefore he must register for VAT in the first seven days of January

Uwamahoro Ltd (UL) is a tax resident company in Rwanda and engages in the sales of
general merchandise. UL has been trading since 2016 but not yet for value Added Tax UL
recorded the following sales in 2016.
Period Sales (Frw)

January 1,200,000
February 800,000
March 1,890,000
April 2,000,000
May 1,500,000
June 2,890,000
July 970,000
In May 2016, UL sold solar water heaters; supplied educational materials directly to learning
institutions and sold energy saving lamps to various customers which were all valued at Frw
400,000.
Required
(i) Determine the period in which Uwamahoro Ltd (UL) met the VAT registration
threshold.
(ii) State when UL was expected to file the first VAT return.
(iii) State the penalty for non-registration.
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(iv) List three taxable supplies on which input tax is not allowed.
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 that 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.
Those who are registered for VAT will be obliged to buy from supplies that are registered.
Obligations of a VAT Registered Taxpayer

Articles of Rwanda tax law 57-63 specify the rights and obligations of a VAT registered
taxpayer and include the following:
1. Must clearly display the VAT registration certificate in a plain view at the entrance of
his place of business for his clients to see.
2. Must issue a VAT invoice to his customers every time they purchase goods or services
from him.
3. Must file a monthly or quarterly VAT return on the appropriate form (UNG11).
4. Must be available at all times to receive VAT officers and to make available to the
officers books of accounts ascertaining to the business.
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.
Voluntary Registration
A person may decide to become registered even though his taxable turnover falls below the
registration limit. Unless a person is registered, he cannot recover the input tax he pays on
purchases.
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Example
Voluntary registration is advantageous where a person wishes to recover input tax on
purchases. For example, consider a trader who has one input during the period which cost
1,000rwf plus 180 VAT at 18%; he works on the input which becomes his sole output for the
year and he decides to make a profit of 1,000rwf.
(a) If he is not registered he will charge 2,180 and his customer will obtain no relief for
any VAT.
(b) If he is registered he will charge 2,000rwf plus VAT of 360rwf. His customer will
have input tax of 360rwf which he will be able to recover if he, too, is registered.
If the customer is a non-taxable person he will prefer (a) as the cost to him is 2,180rwf. If he
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.
Voluntary Deregistration
A person is eligible for voluntary deregistration if the commissioner general is satisfied that
the value of his taxable supplies (net of VAT and excluding supplies of capital assets) in the
following one year period will not exceed the minimum. However, voluntary deregistration
will not be allowed if the reason for the expected fall in value of taxable supplies is the
cessation of taxable supplies or the suspension of taxable supplies for a period of 30 days or
more in that following year.
Compulsory Deregistration
A trader may be compulsorily deregistered if RRA officials are satisfied that he is no longer
making nor intending to make taxable supplies. Failure to notify a requirement to deregister
within 30 days may lead to a penalty. Compulsory deregistration may also lead to RRA
reclaiming input tax which has been wrongly recovered by the trader since the date on which
he should have deregistered.
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.
Transfer of a Going Concern Business

The transfer of a business as a going concern is outside the scope of VAT. There is no VAT
charge if a business (or a separately viable part of it) is sold as a going concern to another
taxable person (or a person who immediately becomes a taxable person as a result of the
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transfer). Such a sale is outside the scope of VAT.
If a transfer of a going concern (TOGC) is from a VAT registered trader to a new owner who
is not VAT registered then it is possible to apply to transfer the registration number of the
previous owner to the new owner. This would also transfer to the new owner the
responsibility for the past VAT history of the old business. So, if the previous owner had
committed any VAT misdemeanours the liability for those would transfer to the new owner of
the business. As a result of this it may not be wise to apply to transfer the VAT registration
number between old and new owners unless of course, it is a situation where there is a very
close connection between the two.
If the VAT registration number is not transferred, then the new owner does not have any
responsibility for the VAT affairs of the previous owner of the business. This is probably a
safer way to structure the transfer of a business.
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.
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.
Imports, Exports and Free Zones

VAT is not only a tax on supplies made in Rwanda, it is also a tax on the importation or
acquisition of most goods and services.
Imports
When goods and services are imported into Rwanda VAT is due at the same rate as on a
supply of those goods in the Rwanda. VAT must be paid when you import the goods and
before they are cleared from Customs. If you import services then you must account for VAT
as if you supplied the service yourself. However, in the case of imported services you may
not reclaim the VAT as input tax.
Exports
If you export goods to a customer outside of Rwanda that supply is normally zero-rated
provided that you fulfil certain conditions.
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Free Zones
VAT is not due on the importation into a free zone of goods for storage and/or processing.
Import VAT is due on goods removed from a free zone in to the rest of Rwanda and on goods
used or consumed within the free zone. Where goods manufactured in a free zone are
removed into Rwanda for use in the owners business, as opposed to being sold or disposed of,
VAT is due only on the value of any imported element of the goods.
VAT Invoices
Whenever you supply standard rated goods or services you must issue a VAT invoice. This is
a document containing certain information about what you are supplying. Your customers
need VAT invoices to be able to reclaim as input tax the VAT you have charged them.
If your customer pays you in cash, then you should record this clearly on the VAT invoice.
Information Required on a VAT Invoice

When you issue a VAT invoice it should show the following details:- the word ―tax invoice‖
in a prominent place, the invoice number, your name, address and VAT registration number,
the date that the goods or services were supplied, the date of issue of the invoice your
customers name and address, the type of supply (e.g. sale or rental, goods or services), a
description which identifies the type of goods or services supplied, the quantity of goods or
the extent of the service, the total charge made excluding VAT, the amount of VAT and the
gross amount payable.
Invoicing Zero Rated or Exempt Supplies

If you issue a VAT invoice which includes supplies that are either zero rated or exempted,
you must ensure that those items show clearly that there is no VAT payable and their values
must be totalled and shown separately.
Credits and Debits Notes

It is a fact of life that at some stage a customer will return goods or an overcharge or
undercharge will be discovered, relating to a supply, on an invoice. To correct such
eventualities either a credit note or a debit note will be required to be issued.
To be valid for VAT purposes, a credit or debit note must: - reflect a genuine mistake,
overcharge or an agreed reduction in the value of a taxable supply and should be issued as
soon as this mistake is discovered. Give value to the customer, i.e. represent a genuine
entitlement (or claim) on the part of the customer for the amount overcharged to be either
refunded or offset against future supplies is clearly headed.
Credits given for zero rate or exempt supplies included in a credit or debit note must be
totalled separately and the note must clearly show that no VAT credit has been allowed for
them.
Accounting for Credit Notes and Debit Notes

If you have to make an adjustment for a credit or debit note you must adjust all the records of
the taxable supplies made and the output tax to reflect credits or debits you have made. The
nature of the adjustments and the reasons for them must be clearly documented. Any VAT
adjustment arising from the issue or receipt of credit notes or debit notes must be made for
the accounting period in which you enter the adjustment in your business accounts.
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In exceptional circumstances, if the VAT credits you allow your customers exceed the output
tax you charged on your sales in a VAT period, it is possible that you may have a minus
figure in the output tax box of the VAT return. This should be made clear by writing the
figure in brackets.
If the standard rate of VAT changes, for any reason, the rate of VAT to be used for the credit
note or debit note is the one that was in force at the time of the tax point of the original
supply.
Records and Accounts

You are required by law to keep records and accounts of all taxable goods and services you
receive or supply in the course of your business. This includes both standard rated and zero
rated supplies. You must also keep records of any exempt supplies that you make. In addition
you must keep a summary of your input tax and output tax totals for each monthly tax period.
All these records should be kept up to date and must be in sufficient detail to allow you to
calculate correctly the amount of VAT that you have to pay to, or claim from, the RRA.
You do not have to keep these records in a set way but they must be maintained in a way
which will allow RRA officers to check easily the figures that you have used to fill in your
VAT returns.
Information to be Recorded
You must keep records of all the operations connected with your business which affect the
amount of VAT you have to pay or can reclaim. This includes: - every supply of goods or
services you receive on which you are charged VAT by your suppliers, every supply of goods
or services which you make, any goods you have exported, any goods you have imported,
any goods which you acquire in the course of your business which you put to private or non-
business use.
You must also record adjustments such as: corrections to your accounts, amended VAT
invoices, and any credits you allow or receive.
Denial of Input Tax

No input tax is allowed on the following goods:
1) Passenger vehicle, or spare parts or repair and maintenance services for such a vehicle,
unless the taxpayer‘s business involves the re-sale or rent of such a vehicle and the
vehicle was solely acquired for the purpose of such taxpayer‘s business.
2) Goods acquired or imported for entertainment purposes unless the taxpayer‘s business
involves providing entertainment and the entertainment is provided in the ordinary
course of that business and was not entrusted to a partner or employee;
3) Goods acquired for accommodation purposes, unless:
a) The taxpayer‘s business involves providing accommodation services and the
accommodation is provided in the ordinary course of that business;
b) The accommodation was provided to the person who was away from his/her usual
residential home for the interest of the business or employer‘s interests;
4) The acquired goods give right to membership or accession for any person to an
association of sporting, social, recreational clubs.
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Value added tax paid on such business overheads as in the case of telephones and electricity
whose use cannot be practically separable from private and business use shall be equal to
40% of the input tax. The Commissioner General shall determine deniable input tax on
taxable goods acquired or taxable goods imported as mentioned in Paragraph One of this
Article.
POST-SALE ADJUSTMENTS
Post-Sale Adjustments
The reasons for post-sale adjustments are as follows:
1) If taxable goods or services no longer existing;
2) If the nature of taxable goods or services is changed or damaged;
3) If the consideration of taxable goods or services is changed;
4) If goods or part of the goods are returned to the supplier.
Value Added Tax Post-Sale Adjustments

In case post-sale adjustments on taxable goods and services are due to reasons referred to in
Article 18 of this Law, which lead to the value added tax paid in respect of the taxable goods
or services exceed the value added tax to be duly payable by the supplier, the seller benefits
the balance as a deductible input tax. However, if the seller, delivered taxable goods or
services to a value added tax non-registered person, the seller shall be allowed to benefit the
balance as a deductible input tax only when he/she substantially proves that the balance was
repaid to the recipient.
The registered buyer shall consider the additional tax as output tax on taxable goods or
services. If adjustments to the taxable goods and services lead to the diminution of the tax to
be duly paid against the tax paid by the seller, the registered recipient is requested to pay the
value added tax related to the additional value due to the adjustment. The registered recipient
shall consider the additional tax as a refundable tax.
Post-Sale Adjustment for Unrecoverable Debts

If a registered tax payer has supplied goods or services for consideration and paid all the tax
on those goods and services to the Commissioner General, but has not within twenty (24)
months after the delivery of such goods and services received payment in whole or in part
from the recipient, the registered supplier is allowed a refund of the tax paid for which he/she
did not receive upon fulfilling the following conditions:
1) An amount equivalent to the debt previously included in the value of taxable goods or
services;
2) The debt is written off in the books of accounts of the supplier of goods or services;
3) The supplier of goods or services who has taken all possible steps in pursuing payment
and has shown convincing evidence that the debtor is insolvent.
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DECLARATION AND PAYMENT OF VALUE ADDED TAX
Value Added Tax Declaration
Within fifteen (15) days after the end of the period of the value added tax, a registered
taxpayer must submit value added tax declaration, in accordance with forms and formalities
determined by the Commissioner General.
For taxpayers whose annual turnover is equal to or less than two hundred million Rwandan
francs (200,000,000 RWF), the value added tax declaration is quarterly and shall be
submitted with payment of the tax due within fifteen (15) days after the end of the quarter.
However, taxpayers whose annual turnover is equal to or less than two hundred million
Rwandan francs (200,000,000 RWF) who wish may opt for a monthly value added tax
declaration.
A registered taxpayer must submit value added tax declaration, whether he/she made sales or
not, whether he/she is claiming for refund or whether the difference is zero.
Payment of Value Added Tax

The value added tax payable by a taxpayer for a tax period shall be computed in accordance
with Article 21 of this Law and it shall be payable on the date of submission of a value added
tax declaration for that taxation period. The value added tax payable by an importer is due
and payable when imported goods reach the country.
Collection of Value Added Tax on Imported Goods

Importation of taxable goods is subject to value added tax at the customs point in accordance
with the customs legislation.
Certificate of Registration
A registered taxpayer must display the certificate of registration at his/her principal place of
business.
Enterprise and Subsidiaries

A taxpayer who manages an enterprise which has subsidiaries is treated as a single enterprise
for the purposes of this Law. A person who conducts a business in various subsidiaries of an
enterprise is obliged to register the business in his/her name and not in the names of the
subsidiaries.
Currency Conversion
The currency used in implementation of this Law is expressed in Rwandan francs.
If any amount is expressed or paid in a currency other than Rwandan francs:

1) In the case of importation of goods, the amount shall be converted into Rwandan francs
at the exchange rate applicable under the Customs legislation for the purposes of
computing the customs duty payable on the import;
2) In any other case, the amount is to be converted into Rwandan francs at the National
Bank of Rwanda exchange rate applying between the foreign currency and Rwandan
franc on the date on which the amount is given for the purposes of this Law.
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If there is no existing applicable exchange rate for a certain currency used by the National
Bank of Rwanda, the applicable rate shall be computed on the basis of the National Bank‘s
rate for the U.S. Dollar, and a published cross-rate for that currency in question against the
U.S Dollar.
Foreign Diplomatic Missions in Rwanda and International Agreements

Upon request, and if he/she considers it necessary, the Commissioner General may authorize
the refund of part or all of the value added tax incurred on goods acquired or imported by:
1) A diplomatic or consular mission, or by a diplomat or consular official who enjoy full or
limited immunity, rights, according to the law governing diplomats accredited to Rwanda
as well as the law governing trade cooperation between the countries;
2) A governmental international organisation or foreign Government to the extent required
under an international agreement.
The application for a refund under this article must be made on the approved form and in the
manner prescribed by the Commissioner General and be accompanied by supporting
documents as the Commissioner General may require. The following are some of such
documents:
1) Evidence that the value added tax for which the refund is sought was incurred;
2) Evidence of the applicant‘s entitlement to make an application for refund under this
Article. In this article, international agreement means an agreement between the
Government of Rwanda and a foreign Government or a governmental international
organisation for the provision of financial, technical, humanitarian, or administrative
assistance to the Government.
ELECTRONIC BILLING MACHINE (EBM)

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.
“Certified Invoicing System (CIS)” means an electronic system designated for use in
business for efficiency management controls in areas of sales analysis and stock control
system which confirms the requirements specified by the Authority
Sales Data Controller (SDC)” means a device connected to CIS used for processing and
storing certified receipts;
Machine Registration Code (MRC) means Certified Invoicing System‘s unique serial
number with designation of its certificate;
Remote audit means a function of SDC to establish two way communications with remote
server designated by the Authority in order to transfer required audit information;
Local audit means a function of SDC to provide information from its internal memory to a
removable storage media (SD card).
Purposes of EBM
i. Combating tax evasion
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ii. Combating corruption in the tax system
iii. Providing a market balance and make equal business opportunities for every
entrepreneur.
Sales Data Control (SDC)

Sales Data Controller (SDC) is an electronic device connected to Certified Invoicing System
(CIS), designed to receive specific receipt data from CIS, performs data processing and
generates response data which is sent back to CIS for further actions. Response data provides
authenticity of receipt data. SDC also store receipts to its own.
Certified Invoicing System (CIS)

Certified Invoicing System (CIS) can be any electronic cash register, any terminal with cash
register software, any computer using invoicing software, or any other similar system used
for registration of outbound transactions.
A CIS cannot operate unless connected to a functional Sales Data Controller unit assigned for
the same TIN, which preserves on an irrevocable and secure manner all relevant data of the
outbound transactions, uses this data to calculate an algorithm that must be printed on the
final receipt, in accordance with Article 4 of Commissioner General Rules, for the client by
the means of CIS printing mechanism.
The data flow between the Certified Invoicing System and the Sales Data Controller will be
as follows for each receipt type:
a. The CIS sends the following receipt data to the SDC at the time when the receipt is being
produced:
i. Date and time;
ii. Tax Identification Number;
iii. Client's TIN (optional);
iv. Machine registration code (MRC);
v. Receipt number;
vi. Receipt type and transaction type;
vii. TAX rates;
viii. Total amounts with TAX;
ix. TAX amounts.
b. The SDC receives receipt data from CIS;
c. The SDC generates the following response data and sends them back to the CIS:
i. SDC ID;
ii. Date and time;
iii. Receipt label;
iv. Receipt counter per receipt type;
v. receipt counter of all receipts;
vi. Digital signature (except for the receipt)
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Registration as an Electronic Billing Machine User
Any taxpayer informed under Article 9 of this Order shall be required to register with the
Authority as a certified electronic billing machine user.
Any taxpayer who is exempted from the obligation under Paragraph One of this Article may
voluntarily register or may be required to register with the Authority as a certified electronic
billing machine user, based on the level of risk assessment determined by the Commissioner
General.
Upon commencement of this Order, only machines for issuing receipts that are found to be
compliant with certified electronic billing machine specifications, and have been duly
authorized by the Authority are utilised to generate receipts required under Article 7 of this
Order.
Receipt Data Requirements

A Certified Invoicing System shall generate receipts which show, among others, the data
enumerated in items below as minimum required information:
1) Taxpayer‘s name;
2) Taxpayer identification number;
3) Address at which the sale takes place;
4) Optional tax identification number of the client;
5) Receipt type and transaction type;
6) Serial number of the receipt, from an uninterrupted ascending number series per receipt
type;
7) Registered items or services with description, quantity, price, with any other action that
may be done, such as cancellations or corrections;
8) Total sales amount;
9) Tax rates applied;
10) The tax added to the sale amount;
11) Means of payment;
12) SDC information including:
a. Date and time stamped by SDC;
b. Sequential receipt type number;
c. Receipt signature;
d. SDC identification number;
13) Date and time stamped by CIS;
14) Machine Registration Code (MRC).
Each receipt shall be formed from a combination of a receipt type and a transaction type,
determined by the Commissioner General.
The receipt data requirements referred to in Paragraph One of this Article shall apply to
return receipts.
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Obligations of a Certified Electronic Billing Machine User
Users of certified electronic billing machines shall be subject to the following obligations:
1) To purchase certified set of electronic billing machines from a licensed supplier;
2) To install certified electronic billing machines at the sales location;
3) To issue receipt generated by certified electronic billing machines to every customer
purchasing items or service;
4) To ensure that certified electronic billing machines is placed at a place which is
accessible and easily seen by customers;
5) To ensure that all items or services sold through certified electronic billing machine have
clearly defined name and appropriate tax rate.
6) To include client‘s TIN on the receipt upon request from the client who performs the
payment prior to start issuing a receipt;
7) 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‖;
8) To make certified electronic billing machine available for control with respect to its
being intact and the correctness of its operations;
9) To perform compulsory technical inspection of certified electronic billing machine with
appropriate service point, once such obligation is requested by the Commissioner
General;
10) To store the copies of certified electronic billing machines journal records within ten
(10) years;
11) To ensure that the user manual is received at the time of supply by the dealer;
12) To ensure that the supplier has registered certified electronic billing machine at the time
of supply with the Authority;
13) To report change of sales location to the Authority through procedure prescribed by the
Commissioner General;
14) Not to stop using certified electronic billing machine for more than twelve (12) hours
without prior notification to the Authority;
15) To report malfunctions of certified electronic billing machine to the Authority within six
(6) hours;
16 To keep the SDC in Rwanda;
17) To preserve the SDC in the event of sale or scrapping of a certified electronic billing
machine;
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18) To preserve the SDC for at least twelve (12) months in a secure manner recommended
by manufacturer. This also shall apply to a SDC which has been replaced to be
dismantled or has been replaced for some other reason;
19) To have a valid purchase contract for the certified electronic billing machines from an
authorized supplier;
20) Not to start business activity without acquisition of a certified Electronic billing
machine with and its installation at sales location;
21) To provide accurate information about sales outlet where electronic billing machine
shall be operating on the application form for system activation;
22) To report to the Authority about electronic billing machine replacement in twelve (12)
hours after Electronic billing machine is replaced or moved out from registered sales
outlet for any reason;
23) To submit request to the Authority for electronic billing machine de-activation in case
of cessation of business activity;
24) Issue certified receipt printed by Electronic billing machine, regardless if the client
requires or rejects to take certified receipt, in case there is at least one electronic billing
machine functioning properly at sales location;
25) To issue certified refund receipt printed by certified electronic billing machine in case
that there is at least one certified electronic billing machine functioning properly at sales
location and document refund in accordance with refund procedure specified by
Commissioner General‘s instructions;
26) To issue invoices written by hand in two specimens, regardless if the client is requiring
or rejecting to take invoice, in case there is no certified electronic billing machine
functioning properly at the sales location and at least for ten (10) years and keep second
specimen of invoice handwritten together with original certified receipt printed after
certified electronic billing machine is recovered;
27) To issue certified refund receipts in case of necessary balance correction for previously
issued certified receipt due to entry error. Refund receipt in this case shall be in
consecutive order from original receipt followed by documented evidence, in accordance
with refund procedure specified by Commissioner General‘s instructions;
28) To notify the Authority in writing about termination of certified electronic billing
machines operation in twelve (12) hours due to theft or damage by force majeure like
flood, fire, earthquake, accident in transportation or similar. This notification shall be
accompanied by copy of report from competent authority. If business activity is
continuing, a taxpayer shall purchase a new certified electronic billing machine within
eight (8) working days;
29) To keep the proper functional SDC connected to CIS all the time;
30) Not perform operations on certified electronic billing machine applying different tax
rates for goods and services other than the ones officially prescribed by the Authority;
31) Any other obligation that may be determined by the Commissioner General
Violation of the EBM Law

Failure to use electronic billing machine
Article 24 of Law nº 37/2012 of 9/11/2012 establishing the value added tax as modified and
complemented to date is modified and complemented as follows:
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―Any person required to use electronic billing machine who sells goods or services
without issuing an electronic invoice is liable to an administrative fine of ten (10) times
the value of the evaded value added tax.
In case a person repeats the fault specified in Paragraph One of this Article, he/she is liable
to an administrative fine of twenty (20) times the value of the evaded value added tax.‖
Non-compliance with other obligations of the user of electronic billing machine

Article 24 of Law nº 37/2012 of 9/11/2012 establishing the value added tax as modified
and complemented to date is modified and complemented as follows:
―Any person required to use an electronic billing machine complies with other obligations
of the user of such a machine provided for by the Ministerial Order on modalities of use of
certified electronic billing machine.
Subject to provisions of Article 24 of the Law, any person who fails to comply with the
obligations specified in Paragraph One of the Article 24 is liable to an administrative fine
of two hundred thousand Rwandan francs (FRW 200,000).
In case a person repeats the fault provided under Paragraph 2 of this Article, he/she is
liable to an administrative fine of four hundred thousand Rwandan francs (FRW
400,000).‖
Understatement of Tax
―Any person who makes a taxable transaction and delivers an electronic invoice with
undervalued price or quantity of goods or services is liable to an administrative fine of ten
(10) times the value of the evaded value added tax. In case the person repeats the fault
provided under Paragraph 4 of this Article, the fine is increased to twenty (20) times of the
value of the value added tax evaded.‖
REVIEW QUESTIONS AND ANSWERS

Question 1
a). Define a taxable supply as per the VAT law.
b). What is the taxation period of the goods and services?
c). Turikumwe investments limited manufactures and distributes cements. During the month
of May 2015, they supplied cement worth 50,000,000RWF inclusive of VAT to Shumbusho,
a whole seller located in Nyabugogo. The wholesaler supplied the whole cement to Manzi a
retailer in Nyamirambo at 52,000,000RWF exclusive of VAT. The cement was finally
supplied to the final consumer at 60,000,000RWF inclusive of VAT.
Required
i. Determine the amount of output and the Input VAT
ii. The VAT payable to Rwanda Revenue Authority
Answer
a) A taxable supply is a supply of goods or services in Rwanda, other than an exempt supply.
Therefore, a taxable supply is either zero rated supply or standard rated supply.
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b). Taxation period is the period on which the supply of goods or service is recognised to
have been occurred. The taxation period for the supply of goods and services is the earliest of
one of 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.
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.
Particulars Workings Amount

(RWF)
Output VAT
Supply by Turikumwe 50,000,000 x 18/118 7,627,119
limited
Supply by the whole seller 52,000,000 x 18% 9,360,000
Supply by the retailer 60,000,000 x 18/118 9,152,542
Total output VAT 26,139,661
Input VAT
Purchase by whole seller 50,000,000 x 18/118 7,627,119
Purchase by retailer 52,000,000 x 18% 9,360,000
Total input VAT 16,987,119
VAT payable 26,139,661 – 16,987,119 9,152.542
Question 2
a) The Government of Rwanda allows tax payers to claim for the Input VAT paid. However,
there are circumstances where the input VAT cannot be claimable by the taxpayers. Give
four circumstances where the input VAT will be denied.
b). Nyirarukundo is registered for VAT, and its sales are all standard rated (18%). The
following information relates to her VAT return for the quarter ended 31 March 2015:
i). Standard rated sales amounted to 120,000,000RWF. She offers her customers a 5%
discount for prompt payment.
ii). Standard rated purchases and expenses amounted to 35,640,000RWF. This figure
includes 480,000 for entertaining customers.
iii). On 15 March 2014 she wrote off irrecoverable debts of 2,840,000RWF in respect of
invoices due for payment on 10 May 2011.
iv). During the month ended 31 March 2015 she received a service from a foreign
consultant firm. She paid 3,000,000RWF exclusive of VAT. Similar service can also be
provided by consultants in Rwanda but she preferred a foreign firm.
iv). Unless where indicated, all the figures are inclusive of VAT
Required
a) Determine the amount of VAT payable to RRA.
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b). Give four circumstances under which the tax payer will be penalised for violating the
VAT laws.
c). Rwanda Revenue Authority introduced the Electronic Billing Machines and every
registered tax payer is required to use the Electronic Billing machine. Explain the
objectives of introducing the electronic billing machine by RRA.
Answer
a). Computation of VAT payable
Particulars Working Amount Amount
(RWF) (RWF)
Output VAT:
VAT on sales (95% x 120,000,000) x 17,389,830
18/118
Less VAT on irrecoverable (18/118 x 2,840,00) N1 (433,220)
invoice
16,956,610
Add VAT on foreign service (3,000,000 x 18%) N2 540,000
Total output VAT 17,496,610
Input VAT:
VAT on purchase and (35,640,000 – 480,000) x (5,363,389)
expenses 18/118
VAT payable 12,133,221
Total marks awarded
Notes (N)
N1: Since the invoice exceeds 24 months it can be allowed for write off.
N2: Since there are other consultants in Rwanda who can offer the same service. The whole
amount will be considered as output VAT.
b) Reasons for denial of Input VAT

i. VAT on motor cars not used wholly for business purposes. VAT on cars is
never reclaimable unless the car is acquired new for resale or is acquired for use
in or leasing to a taxi business, a self-drive car hire business.
ii. VAT on business entertaining where the cost of the entertaining is not a tax-
deductible trading expense. If the items bought are used partly for such
entertaining and partly for other purposes, the proportion of the VAT relating to
the entertainment is non-deductible.
iii. VAT on expenses incurred on domestic accommodation for directors.
iv. VAT on non-business items passed through the business accounts.
v. VAT which does not relate to the making of supplies by the buyer in the course
of a business.
c). Circumstances under a taxpayer will be penalised for violating the VAT laws:
i). In the event of a taxpayer operating without VAT registration where VAT registration
is required;
ii). In the event of the taxpayer issuing incorrect VAT invoice resulting in a decrease in
the amount of VAT payable or in an increase of the VAT input credit;
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iii). In the event the taxpayer fails to issue a VAT invoice where he or she is supposed to
issue;
iv). For issuing of a VAT invoice by a person who is not registered for VAT;
v). Not paying the VAT on time.
d). Purpose of introducing EBM
i. It helps in Combating tax evasion
ii. It helps in Combating corruption in the tax system
iii. It helps in providing a market balance and make equal business opportunities for
every entrepreneur.
Question 3
a. According to article 3 of the VAT law, VAT is charged on a taxable supply. With
examples explain the taxable supply for VAT purposes.
b. Explain four circumstances under which the output VAT may be adjusted
c. Ndaku is a registered VAT payer. The following transactions took place in his
business for the period ended 30/6/2016.
i. Purchased items worth 28,800,000RWF inclusive of VAT
ii. Paid for electricity 270,500RWF
iii. Sold goods worth 30,000,000RWF on credit inclusive of VAT
iv. Sold goods worth 12,700,000RWF exclusive of VAT cash
v. Purchased home use items worth 6,500,000RWF inclusive of VAT
vi. A bad debt of 2,000,000RWF exclusive of VAT was written off. This is after
spending one and half years without knowing the whereabouts of the
customer.
vii. The company outsourced a foreign consultancy to install and train employees
on the new business management software. The company paid
14,000,000RWF, exclusive of VAT to the consultants. There are similar
companies in Rwanda which can do the same job.
viii. The company returned goods to supplier because they were found to be
defective. The supplier issued a credit note of 5,000,000RWF inclusive of
VAT.
Required
Compute the VAT Payable or claimable
Answer
a. A taxable supply as a supply of goods or services made in Rwanda, other than
an exempt supply.
Zero-rated supplies are taxable at 0%. A taxable supplier whose outputs are zero-rated
but whose inputs are standard-rated will obtain repayments of the VAT paid on purchases
exported goods and services; goods sold in shops that are exempted from tax as provided
for by the law governing customs; services rendered to a tourist for which value added tax
has been paid;
Standard supply is the supply of goods and service whose inputs and output are taxed at
18%; Example; alcohol, and sugar.
b. Adjustments of output VAT
1° If taxable goods or services no longer existing;
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2° If the nature of taxable goods or services is changed or damaged;
3° If the consideration of taxable goods or services is changed;
4° If goods or part of the goods are returned to the supplier.
c) Computation of VAT Payable or Claimable
INPUT VAT
purchase of items (28,800,000 x 18%) 5,184,000
electricity 270500 x 18% 48,690
Credit note 5,000,000 x 18% (900,000)
Total input VAT 4,332,690
Output VAT
sales (30,000,000 x 18%) 5,400,000
sales 12,700,000 x 18/118 1,937,288
foreign severance 14,000,000 x 18% 2,520,000
total output VAT 9,857,288
VAT payable 5,524,598
Question 4
a. List four characteristics of VAT
b. Giving two examples on each, differentiate between zero rated supply, exempt supply
and standard rated supply
c. Kapele is a registered VAT payer. The following transactions took place in his
business for the period ended 30/11/2016
i. Purchases goods on credit worth 20,000,000RWf inclusive of VAT
ii. Returned goods worth 5,000,000RWF to the supplier because they were
defective and the supplier issued a debit note of the same amount
iii. Sold goods worth 28,000,000rwf on credit exclusive of VAT
iv. After one week the customer realized that his invoice was over estimated by
3,000,000RWf. He complained to Kapale and he issued a credit note of the
same amount
v. Kapale wrote off a bad debt of 2,500,000rwf which had stayed for one without
any information from the customer
Required
Compute the VAT payable and state when Kapele is supposed to pay the VAT
Answer
i. VAT is a consumption tax i.e. the consumer of taxable goods or services pays VAT
ii. VAT is an indirect tax
iii. VAT is a multi-stage tax of transaction from importer or manufacturer to a wholesaler
and finally to the consumer.
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iv. VAT is tax levied on supply of goods made in Rwanda, on the supply of services, and on
importation of goods or services
v. VAT is a tax on the value added to commodity or services. It is imposed on the value
added at each stage from the stage of production to retail stage
vi. VAT is imposed on the value that business firms adds to the goods and services that are
purchased from other firms
a. Zero rated supply is a supply of goods and service whose input may be taxed at 18%
but whose output is taxed at 0%. Examples of zero rated supply include exports,
services rendered to a tourist for which value added tax has been paid, goods sold in
shops that are exempted from tax as provided for by the law governing customs.
An exempt supply is a supply of goods and services which are not charged for VAT.
Example of exempt supply include computers, educational materials and services, books,
newspapers, journals and other electronic equipment used as educational materials,
transportation services: lending, lease and sale etc.
Standard supply is a supply of goods and services whose inputs and outputs are charged for
VAT. Examples of standard supply include supply of electricity, processed food, juice, etc.
c.
Input VAT Amount RWF VAT
purchases 20,000,000 3,050,847
Debit Note 5,000,000 762,712
total input VAT 2,288,136
Output VAT
Sales 28,000,000 5,040,000
credit note 3,000,000 540,000
total output VAT 4,500,000
VAT Payable 2,211,864
Question 5
a. Explain the term tax point of a taxable supply
Answer
Tax point is a point on which the supply of goods or service is recognised to have occurred.
The tax point for the supply of goods and services is the earliest of one of the following:
1) The date on which the invoice is issued;
2) The date on which payment of goods and services, including a partial payment is made.
3) The date on which goods are either removed from the premises of the supplier or when
they are given to the recipient;
4) The date on which the service is delivered.

Test One
a. Input VAT can be claimed by a VAT registered tax payer on the purchases made.
However, in some cases, RRA may deny a tax payer from claiming the input VAT.
Explain four cases where the taxpayer may be denied to claim the input VAT (8 marks)
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b. Explain the tax point as the VAT law (6 marks)
c. Igabe operates a business in Musanze town. She is not registered for VAT. Her sales for
the year ended 31/12/2015 are as below:
Month Sales
January 1,800,000
February 2,000,000
March 980,000
April 2,500,000
May 1,800,000
June 1,250,000
July 5,850,800
August 7,900,000
September 2,640,000
October 4,310,000
November 5,621,000
December 1,652,000
Required
 When should Igabe register for VAT?
 List two cases where Igabe may be allowed to deregister from VAT
Test Two
a. Muvandimwe is registered taxpayer. During the year he made the following transactions:
i. Purchased goods worth 30,000,000rwf VAT inclusive from a registered tax payer.
ii. Sold goods to Rukundo worth 28,000,000rwf inclusive of VAT
iii. Hired consultants from UK for 5,000,000rwf exclusive of VAT to prepare a procedure
manual, a service which can be accessed in Rwanda.
iv. Paid electricity 1,500,000rwf inclusive of VAT, fuel 500,000rwf and audit fees
3,000,000rwf exclusive of VAT
v. Purchased home use items for 12,850,000rwf exclusive of VAT
vi. During the year, he made a credit note of 2,890,000rwf to Rukundo for invoiced goods.
The amount is exclusive of VAT
vii. A bad debt of 1,782,000 which had been previously included in the sales of the
previous two was written off
Compute the VAT payable
b. Tax payers are allowed a deduction on the output VAT. Explain four circumstances under
which the tax payer may be allowed a deduction on the output VAT
c. Explain the term taxable supply
Test Three
a. Explain the taxable supply as per the VAT law
b. Uwase started a business on 1/1/2015 and below are her monthly sales
Month Sales
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January 1,580,000
February 1,000,000
March 2,000,000
April 2,000,000
May 1,500,000
June 2,800,000
July 3,800,000
August 1,500,000
September 5,000,000
October 3,500,000
November 2,100,000
December 6,750,000
i. Determine when should Uwase register for VAT

ii. Explain three circumstances where Uwase may apply for deregistration from VAT
c. Explain for circumstances under which a post-sale adjustments may be allowed for the
VAT purposes
d. During the period a tax payer outsource a foreign service, explain the VAT payment on a
foreign service.
Test Four
a. Explain when a tax payer is supposed to register for VAT
b. The following transaction took place in the business Nyirandi investment limited for the
month ended 30/6/2016
i. Sales inclusive of VAT 25,000,000rwf
ii. The customer returned goods worth 2,000,000rwf and the company issued a credit note
for that money
iii. The purchases were 30,000,000rwf exclusive of VAT
iv. The company realized that the purchases were over invoiced by 4,000,000rwf exclusive
of VAT. The company complained to the supplier and the supplier issued a credit note
for that amount
v. A bad debt of 1,000,000ref that had stayed for 1 year without seeing the customer was
written off. This amount had been previously included in the company sales.
c. Compute the VAT payable by the company
d. Explain five violations of the VAT law.
Test Five
a. Kayishema is a registered VAT payer in Kigali. He deals in both exempt and standard
rated purchases. The un-distributed purchases are used to manufacture both taxable and
exempt sales. It is very hard to directly allocate them to a particular supply. At the end of
month of May 2017, he submitted the following transactions for VAT assessment.
Taxable sales 28,000,000 Exclusive

Exempt sales 40,000,000
Taxable purchases 18,000,000 Inclusive
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Exempt purchases 10,000,000
Un distributed purchases 20,000,000 exclusive
Required: compute the allowed input VAT and the VAT payable.
b. Explain the VAT implications of the following issues

i. Transfer of a VAT registered business
ii. Deregistration from VAT
Test Six
a. Droppex has been in business for 6 years. All its supplies are standard rated. The
company‘s annual turnover is 19,000,000rwf. The company‘s board meeting discussed to
increase the selling price of its products. This will lead to an increase in the annual
turnover to 21,620,000rwf. This has created an argument in the board room that if they
increase the price automatically they will have to register for VAT. The company‘s
expenses inclusive of VAT are 6,800,000rwf. Determine if it is beneficial for the
company to increase its prices.
b. Akandi limited is a registered VAT tax payer. The following transactions took place for
the quarter ended 30/6/2015.
i. Sales for the quarter 85,690,000Rwf inclusive of VAT
ii. Credit note during the quarter 11,200,000Rwf inclusive of VAT
iii. Discount allowed for the period 1,230,000rwf exclusive of VAT
iv. Purchases for the quarter 105,500,300rwf inclusive of VAT
v. Debit notes during the quarter 16,500,600rwf inclusive of VAT
vi. Bad debt written off 1,870,000 inclusive of VAT. The customer was declared
bankrupt by the court
vii. During the quarter, an input VAT of 3,580,000rwf on imports of 2013 was
declared. This was delayed because the company had not yet received the
supporting documents.
viii. During the quarter the company paid 8,000,000rwf inclusive of VAT to foreign
consultant. The same service can be received in Rwanda.
Required: Compute the VAT payable/claimable to RRA.
Test Seven
The following transactions took place in the business of BabG investments limited for the
month ended 30/5/2016:
i. Invoices were issued for sales of 14,780,000Rwf to VAT registered customers. Of
this figure, 10,600,00RWf was in respect of exempt sales and the balance in respect
of standard rated sales. The standard rated sales figure is exclusive of VAT.
ii. Invoices were issued for sales of 87,900,000 to non-VAT registered customers. Of
this figure, 55,000,000rwf was in respect of exempt sales and the balance in respect
of standard rated sales. The standard rated sales figure is inclusive of VAT
iii. On 20/5/2015 issued an invoice of 22,600,000rwf to registered tax payer for a
consultancy work that will be finished in 20/7/2016.
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iv. A stock of 5,000,000 was in store before BabG registered for VAT 50% was
purchased from a VAT registered tax payer
v. Acquired a foreign service of 8,000,000 inclusive of VAT which not be accessed in
Rwanda
vi. Purchased goods worth 28,650,000 of which 40% are exempt
vii. Input VAT of 2013 of 4,200,000 received all the necessary supporting documents
viii. A bad debt of 1,800,000rwf which had stayed for one and half year and were
previously included in the company sales was written off.
Required
a. Explain the VAT issues in each point
b. Compute the VAT payable
Test Eight
a) Three traders dealing with standard rated, zero rated and Exempt goods/services for VAT
were disagreeing on who among them maximizes profits. The trader dealing in standard
rate goods/services argued that he maximizes profits since he claims inputs VAT. The
second trader dealing with input tax. The third trader dealing in exempt goods/services
argued that ―you guys are joking; I don‘t pay output VAT at all the supplies I make‖.
The following information has been provided to you with respect to the three traders.
Standard-rated supply Zero rated supply Exempt supply

Sales exclusive 10,000,000 10,000,000 10,000,000
Purchases 7,000,000 7,000,000 7,000,000
Expenses 1,000,000 1,000,000 1,000,000
Required
Determine the trader who maximizes the profit.
b) Mukamana is a registered VAT payer in Rwanda. She imports and exports a variety of
commodities within and outside the East African Community. She got registered for VAT
on 3/4/2015. On the date of registration, she had a stock worth Frw 8,000,000 with the
necessary invoice. During the year ended 31/12/2016, she exported goods worth Frw
5,000,000,000. Mukamana deals in both exempt and standard rated supply. During the
month of April 2016, she purchased new software to manage her imports and exports
transactions. She could not install the software until August 2016 when she received a
foreign consultant to do it since there was no one in Rwanda who could install it. A
customer who had stayed in the company‘s books without paying for a period of three
years was written off.
Required
Discuss the VAT implications of the key issues in the above case.
Test Nine
You have been provided with a summary of transactions for two companies, MM Ltd and
ABC Ltd. Both companies are registered for VAT.
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Notes MM Ltd ABC Ltd
Sales (VAT Exclusive):
Standard Rated 1 520,000,000 520,000,000
Zero Rated 100,000,000 -
Exempt - 150,000,000
620,000,000 670,000,000
Purchases & Expenses (VAT Inclusive
where applicable):
Purchases Standard Rated 430,000,000 411,000,000
Zero Rated 80,000,000 -
Exempt - 120,000
Expenses 2 80,000,000 87,000,000
590,000,000 498,120,000
Notes:
1. ABC Ltd made sales of Frw 20,000,000 and later discovered that the customer was
most likely not to pay for the goods.
2. The detailed review of the expenses reveals that MM Ltd engaged services of non-
registered taxpayers. However, ABC Ltd deals with only registered taxpayers.
Required
(a) Compute the amount of VAT Payable or Claimable by the two companies.
(b) Which of the two companies above pays a higher tax and why?
(c) Explain the consequences for false VAT Claims.
(d) Advise ABC Ltd on the VAT treatment for goods sold but payments are most likely
not to be received.
Test Ten
Virunga Limited has been trading in general merchandise since its inception on 1 January,
2016. The company is not registered for VAT but it trades in both standard and exempt
supplies.
(a) The following is a summary of the company‘s sales made during 2016:
Standard rated Exempt Total

Month Frw “000” Frw “000” Frw “000”
January 800 200 1,000
February 860 250 1,110
March 970 700 1,670
April 1,500 875 2,375
May 1,725 1,002 2,727
June 2,800 1,800 4,600
July 3,500 1,750 5,250
August 4,200 2,500 6,700
September 4,550 2,800 7,350
October 4,900 3,000 7,900
November 5,100 2,800 7,900
December 5,600 3,200 8,800
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Total 36,505 20,877 57,382
The amounts were exclusive of VAT where applicable.
The Rwanda Revenue Authority (RRA) officers conducted an audit in January, 2017
and informed the company directors that they were supposed to have registered for
VAT. They then compulsorily registered the company for VAT and computed the
penalties due. The RRA officers also ordered the company to purchase and start using
an Electronic Billing Machine (EBM). The company would like to apply for an
exemption to use the EBM, if possible.
Required
(i) Advise the company on when they were required to register for VAT and the
penalties they were liable to pay.
(ii) Explain to the company the process of obtaining an exemption from using an
EBM and whether they qualify for exemption.
(b) The following purchases and payments were made during the quarter 1 October 31
December, 2016. All transactions were VAT exclusive.
Particulars Frw ―000‖

Office furniture 2,000
Motor vehicle for office use 8,000
Fuel for the car 500
Telephone expenses 400
Rent for the shop 1,500
Rent for the Managing Director‘s residence 3,000
Entertainment goods for clients 450
Required
(i) Advise Virunga Limited on whether they have an obligation for any VAT during
the quarter 1 October - 31 December, 2016.
(ii) You have been availed with information that the return for the quarter ended 31
December, 2016 was actually filed on 30 March, 2017.
(iii) Advise the company on the fines and penalties payable.
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CHAPTER FIVE: TAXATION OF CROSS BORDER
ACTIVITIES
CUSTOMS ADMINISTRATION
INTRODUCTION
Customs administration involves the management of imports and exports. Customs
administration in Rwanda is governed by two laws that are; the East African Customs Act
and Rwanda customs Act. The East African customs Act regulates the importation and
exportation of goods and services within the East African community. The Rwanda Customs
Law regulates the importation and exportation outside the East African community. Customs
administration in Rwanda is under the customs department.
Objectives of the Customs Services Department

The primary function of Customs Services Department is to assess, collect and account for
import duties and taxes due on imports. Apart from its fiscal responsibilities, Customs
Services department is responsible for the following:
i. Enforcement of Customs legislation and other relevant laws;
ii. Facilitation of legitimate trade;
iii. Protection of society from illegal entry and exit of prohibited goods;
iv. Compilation of trade statistics for economic planning;
v. Take all actions necessary to identify and combat evasion of duties and to combat fraud
in its many forms;
vi. Ensure efficiency and effectiveness of the Customs Services department through
enhanced management controls, training and increased accountability.
Customs Duty
Customs duties means import or export duties and other charges of equivalent effect levied
on goods by reason of their importation or exportation, respectively, on the basis of
legislation in the Partner States and includes fiscal duties or taxes where such duties or taxes
affect the importation or exportation of goods but does not include internal duties and taxes
such as sales, turnover or consumption taxes, imposed otherwise than in respect of the
importation or exportation of goods.
Payment of Duties
1) Duties shall be paid at the Customs office or at such other place as the Commissioner may
direct.
(2) Credit notes showing that the amount of duty has been paid into a bank to the credit of the
Customs and cheques that have been certified by a bank or in respect of which a standing
bank guarantee has been lodged with the Customs may be accepted in payment of duty.
(3) The Commissioner may authorize payment of duty through electronic transfer of funds in
such manner as he or she may prescribe.
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Withholding Tax on Imports
A withholding tax of five percent (5%) of the value of goods imported for commercial use
shall be paid at custom on the CIF (cost insurance and freight value) value before the goods
are released by customs.
IMPORT PROCEDURES
In order to facilitate trade, RRA Customs Services Department adopted some special regimes.
These include, Direct Delivery, Clearance on Truck, and Quick Release Regime offloads and
Re-load of goods.
Quick Release (Q.R): Quick release can be classified into two that is; quick release with
deposit and quick release without a deposit.
Quick Release with Deposit

This is where goods can be granted quick release after payment of the deposit, such goods
include:
• Perishable goods
• Factory machinery spare parts or other factory material that may stop the functioning of
the factory in case of shortage
• Goods with doubtable origin in case investigations are being conducted on the certificate
of origin
• Fragile goods that can be damaged when offloaded e.g. glasses
• Goods that are not offloaded in Kigali due to Contracts between the importer and the
transporter e.g. Malt for BRALIRWA offloaded at GISENYI.
Quick Release without Deposit

This is where the goods are granted Q.R special regime without payment of the deposit.
These goods include the following:
• Goods exempted from payment of duties and taxes
• Goods that belong to the Government of Rwanda
• Bank coins and notes
Clearance of Goods on Truck (“D.S.C”)

Goods, which can be granted this regime, fall into:
i. Identical goods that can be easily identified and verified when loaded on the trucks e.g.
Sugar and Rice.
ii. Goods that are not allowed in the Public Warehouse due to their nature e.g. Cement and
Salt.
iii. Heavy and bulky items that can be easily identified and examined when loaded on the
trucks e.g. Machines and rolls for making iron sheets.
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Valuation of Imports
The customs value of imported goods is the transaction value, which is the price actually paid
or payable for the goods when sold for export to the customs territory, adjusted, where
necessary, provided:
1) There are no restrictions as to the disposal or use of the goods by the buyer, other than
restrictions which:
(a) Are imposed or required by or in application of the Law;
(b) Limit the geographical area in which the goods may be resold
(c) Do not substantially affect the value of the goods;
2) That the sale or price is not subject to some condition or consideration for which a value
cannot be determined in respect of the goods being valued;
3) That no part of the proceeds of any subsequent resale, disposal or use of the goods by the
buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can
be made;
4) That the buyer and seller are not related, or, where the buyer and seller are related, that the
transaction value is acceptable for customs purposes.
The price actually paid or payable is the total payment made or to be made by the buyer to or
for the benefit of the seller for the imported goods and includes all payments made or to be
made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to
a third party to satisfy an obligation of the seller.
The customs value of goods is determined in accordance to the following methods:

1) The transaction value of identical goods;
2) The transaction value of similar goods;
3) The deductive value method;
4) The computed value method;
5) Fall back method;
Pre-clearance
Pre-clearance is a quick release procedure that allows trade facilitation in that declaration can
be submitted to Customs and processed before the arrival of goods.
Application for pre-clearance

Applications for pre-clearance are addressed to the Commissioner on a prescribed form
available at Customs stating the nature of goods and importer. The pre-clearance facility is
granted to:
i) Perishable goods;
ii) Dangerous goods such as acids and explosives;
iii) Goods of a capital nature or other urgent factory material;
iv) Diplomatic goods;
v) Drugs
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vi) Agricultural inputs
Blue Channel / Gold

Blue channel is a facility accorded to compliant taxpayers by not subjecting their
consignments to physical and documentary verification during the customs clearance process
but rather allow their goods to clear faster and follow up with a customs post clearance audit.
Blue Channel/Gold card facility is one of the international best practices that is customized
by Customs administrations across the globe. It is one of the recommended trade facilitation
schemes advanced by international reputable institutions such as the World Trade
Organization, World Customs Organization, the World Bank and the International Monetary
 For a taxpayer to benefit the above facility, the following are considered:
 Volume of transactions;
 Maintaining proper books of accounts;
 Past compliance records in Customs and Tax matters;
 To have a well-established physical and permanent address;
 Compliance to quality standards.
Conditions for the Taxpayers do to maintain this facility

Importers who benefit blue channel should maintain the following:
 Preserve their compliance record and comply with the requirements of both tax and
customs laws and standards and security of goods requirements;
 Present genuine commercial invoices and any other trade documents that may be
required by customs and other stakeholders involved in the customs clearance process;
 Establish and maintain systems within their organizations that promote compliance to tax
and customs laws including keeping books of accounts;
 Develop proactive and pragmatic approaches to comply with the tax and customs laws
and any other laws that impact on the trade supply chain.
Factors that lead to denial of this facility

Failure to:
 Maintain books of accounts;
 Comply with tax and customs laws and any other laws that impact on the trade supply
chain;
 Cooperate with the tax administration staff when their discharging their mandate.
Inward Processing
It is the customs procedure under which certain goods can be brought into customs territory
conditionally relieved from payment of import duties and taxes on the basis that such goods
are intended for manufacturing, processing or repair and subsequent exportation. An
application for authorization of inward processing is made to Customs department in writing
on a prescribed form. The application detailing the intended inward processing is made in
advance, prior to importation of the goods, which are subject to the process.
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Authorization for Inward Processing
Authorization for inward processing is granted where:
i. The applicant is established in the Republic of Rwanda;
ii. The applicant offers a guarantee for the proper conduct of the operation;
iii. Where it is possible to establish that the compensating products have resulted from the
process of the imported goods;
iv. Where the authorization to use the inward processing procedure is not likely to adversely
affect the essential interests of national producers.
Maintenance of Records
A person authorized for inward processing shall provide mechanisms needed to monitor the
operation and keep the records of the inward processing activities which shall indicate:
i. The description and quantity of goods entered;
ii. The date of importation;
iii. Details of the processing;
iv. The correct calculations of any import duties and taxes which may be payable;
v. The quantity of waste, scrap or by- products;
vi. The compensating products obtained; and
vii. The rate of yield.
Duty Relief
The Customs may grant duty relief by:
i. The suspension system, under which the import duty payable is suspended at
importation;
ii. The drawback system, where the import duty is paid on importation and reclaimed on
subsequent exportation of the processed goods.
Termination of Inward Processing

Inward processing procedure shall be terminated upon:
i. Re-exportation of the compensating products in one or more consignments;
ii. Re- exportation of the products in the state of importation;
iii. Release of compensating products for home consumption;
iv. Declaring the compensating products under a suspense procedure such as; Customs
warehousing, temporary importation, or transit; or
v. The compensating products being placed in a free zone.
Outward Processing
It is the customs procedure under which goods which are in free circulation in a Partner State
may be temporarily exported for manufacturing, processing or repair outside the Partner State
and then re-imported. An application for authorization for outward processing shall be made
to Customs using a prescribed form. The application shall give details of the intended
outward processing and shall be made in advance, prior to exportation of the goods which are
subject to the process.
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Authorization of Outward Processing
The authorization for outward processing shall be granted where:
i. The applicant is established in the Republic of Rwanda;
ii. The exported goods can be identified in the processed products to be re-imported;
iii. The compensating product will be a direct result of the goods exported for outward
processing.
The authorization is granted within thirty (30) days from the date of acceptance of the
application:
i. Using a prescribed form;
ii. By acceptance of the customs declaration; or
iii. By letter or electronic mail or a modification of any existing authorization where the
application is for a renewal or modification.
Maintenance of Records
A person authorized for outward processing shall keep all records of the outward processing
and the records shall indicate:
i. The description and quantities of goods entered;
ii. The date of exportation;
iii. Details of the processing;
iv. The compensating products obtainable; and
v. The rate of yield.
Export Processing Zone

They are designated part of Customs territory where any goods introduced are generally
regarded, in so far as import duties and taxes are concerned, as being outside Customs
territory but are restricted by controlled access.
Control of Goods Entering Export Processing Zones

Goods imported into an Export Processing Zone are declared and the importer of such goods
executes a security bond. Goods under the export processing zone are:
i. Controlled by the Customs officer in charge of the Export Processing Zone;
ii. Accompanied by a copy of goods declaration and supporting documents;
iii. Recorded in the receipt and deliveries register by the Customs officer.
Maintenance of Stock Records

An operator of an enterprise within an Export Processing Zone should maintain stock records
of the raw materials and the finished products in a monthly return register of finished, semi-
finished goods and raw materials register or in any other approved manner. An operator of an
enterprise within an Export Processing Zone should maintain stock control records and
produce the records for inspection by Customs. An operator of an enterprise within an Export
Processing Zone shall submit monthly returns on the stock held in the enterprise, to Customs
in a prescribed manner, before the fifteenth (15th) day of the following month.
Exportation of Goods from Export Processing Zones
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Goods intended for export should be declared and security for the removal of goods from an
Export Processing Zone to the point of exportation should be executed.
Movement of Goods from one Export Processing Zone to another

Goods moved from one Export Processing Zone to another Export Processing Zone are
declared and a security bond for the movement of goods from one Export Processing Zone to
another are executed. The Customs return a copy of declaration duly certified at the receiving
Export Processing Zone to the owner, for presentation to Customs at the dispatching Export
Processing Zone for the purpose of cancellation of the security bond. Where goods are
intended to be removed from one enterprise to another, within the same Export Processing
zone, the person in charge of the enterprise removing the goods must inform Customs
accordingly.
Movement of Plant and Machinery

Plant, machinery and equipment may be removed for repair, servicing or maintenance, from
an Export Processing Zone to a Customs territory. The plant, machinery and equipment must
be accorded temporary importation facilities in the Customs territory and declared using a
goods declaration and a security bond is executed in respect of the plant, machinery and
equipment.
Disposal and Destruction of Waste

Disposal or destruction of wastes and residues resulting from a manufacturing process must
be carried out within an Export Processing Zone under the supervision of the Customs
officer. Where proper facilities of disposal do not exist within the Export Processing Zone,
the wastes may be destroyed in the Customs territory on application to the Customs officer.
Upon the destruction of the wastes, Customs issues a certificate of destruction. Where wastes
and rejects are sold in the Customs territory, the movement of the wastes or rejects should be
subject to the normal importation procedures in the Customs territory. The licensee should
record the wastes and rejects in the wastes and rejects register.
Transportation of Goods
Goods subject to customs control, entering or leaving an Export Processing Zone should be
transported in sealed vehicles except:
i. Goods of exceptional loads of one or more heavy or bulky objects which because of
weight, size or nature cannot normally be carried in a closed or sealed vehicle or
transport unit and which can be so readily identified to the satisfaction of the
Customs; or
ii. Goods authorized by Customs.
FREE ZONE
The terms below are important in explaining free zone;
Free port: It is a custom controlled area within a partner state where imported duty free
goods are sorted for the purpose of trade.
Free port Authority: It means the authority appointed by partner state under the national
legislations to establish, coordinate and operate a free port related facility in a partner state.
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Free port zone: It is designated area placed at the disposal of the free port authority where
goods introduced into the designated area are generally regarded in so far as the import duties
are concerned as being outside the customs territory.
Control of Goods Entering Free Zones

i. All goods destined to a Free Zone through the Customs territory, should be declared and
the person conveying such goods should execute a security bond.
ii. To control the circulation of goods, a Free Zone operator should maintain proper records
of the goods which may include registers, relevant declarations and computer records.
Customs may at any time enter the premises of a licensee within a Free Zone to examine
any goods and may take measures necessary to prevent loss of revenue, including carrying
out audits and physical verification of the goods.
iii. Customs may require a licensee to provide any information relevant to a licensee‘s
operations within the Free Zone.
iv. A person or a vehicle entering or leaving a Free Zone should use designated entry and exit
points and should comply with the laid down security requirements including specified
hours of business.
v. Customs may carry out spot checks and search any person or vehicle entering or leaving a
Free Zone.
Permitted Activities in Free Zone

A licensee of a Free Zone may only carry out those activities that are required to preserve
goods, or to improve their packaging, preparation for shipment or marketable quality, without
changing the character of the goods.
The activities in free zone includes warehousing and storage, labelling, packing and
repacking, sorting, grading, cleaning and mixing, breaking bulk, simple assembly, and
grouping of packages under Customs supervision. A licensee in a Free Zone shall not engage
in the manufacturing or processing of goods.
Removal of Goods from a Free Zone

Unless approved by Customs, goods should not be transferred from one premise to another,
within a Free Zone. A licensee who intends to remove goods from a Free Zone shall declare
such goods.
Hazardous or Deteriorated Goods

Goods which constitute a hazard or which require special installations should be admitted to
specially designed installations in a Free Zone. Customs may on application and at the
expense of a licensee re-assess the value of goods which deteriorate or are destroyed in a Free
Zone and the licensee should be liable to pay duty at the rate in force at the time of
importation.
Where Customs is satisfied that a licensee is responsible for the deterioration or destruction
of the goods, the application referred to in paragraph (2) should not be allowed and the
licensee shall be liable to pay duty at the rates in force at the time of importation. Where a
licensee intends to destroy any goods, he or she should apply to the Customs and the goods
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may be destroyed or disposed of in such manner as the Customs may direct in consultation
with competent authorities where necessary.
Goods not to be Removed

A licensee whose license expires or is revoked is not allowed to remove goods from the Free
Zone unless he or she satisfies Customs that all duties payable in respect of such goods have
been paid. Goods left in a Free Zone by a licensee whose license expires, or is revoked, is
required within thirty (30) days of the expiry or revocation of the license be re- exported or
be declared for home consumption. Goods which remain in a Free Zone after the period
provided for above shall be deemed to be abandoned and shall be disposed of in such manner
as Customs may direct.
Declaration of Goods Remaining in the Free Zone

A licensee should submit to the Customs officer a monthly return of goods remaining in the
Free Zone, in the prescribed manner, on or before the tenth (10th) day of the following
month. Where a Free Zone is closed, a licensee is given time as the Commissioner may
determine, to remove his or her goods to another Free Zone or to place them under another
Customs procedure.
MANUFACTURING UNDER BOND

It is a facility extended to manufacturers to import plant, machinery, equipment and raw
materials tax free exclusively for use in the manufacture of goods for export.
Licence for Manufacturing under Bond for Home Use

An application to license premises as a bonded factory should be made to Customs, using a
prescribed form. The application should be accompanied by a plan of the premises. Customs
may issue a licence for a bonded factory where Customs is satisfied that the location and
construction of the premises and the accommodation in the premises, is suitable for use as a
bonded factory. An approved bonded factory shall be issued a licence.
Licence Fees
The annual licence fee for a bonded factory is three hundred thousand Rwandan francs
(300,000 RWF). Where a licence is issued in the course of a Calendar year, the licence fee
should be computed on a pro rata basis.
Death of Licensee or Surety

The death of a licensee of a bonded factory is the commencement of bankruptcy proceedings
against a licensee or any other change in the circumstances, which renders a licensee unable
to honour the bond. This should be reported immediately to Customs, by the surety of the
licensee. The death of a surety of a bonded factory or the commencement of proceedings
against a surety or any other change in the circumstances which renders the surety unable to
honour the bond shall be reported immediately to Customs, by the licensee.
Bonded Factories to be Noticeable

The words « Customs Bonded Factory » should be clearly marked on the principal entrance
to the customs bonded factory or in any other place as Customs may approve and be removed
when the customs bonded factory ceases to be licensed as such.
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Declaration of Goods at the Closure of a Bonded Factory
Where a bonded factory is closed, any goods remaining in the bonded factory should be
declared within thirty (30) days under another customs procedure, as Customs may direct.
EXPORTATION OR IMPORTATION BY POST OFFICE AND OTHER

RECOGNISED AGENCIES
Importation and Exportation by Post
The Commissioner of RRA may waive entries for goods imported by post:
(1) Where goods are imported in postal articles, the Commissioner may in his or her
discretion, accept the Customs declaration on the form provided by the postal
administration in the country of origin, for the purpose of assessing the duty on the
goods, in lieu of the entry required under the provisions of the customs laws.
(2) In the case of goods exported by post, any form or label affixed to the parcel on which a
description of the contents and their value is declared shall be deemed to be the entry
required under the Act.
Customs Declaration on Postal Articles

(1) A Customs declaration made by a sender of goods imported by parcel post should be
accompanied, or be securely attached to each parcel or to one of the parcels where the
goods are packed in more than one parcel.
(2) The declaration should give an accurate description of the quantity or weight, the country
of origin and value of the contents of the parcel or consignment.
(3) Where the parcel contains goods of a commercial nature, an invoice or a statement
showing full particulars of the goods should be enclosed in the parcel; and where the
goods are enclosed in two or more parcels, an invoice or a statement showing full
particulars of the goods should be enclosed in one of the parcels, which should be clearly
marked "invoice or statement enclosed".
(4) Where the invoice or statement cannot be conveniently enclosed inside the parcel, it
should be securely attached to it.
Production of Postal Articles

(1) All postal articles should, where the Commissioner so requires, be produced by an officer
of the post office to a proper officer for examination, either at the port of arrival in, or
departure from the Community, as the case may be, or at any other place in the
Community as the Commissioner may direct.
(2) For the purpose of production of postal, the officer of the post office should be deemed to
be the agent of the importer or exporter.
Detention of Postal Articles

In any case where a postal article, or any part of its contents, is found on examination to be
conveyed otherwise than in conformity with the provisions of any written law on postal
services in a Partner State, or not to agree with any entry, invoice or other document
purporting to relate to its contents, or is found to consist of goods prohibited to be conveyed
by post, or to be imported or exported, as the case may be, or goods regulated by or under the
Act, contrary to any conditions regulating such importation or exportation, the postal article
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and all its contents shall be deemed to be goods imported or exported contrary to the Act and
shall be dealt with as provided in the Act.
Un-cleared Postal Articles

Where an addressee of a postal article does not claim a postal article, and where the postal
article is not delivered to an alternative addressee or returned to the sender within such time
as may be specified in the laws of the Partner States relating to the postal services, or where
the addressee refuses to pay the duty, if any, in respect of the goods contained in the postal
article, the post office should send the postal article to the Customs for deposit in the
Customs warehouse, and the postal articles shall be dealt with in accordance with section 42
of the Act.
Duties to be Paid to the Customs

The duty collected by the post office on postal articles should be paid to the Customs at such
time and in such manner as agreed by the Commissioner and the post office.
Importation and Exportation by Registered Couriers

The Commissioner may license any registered courier engaged in international delivery of
goods as a Customs agent in accordance with Part XII of the customs Regulations.
Commissioner may waive entries for goods imported by courier:
1) Where goods are imported through a registered courier, the Commissioner may, in his or
her discretion, accept the Customs declaration on the form provided by the courier in the
country of origin, for the purpose of assessing the duty on the goods, in lieu of the entry
required under the provisions of the Customs laws.
2) Where goods are exported through a registered courier, a declaration from the sender
regarding the description of the contents of the package and the value of the goods
should be affixed to the courier article and be deemed to be the entry required under the
Act.
3) Points one and two should not apply to goods where an individual package exceeds
seventy kilograms or a value of one thousand dollars.
4) A licensed courier should present all the imported goods to a proper officer for
examination and assessment of duty.
Customs Declaration on Courier Articles

1) A Customs declaration made by a sender of the goods imported through a registered
courier should accompany, or be securely attached to, each courier article or to one of the
parcels where the goods are packed in more than one parcel.
2) The declaration should give a description of the quantity or weight, the country of origin
and value of the contents of the parcel or consignment.
3) Where a parcel contains goods of a commercial nature, an invoice or a statement
showing full particulars of the goods should be enclosed in the parcel; and where the
goods are enclosed in two or more parcels, an invoice or a statement showing full
particulars of the goods shall be enclosed in one of the parcels, which should be clearly
marked "invoice or statement enclosed".
4) Where the invoice or statement cannot be conveniently enclosed inside the parcel, it may
be securely attached to it.
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5) The courier bags under customs control should not be dealt with in any manner by any
person except as may be directed by a proper officer.
Production of Courier
(1) All courier articles should be produced by an officer of the courier to a proper officer for
examination, either at the port of arrival in, or departure from the consignments
Community, as the case may be, or at any other place in the Community as the
Commissioner may direct.
(2) For the purpose of production of courier consignments, the officer of the courier should
be deemed to be the agent of the importer or exporter.
Detention of Courier Articles

(1) A courier article and all its contents should be deemed to be goods imported or exported
contrary to the Act and should be dealt with as provided in the Act, where the courier
article, or any part of its contents, is found on examination
(a) Not to be conveyed in conformity with the provisions of any written law in a Partner
State;
(b) To be inconsistent with any entry, invoice or other document purporting to relate to its
contents, and which may be transmitted with the article or produced by the addressee;
(c) To consist of goods prohibited to be conveyed by courier, or to be imported or
exported, as the case may be, or goods regulated by or under the Act, contrary to any
conditions regulating the importation or exportation of the article.
(2) Imported goods not entered within the prescribed period, shall be detained by the
Customs and shall be dealt with in accordance with section 34 of the Act.
Procedure on Presentation of Parcels

When the importer presents the original parcel advice at a parcels office where a Customs
officer is employed, he /she will:
a. Trace the duplicate parcel in the filing drawer and compare the particulars with those
on the original;
b. Inform the Post Office of the particulars of the parcel to be delivered (this is done by
handing the duplicate parcel advice to the Post Office so that they can trace the
parcel);
c. Collects the duties and taxes as required on the simplified entry
d. Sign, stamp and date the Customs entry (normally simplified declaration)
e. Sign, stamp and date the duplicate parcel advice in the appropriate space provided on
the front page of the advice, and hand it to the Post Office for release. N.B: The need
for the importer to make a declaration in the prescribed form in person can be waived
pursuant to section 93 of the Act and regulation EACCMR, 2006.
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TRANSIT
Transit refers to the movement of goods entering or leaving the country‘s borders under
Customs control. The principal legislation governing transit is provided by section 85-87 of
the EACCMR.
Transit Documentation
Documentation is done by a clearing agency on behalf of the importer/exporter. Clearing
Agencies present transit declarations (IM 8) to Customs through the Bureau or Remote DTI.
Agencies must be careful while filling the documentation form, especially on section
indicating the correct country of destination and the exit office. Registered transit
declarations with supporting documents are presented to Customs through the Acceptance
desk and follow the approved Declaration Processing Path.
Customs Operations on Transits

i. Customs examine the documentation to establish the correct bond amount to be debited
and generate a Transit document (T1) from the declaration lodged by the Clearing
Agent if it meets all the requirements during entry examination.
ii. The transit document (T1) contains summarized information from the IM8 declaration
and constitutes the actual transit transaction is generated.
iii. At its generation, all appropriate blank fields are filled in and the T1 is then registered
and a T1 registration number is generated with serial D.
iv. At this stage, Customs automatically debit the Transit bond account of the clearing
agency at registration of the Transit document (T1).
Transit Guarantees
Change of Destination and Re-routing of T1
This is the customs procedure under which goods in transit change the office of destination. It
is granted upon application on the customs approved form by the importer or his clearing
agent. If the reason is found appropriate, the office of destination is rerouted electronically.
In cases where a truck uses the wrong office of exit/clearance, the T1 can be re-routed to the
correct destination after all the necessary formalities have been done.
The re-routing of T1s:

Is done only once on a T1;
Is done only for T1 that has not yet been validated at the initial office of destination
Trans-shipment
This is the customs procedure under which goods are transferred under customs supervision
from the importing means of transport (vehicle) to another means of transport.
Goods may not be unloaded or transhipped from their means of transport except with written
authorization from customs and in the presence of Customs officers. Unloading or
transhipment must take place according to the conditions determined by Customs and in
accordance with the legal provisions in force.
On completion of Trans-shipment exercise, the new seal is endorsed on documents and put
on the truck by customs.
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BONDED WAREHOUSE
A Bonded warehouse is a building, installation or area approved by and under the supervision
of customs where goods may be stored under the conditions laid down by the provisions in
force
Public Warehouses
The Public bonded warehouse is buildings and equipment therein, or area for deposition of
warehoused goods by any person and that are approved for that purpose by Customs. The
manifest cargo/control system is designed to ensure that all Goods that arrive under the transit
system at GIKONDO parking lot are correctly accounted for.
The control of goods in all public warehouses is the responsibility of the Customs
Department of the RWANDA REVENUE AUTHORITY. The physical handling of cargo is
the responsibility of cargo handling companies like MAGERWA, KOBIL, and TOTAL.
Goods not to be Warehoused

The following goods shall not be warehoused in a public bonded warehouse:
i. All acids which may constitute danger for personnel or goods placed in the customs
bonded warehouse;
ii. Arms, military explosives and fireworks;
iii. Chalk;
iv. Cement;
v. Dried fish;
vi. Chemical and sulphur- content matches;
vii. Fertilizers;
viii. Salt;
ix. Live animals;
x. Goods which are prohibited;
xi. Perishable goods;
xii. Combustible or inflammable goods except petroleum products for storage in approved
places;
xiii. Any other goods which Customs may gazette.
Refusal of Goods to be Warehoused

Goods to be warehoused should be securely packed and where any goods to be warehoused
are found by a Customs officer examining them to be insecurely packed, the Customs officer
may refuse the goods from being placed in a warehouse. Where a Customs officer refuses to
permit any goods to be placed in a warehouse, the warehousing declaration should be deemed
to be void, and the goods should be deemed not to be declared.
CUSTOMS AGENTS
Conditions for Licensing Customs Agents
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(a) Have an established office with a computer capable of connecting to the customs
computer system, the physical location of which shall be indicated in the application
form for customs verification purposes;
(b) Have at least two employees in charge of clearance with a diploma, certificate in customs
training from a recognised institute or a minimum of five years‘ experience in customs
operations
(c) Submit:
(i) The memorandum and articles of association of the company;
(ii) The certificate of registration of the company;
(iii) The Tax Identification Numbers of the company and of the director;
(iv) The current tax clearance certificate;
(v) Copies of identity cards, passports or other forms of identification of the directors and
staff proposed to directly handle or sign customs documents;
(vi) Recent passport size photographs of directors and staff duly certified by a Notary
Public or a Commissioner for Oaths
(vii) Proof of affiliation or membership of a recognized clearing and forwarding
association;
(viii) Valid tenancy agreement for suitable office accommodation or proof of ownership;
and
(ix) Bank account details.
EAST AFRICAN 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.
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Objectives of the Customs Union
The objectives of the Customs Union include:
(a) Further liberalise 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 industrialisation in the
Community.
Scope of Co-operation in the Customs Union

The provisions of the Protocol apply to any activity undertaken in co-operation by the Partner
States in the field of customs management and trade and include:
(a) Matters concerning trade liberalisation;
(b) Trade related aspects including the simplification and harmonisation of trade
documentation, customs regulations and procedures with particular reference to such
matters as the valuation of goods, tariff classification, the collection of customs duties,
temporary admission, warehousing, cross-border trade and export drawbacks;
(c) Trade remedies and the prevention, investigation and suppression of customs offences;
(d) National and joint institutional arrangements;
(e) Training facilities and programmes on customs and trade;
(f) Production and exchange of customs and trade statistics and information; and
(g) The promotion of exports.
Trade Facilitation
The Partner States initiate trade facilitation by:
(a) Reducing the number and volume of documentation required in respect of trade among
the Partner States;
(b) Adopting common standards of trade documentation and procedures within the
Community where international requirements do not suit the conditions prevailing
among the Partner States;
(c) Ensuring adequate co-ordination and facilitation of trade and transport activities within
the Community;
(d) Regularly reviewing the procedures adopted in international trade and transport
facilitation with a view to simplifying and adopting them for use by the Partner States;
(e) Collecting and disseminating information on trade and trade documentation;
(f) Promoting the development and adoption of common solutions to problems in trade
facilitation among the Partner States; and
(g) Establishing joint training programmes on trade.
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TRADE LIBERALISATION
Internal Tariff
1. As provided in Article 11 of the Protocol, the Partner States eliminate all internal tariffs
and other charges of equivalent effect on trade among them, in accordance with the
provisions of Article 14 of the Protocol.
2. The Council may, at any time, decide that any tariff rate should be reduced more rapidly
or eliminated earlier than is provided for in accordance with paragraph 1 of Article 11.
Common External Tariff

1. The Partner States hereby establish a three band common external tariff with a minimum
rate of 0 per centum, a middle rate of 10 per centum and a maximum rate of 25 per
centum in respect of all products imported into the Community.
2. The Partner States hereby undertake to review the maximum rate of the common external
tariff after a period of five years from the coming into force of the Customs Union.
3. The Council may review the common external tariff structure and approve measures
designed to remedy any adverse effects which any of the Partner States may experience
by reason of the implementation of this part of the Protocol or, in exceptional
circumstances, to safeguard Community interests.
4. For purposes of this Article, the Partner States use the Harmonised Customs Commodity
Description and Coding System referred to in Article 8 of the Protocol.
Non-tariff Barriers
1. Except as may be provided for or permitted by the Protocol, each of the Partner States
agrees to remove, with immediate effect, all the existing non-tariff barriers to the
importation into their respective territories of goods originating in the other Partner
States and, thereafter, not to impose any new non-tariff barriers.
2. The Partner States formulate a mechanism for identifying and monitoring the removal of
non-tariff barriers.
TRADE RELATED ASPECTS

Rules of Origin
For purposes of the Protocol, goods are accepted as eligible for Community tariff treatment if
they originate in the Partner States. Goods are considered to originate in the Partner States if
they meet the criteria set out in the Rules of Origin.
National Treatment
1. The Partner States are not supposed to:
(a) Enact legislation or apply administrative measures which directly or indirectly
discriminate against the same or like products of other Partner States; or
(b) Impose on each other's products any internal taxation of such a nature as to afford
indirect protection to other products.
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2. No Partner State is supposed to impose, directly or indirectly, on the products of other
Partner States any internal taxation of any kind in excess of that imposed, directly or
indirectly, on similar domestic products.
3. Where products are exported to the territory of any Partner State, any repayment of
internal taxation should not exceed the internal taxation imposed on them, whether
directly or indirectly.
Anti-dumping Measures
1. The Partner States recognise that dumping is prohibited if it causes or threatens material
injury to an established industry in any of the Partner States, materially retards the
establishment of a domestic industry therein or frustrates the benefits expected from the
removal or absence of duties and quantitative restrictions of trade between the Partner
States.
2. The Secretariat must notify the World Trade Organisation on the anti-dumping measures
taken by the Partner States.
Subsidies
1. If a Partner State grants or maintains any subsidy, including any form of income or price
support which operates directly or indirectly to distort competition by favouring certain
undertakings or the production of certain goods in the Partner State, it notifies the other
Partner States in writing.
2. The notification contains the extent and nature of the subsidisation, the estimated effect
of the subsidisation, the quantity of the affected product or products exported to the
Partner States and the circumstances making the subsidisation necessary.
Countervailing Measures
(a) The Community may, for the purposes of offsetting the effects of subsidies and subject
to regulations made under this Article, levy a countervailing duty on any product of any
foreign country imported into the Customs Union.
(b) The countervailing duty should be equal to the amount of the estimated subsidy
determined to have been granted directly or indirectly, on the manufacture, production or
export of that product in the country of origin or exportation.
Safeguard Measures
i. The Partner States agree 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 serious injury to domestic producers in the territory of like or directly
competing products within the territory.
ii. (a) During a transitional period of five years, after the coming into force of the Protocol,
where a Partner State demonstrates that its economy will suffer serious injury as a result
of the imposition of the common external tariff on industrial inputs and raw materials,
the Partner State concerned shall, inform the Council and the other Partner States through
the Secretary General on the measures it proposes to take.
(b) The Council shall examine the merits of the case and the proposed measures and take
appropriate decisions.
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EXPORT PROMOTION SCHEMES
Principles of Export Promotion Schemes
The Partner States agree to support export promotion schemes in the Community for the
purposes of accelerating development, promoting and facilitating export oriented
investments, producing export competitive goods, developing an enabling environment for
export promotion schemes and attracting foreign direct investment.
(a) The Partner States agree that goods benefiting from export promotion schemes should
primarily be for export.
(b) In the event that such goods are sold in the customs territory such goods attracts full
duties, levies and other charges provided in the Common External Tariff.
The sale of goods in the customs territory must be subject to authorisation by a competent
authority and such sale has to be limited to 20 per centum of the annual production of a
company.
Duty Drawback Schemes

The Partner States agree that, upon exportation to a foreign country, drawback of import
duties may be allowed in such amounts and on such conditions as may be prescribed by the
competent authority.
Duty drawback is paid:

(a) Upon submission of an application to the competent authority within such a period from
the date of exportation or performance of the conditions on which drawback may be
allowed as the competent authority may prescribe; and
(b) On goods or any material used in the manufacture or processing of such goods may be
granted in accordance with and subject to such limitations and conditions as may be
prescribed by the competent authority.
Duty and Value Added Tax Remission Schemes

The Partner States agree to support export promotion by facilitating duty and value added tax
remission schemes. For purposes of this Article the Partner States may establish duty and
value added tax remission schemes. The implementation of this Article shall be in accordance
with the duty and value added tax remission schemes specified in the customs law of the
Community.
Manufacturing under Bond Schemes

The Partner States agree to support export promotion by facilitating manufacturing under
bond schemes within their respective territories. The procedure for manufacturing under bond
allows imported goods to be used in a customs territory for processing or manufacture. Duty
and taxes are payable on compensating products at the rate of import duty appropriate to
them.
Export Processing Zones

The Partner States agree to support the establishment of export processing zones. Entry into
an export processing zone allow total relief from payment of duty on imported goods used
directly in the production of goods for export by a person authorised to carry out that activity
in the zone.
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Other Export Promotion Schemes
The Council may, from time to time, approve the establishment of such other export
promotion schemes, as may be deemed necessary.
SPECIAL ECONOMIC ZONES

Free Ports
The Partner States may provide for the establishment of free ports for the purpose of
facilitating and promoting international trade and accelerating development within the
Customs Union.
The functions of the free ports include the following:

(a) Promotion and facilitation of trade in goods imported into free ports;
(b) Provision of facilities relating to free ports including storage, warehouses and simplified
customs procedures; and
(c) Provision for the establishment of international trade supply chain centres, where persons
from within and outside the Community access and harness market opportunities and
enhance competitiveness in import and export trade within the global setting.
Goods entering into a Freeport are granted total relief from payment of duty and any other
import levies except where the goods are removed from the Freeport for home use.
Other Arrangements
1. The Council may, from time to time, approve the establishment of other special
economic arrangements for purposes of the development of the economies of the Partner
States.
2. Freeport zones may be established at seaports, river ports, airports and places with
similar geographic or economic advantage.
EXEMPTION REGIMES
Exemption Regimes
1. The Partner States agree to harmonise their exemption regimes in respect of goods that
are excluded from payment of import duties.
2. The Partner States hereby agree to adopt a harmonised list on exemption regimes which
are specified in the customs law of the Community.
RULES OF ORIGIN
Goods are accepted as originating in a Partner State where they are consigned directly from
Partner State to a consignee in another Partner State and where:
(a) They have been wholly produced as provided for in Rule 5 of these Rules; or
(b) They have been produced in a Partner State wholly or partially from materials imported
from outside the Partner State or of un-determined origin by a process of production
which effects a substantial transformation of those materials such that:
(i) The C.I.F. value of those materials does not exceed sixty per centum of the total cost
of the materials used in the production of the goods;
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(ii) The value added resulting from the process of production accounts for at least thirty
five per centum of the ex-factory cost of the goods as specified in the First Schedule
to these Rules; and
(iii) The goods are classified or become classifiable under a tariff heading other than the
tariff heading under which they were imported as specified in the Second Schedule
to these Rules.
Goods Wholly Produced in a Partner State

For purposes of these Rules, the following are among the products, which are regarded as
wholly produced in a Partner State:
(a) Mineral products extracted from the ground or sea-bed of the Partner State;
(b) Vegetable products harvested within the Partner State;
(c) Live animals born and raised within the Partner State;
(d) Products obtained from live animals within the Partner State;
(e) Products obtained by hunting or fishing conducted within the Partner State;
(f) Products obtained from the sea, rivers or lakes within the Partner States by vessels of that
Partner State;
(g) Products manufactured in a factory of a Partner State exclusively from the products
referred to in sub-paragraph (f);
(h) Used articles fit only for the recovery of materials, provided that such articles have been
collected from users within the Partner States;
(i) Scrap and waste resulting from manufacturing operations within the Partner State; and
(j) Goods produced within the Partner State exclusively or mainly from the following:
(i) Products referred to in sub-paragraphs (a) to (i); and
(ii) Materials containing no elements imported from outside the Partner State or which
are of undetermined origin.
Electrical power, fuel, plant, machinery and tools used in the production of goods are always
regarded as wholly produced within the Partner States when determining the origin of the
goods.
Percentage Application of Imported Materials and Value Added Criteria

For purposes of these Rules:
(a) Any materials which meet the condition specified in these Rules are regarded as
containing no elements imported from outside the Partner States;
(b) The value of any materials which can be identified as having been imported from outside
the Partner States is their C.I.F. value accepted by the customs authorities on clearance
for home consumption, or on temporary admission at the time of last importation into the
Partner State where they were used in a process of production, less the amount of any
transport costs incurred in transit through other Partner States;
(c) Where the value of any materials imported from outside the Partner States cannot be
determined in accordance with this Rule, their value is the earliest ascertainable price
paid for them in the Partner State where they were used in a process of production; and
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(d) Where the origin of any material cannot be determined, the material shall be deemed to
have been imported from outside the Partner States and its value shall be the earliest
ascertainable price paid for the material in the Partner State where the material is used in
a process of production.
Processes not Conferring Origin

Notwithstanding the provisions of these Rules, the following operations and processes should
be considered as insufficient to support a claim that goods originate from a Partner State:
(a) Packaging, bottling, placing in flasks, bags, cases and boxes, fixing on cards or boards
and all other simple packaging operations;
(b) (i) Simple mixing of ingredients imported from outside a Partner State;
(ii) Simple assembly of components and parts imported from outside a Partner State to
constitute a complete product; and
(iii) Simple mixing and assembly where the costs of the ingredients, parts and
components imported from outside a Partner State used in any processes exceed
sixty per centum of the total costs of the ingredients, parts and components used;
(c) Operations to ensure the preservation of merchandise in good condition during
transportation and storage such as ventilating, spreading out, drying, freezing, placing in
brine, sulphur dioxide or other aqueous solutions, removal of damaged parts and similar
operations;
(d) Changes of packing and breaking up or assembly of consignments;
(e) Marking, labelling or affixing other like distinguishing signs on products or their
packages;
(f) simple operations consisting of removal of dust, sifting or screening, sorting, classifying
and matching, including the making up of sets of goods, washing, painting and cutting
up;
(g) A combination of two or more operations referred to in sub-paragraphs (a) to (f) of this
Rule; and
(h) Slaughter of animals.
Unit of Qualification
In classifying goods under this Rule, each item in a consignment should be considered
separately:
(a) Where the Harmonised Commodity Description and Coding System specifies that a
group, set or assembly of articles is to be classified within a single heading, such a group,
set or assembly shall be treated as one article;
(b) Tools, parts and accessories imported with an article, and whose prices are included in
the price of tools, parts and
i. Accessories which are imported with the article or for which no separate charge is
made, shall be considered as forming a whole with the article which the tools, parts
and accessories constitute the standard equipment customarily included in the sale of
articles of that kind; and
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(b) In cases not within the provisions of sub-paragraphs (a) and (b) of this paragraph, goods
shall be treated as a single article where they are so treated for purposes of assessing
customs duties on like articles by the importing Partner States.
Methods of determining the Customs value
1. TRANSACTION VALUE
2. (1) The customs value of imported goods shall be the transaction value, which is the
price actually paid or payable for the goods when sold for export to the Partner State
adjusted in accordance with the provisions of Paragraph 9, but where—
(a) there are no restrictions as to the disposition or use of the goods by the buyer other
than restrictions which:
(i) are imposed or required by law or by the public authorities in the Partner
State; (ii) limit the geographical area in which the goods may be resold; or
(iii) do not substantially affect the value of the goods;

(b) the sale or price is not subject to some condition or consideration for which a value
cannot be determined with respect to the goods being valued;
(c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the
buyer will accrue directly or indirectly to the seller, unless an appropriate
adjustment can be made in accordance with the provisions of Paragraph 9; and
(d) the buyer and seller are not related, or where the buyer and seller are related, that the
transaction value is acceptable for customs purposes under the provisions of
subparagraph (2).
(2) (a) In determining whether the transaction value is acceptable for the purposes of
subparagraph (1), the fact that the buyer and the seller are related within the
meaning of Paragraph (1) shall not in itself be a ground for regarding the
transaction value as unacceptable. In such case the circumstances surrounding the
sale shall be examined and transaction value shall be accepted provided that
the relationship did not influence the price. If, in light of information provided by
the importer or otherwise, the proper officer has grounds for considering that the
relationship influenced the price, he shall communicate his grounds to the importer
and such importer shall be given reasonable opportunity to respond and where the
importer so requests, the communication of the grounds shall be in writing;
(b) In the sale between related persons, the transaction value shall be accepted and the
goods valued in accordance with the provisions of subparagraph (1) whenever the
importer demonstrates that such value closely approximates to one of the following
accruing at or about the same time.
(i) the transaction value in sales to unrelated buyers of identical or similar goods
for export to the Partner State;
(ii) the customs value of identical or similar goods as determined under the
provisions of Paragraph 6;
(iii) the customs value of identical or similar goods as determined under the
provisions of Paragraph 7.
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Provided that, in applying the provisions under subparagraph (2) (a) and (b) of
this Paragraph, due account shall be taken of demonstrated differences in
commercial levels, quantity levels, the elements enumerated in paragraph 9 and
costs incurred by the seller in sales in which the seller and the buyer are not
related that are not incurred by the seller in sales in which the seller and the
buyer are related.
The tests set forth in subparagraph (2) (b) are to be used at the initiative of the importer and
only for comparison purposes. Substitute values may not be established under the
provisions of subparagraph (2) (b).
TRANSACTION VALUE OF IDENTICAL GOODS

3. (1) (a) Where the customs value of the imported goods cannot
be determined under the provisions of paragraph 2, the customs value shall be the
transaction value of identical goods sold for export to the Partner State and
exported at or about the same time as the goods being valued:
(b) In applying the provisions of this paragraph, the transaction value of
identical goods in a sale at the same commercial level and in substantially the
same quantity as the goods being valued shall be used to determine the customs
value and where no such sale is found, the transaction value of identical goods
sold at the different commercial level or in different quantities, adjusted to take
account of differences attributable to commercial level or to quantity, shall be
used, provided that such adjustments can be made on the basis of demonstrated
evidence which clearly establishes the reasonableness and accuracy of the
adjustment, whether the adjustment leads to an increase or decrease in the value;
(2) Where the costs and charges referred to in Paragraph 9 (2) are included in the
transaction
value, an adjustment shall be made to take account of significant differences in such costs
and charges between the imported goods and the identical goods in question arising from
differences in distances and modes of transport.
(3) Where in applying the provisions of this paragraph, more than one transaction value
of identical goods is found, the lowest such value shall be used to determine the customs
value of the imported goods.
TRANSACTION VALUE OF SIMILAR GOODS

(1) (a) Where the customs value of the imported goods cannot be determined under the
provisions of Paragraph 2 and 3, the customs value shall be the transaction
value of similar goods sold for export to the Partner State and exported at or
about the same time as the goods being valued;
(b) In applying this Paragraph, the transaction value of similar goods in a sale at
the same commercial level and in substantially the same quantity as the goods
being valued shall be used to determine the customs value. Where no such sale
is found, the transaction value of similar goods sold at a different commercial
level and/or in different quantities, adjusted to take account of differences
attributable to commercial level and/or to quantity, shall be used, provided that
such adjustments can be made on the basis of demonstrated evidence which
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clearly establishes the reasonableness and accuracy of the adjustment, whether
the adjustment leads to an increase or a decrease in the value.
(2) Where the costs and charges referred to in subparagraph (2) of Paragraph 9 are
included in the transaction value, an adjustment shall be made to take account of
significant differences in such costs and charges between the imported goods and the
similar goods in question arising from differences in distances and modes of transport.
(3) Where, in applying the provisions of this paragraph, more than one transaction value
of similar goods is found, the lowest such value shall be used to determine the customs
value of the imported goods.
REVERSAL OF ORDER OF APPLICATION OF DEDUCTIVE VALUE AND

COMPUTED VALUES
5. Where the customs value of the imported goods cannot be determined under
the provisions of paragraphs 2, 3 and 4, the customs value shall be determined under the
provisions of paragraph 6 or, when the customs value cannot be determined under
that paragraph, under the provisions of paragraph 7 save that, at the request of the importer,
the order of application of paragraphs 6 and 7 shall be reversed.
DEDUCTIVE VALUE
(1) (a) Where the imported goods or identical or similar imported goods are sold in the
Partner State in the condition as imported, the customs value of the imported
goods under the provisions of this paragraph shall be based on the unit price at
which the imported goods or identical or similar imported goods are so sold in the
greatest aggregate quantity, at or about the time of the importation of the
goods being valued, to persons who are not related to the persons from whom
they buy such goods, subject to deductions for the following:
(i) either the commissions usually paid or agreed to be paid or the additions usually
made for profit and general expenses in connection with the sales in such country
of imported goods of the same class or kind;
(ii) the usual costs of transport and insurance and associated costs incurred within the
Partner State;
(iii) where appropriate, the costs and charges referred to in Paragraph 9 (2); and
(iv) the customs duties and other national taxes payable in the Partner State by
reason of importation or sale of the goods.
(b) Where neither the imported goods nor identical nor similar imported goods are
sold
at or about the time of importation of the goods being valued, the customs value
shall, subject to the provisions of subparagraph (1) (a), be based on the unit price
at which the imported goods or identical or similar imported goods are sold in the
Partner State in the condition as imported at the earliest date after the importation
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of the goods being valued but before the expiration of 90 days after such
importation.
(2) Where neither the imported goods nor identical nor similar imported are sold in
the Partner State in the condition as imported, then, if the importer so requests, the customs
value shall be based on the unit price at which the imported goods, after further processing,
are sold in the greatest aggregate quantity to persons in the Partner State who are not
related to the persons from whom they buy such goods, due allowance being made for the
value added by such processing and the deductions provided for in subparagraph (1) (a).
COMPUTED VALUE
7. (1) The customs value of imported goods under the provisions of this Paragraph shall
be based on a computed value which shall consist of the sum of:
(a) the cost or value of materials and fabrication or other processing employed
in producing the imported goods;
(b) an amount for profit and general expenses equal to that usually reflected in sales of
goods of the same class or kind as the goods being valued which are made
by producers in the country of exportation for export to the Partner State;
(c) the cost or value of all other expenses necessary to reflect the costs added
under
Paragraph 9
(2).
(2) A person who is not resident in the Partner State may be required to, or compelled to
produce for examination, or to allow access to, any account or other record for the
purposes of determining a computed value. However, information supplied by the
producer of the goods for the purposes of determining the customs value under the
provisions of this Paragraph may be verified in another country by a proper officer with
the agreement of the producer and provided sufficient advance notice is given to the
government of the country in question and the latter does not object to the investigation.
FALL BACK VALUE

8. (1) Where the customs value of the imported goods cannot be determined under the
provisions of Paragraphs 2, 3, 4, 5, 6 and 7, inclusive, the customs value shall be
determined using reasonable means consistent with the principles and general provisions of
this Schedule and on the basis of data available in the Partner State.
(2) Customs value shall not be determined under the provisions of this paragraph on the
basis of:
(a) the selling price in the Partner State of goods produced in the Partner State;
(b) a system which provides for the acceptance for customs purposes of the higher of
two alternative values;
(c) the price of goods on the domestic market of the country of exportation;
(d) the cost of production other than computed values which have been determined
for identical or similar goods in accordance with the provisions of Paragraph 7;
(e) the price of the goods for export to a country other than the Partner State;
(f) minimum customs values; or
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(g) arbitrary or fictitious values.
(3) Where the importer so requests, he or she shall be informed in writing of the
customs value determined under the provisions of this paragraph and the method used to
determine such value.
ADJUSTMENTS TO VALUE
(1) In determining the customs value under the provisions of Paragraph 2, there shall be
added to the price actually paid or payable for the imported goods as follows:
(a) to the extent that they are incurred by the buyer but are not included in the price
actually paid or payable for the goods:
(i) the commissions and brokerage, except buying
commissions;
(ii) the cost of containers which are treated as being one for customs purposes with
the goods in question;
(iii) the cost of packing whether for labour or
materials;
(b) the value, apportioned as appropriate, of the goods and services where
supplied directly or indirectly by the buyer free of charge or at reduced cost for use
in connection with the production and sale for export of the imported goods, to the
extent that such value has not been included in the price actually paid or payable as
follows:
(i) materials, components, parts and similar items incorporated in the imported
goods; (ii) tools, dies, moulds and similar items used in the production of the
imported goods; (iii) materials consumed in the production of the imported
goods;
(iv)engineering, development, artwork, design work, and plans and
sketches undertaken elsewhere than in the Partner State and necessary for the
production of the imported goods;
(c) royalties and licence fees related to the goods being valued that the buyer must pay,
either directly or indirectly, as a condition of sale of the goods being valued, to the
extent that such royalties and fees are not included in the price actually paid
or payable;
(d) the value of any part of the proceeds of any subsequent resale, disposal or use of
the imported goods that accrues directly or indirectly to the seller.
(2) In determining the value for duty purposes of any imported goods, there shall be added
to the price actually paid or payable for the goods:-
(a) the cost of transport of the imported goods to the port or place of importation into
the Partner State; provided that in case of imports by air no freight costs shall be
added to the price paid or payable;
(b) loading, unloading and handling charges associated with the transport of the
imported goods to the port or place of importation into the Partner State; and
(c) the cost of insurance.
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(3) Additions to the price actually paid or payable shall be made under this paragraph
only on the basis of objective and quantifiable data.
(4) Additions shall not be made to the price actually paid or payable in determining
the customs value except as provided in this paragraph.
Following this schedule is a Section headed ―Interpretative Notes‖. The student

is encouraged to read these notes.
REVIEW QUESTIONS
1. Define customs administration
2. Explain the objectives of customs administration
3. Explain the importation procedures in Rwanda
4. Define a blue channel
5. Explain the conditions to get a blue channel and the reasons for terminating a blue
channel
6. Define a manufacturing under bond and explain the records to be maintained when
using this facility
7. Differentiate between inward processing and outward processing and explain the
records that must be maintained under both facilities
8. Define the following terms
a. Export processing zone
b. Free port
c. Free zone
d. Free port authority
9. Explain the objectives of East African Customs Union
10. Explain the features East African Customs Union
11. Explain the schemes available under EAC to support export
12. Define rule of origin and explain the items that are not considered under the rule of
origin
13. Explain the declaration procedures under post office
14. List the items that cannot be warehoused
DOUBLE TAXATION AGREEMENT

RWANDA AND MAURITIUS
Taxes covered
1. Personal income tax
2. Corporate income tax
3. Withholding taxes
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4. Taxes on rent of immovable properties
Permanent establishment
It means:
a. A place of management
b. A branch
c. An office
d. A factory
e. A workshop
f. A mine, an oil or gas well
g. A warehouse in relation to a person providing a storage facility for others
h. A farm, plantation or other place where agriculture, forestry planation
The term permanent establish deemed to include:
a. A building site, a construction, assembly or installation project other than an
installation referred in paragraph 2 of this agreement
b. The furnishing of services including consultancy services by an enterprises through
employees or other personnel engaged by an enterprise for such purpose but only
where activities of the nature continue within the contracting state.
Permanent establishment does not include the following:
i.The use of facility solely for the purpose of storage or display of goods or
machaandise belonging to the enterrise
j. The maintenance of of goods belonging to the enterprise for the purpose of display or
storage
k. Maintenance of stock of goods for the purpose of processing
l. Maintenance of fixed place of business solely for the purpose of purchasing goods for
the enterprise
m. Maintenance of a fixed place of business solely for the purpose of carrying onfor
enterprises any other activities.
TAXATION OF INCOME
1. INCOME FROM IMMOVABLE PROPERTIES
Income from immovable property (including income from agriculture or forestry) is
taxable in the contracting state in which the property is situated.
2. BUSINESS PROFITS
The profit of an enterprise of a contracting state is taxable only in that state unless the
enterprise carries on business in other contracting state through a permanent
establishment situated therein. If an enterprise carries on business as foresaid, the
profits of the enterprise may be taxed in other state but only so much of the as is
attributable to:
a. That permanent establishment
b. Sales in other state of goods of the same kind
c. Other business activities carried on in other state of the same kind as those
affected through that permanent establishment
In the determination of the taxable profit, the taxpayer is allowed dedications which incurred
for the purpose of the business of the permanent establishment including executive and
general administrative expenses incurred whether in the contracting state in which the
permanent establishment is situated or elsewhere. However no dedications are allowed for the
payments made at the head office in the way of royalties, fees or other similar payment in
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return of its other offices by use of patents or other right except in the case of banking
enterprise by way of interest on the moneys lent to the permanent establishment. No profit
attributed to a permanent establishment of goods for the enterprise.
3. SHIPPING AND AIR TRANSPORT

Profits of an enterprise from the operation or rental of ships or aircrafts in international
traffic and rental of containers and related equipment which is incidental to the operation
of ships or aircraft in international traffic is taxable only in the contracting statemt in
which the place of effective management of the enterprise is situated. If the place of
effective management of the shipping enterprise is abroad, a ship; then it is deemed to be
situated in the contracting state in which the home harbor of the ship is situated.
4. ASSOCIATED ENTERPRISES
Where the enterprise of a contracting state participates directly or indirectly in the
management, control, or capital of an enterprise of the other contracting state or the same
persons participate directly or indirectly in the management, control or capital of an
enterprise. Any profit which would, but for those conditions have accrued to one enterprises,
but by reason of those conditions have not accrued, may be included in the profits of that
enterprises and taxed accordingly. Where a contracting state include in the profits of en
enterprise of the state and taxes accordingly, adjustment of the tax paid on the corresponding
profit should be made.
5. Dividend: Is taxed at 10%
6. Interest income taxed at 10%
7. Royalties taxed at 10%
8. Management fees taxed at 12%
9. Capital gain: gain from the alienation of any property other referred to above are
taxed in the contracting company where the asset is situated.
10. Income from employment
It includes salaries, wages, and other similar remuneration derived by a resident of a
contracting state in respect of employment is tables only in other state unless the
employment is exercised in any other contracting state
Remuneration derived by a resident of a contracting state in respect of an employment
exercised in any other contracting sate is taxable in the first mentioned state if:
a. The recipient is present in other state for a period or periods not exceeding a83
days in the calendar year
b. The remuneration is paid by or on behalf of an employer who is not a resident of
other state and;
c. The remuneration is not borne by a permanent resident which is an employer has
in the other state. Remuneration in respect of an employment exercised a board a
ship or aircraft operated in international traffic may be taxed in the contracting
state in which the place of effective management of the enterprise is situated.
11. Directors‘ fees
Directors‘ fees and similar payment derived by a resident of a contracting state in the
person‘s capacity as a member of the board of directors of a company which is a resident
of other contracting state may be taxed in other state.
12. Artistes and Sportspersons
The income is taxed in the contracting state in which the activity was performed.
Income derived from activities under cultural agreement or arrangement between the
contracting state is exempted from tax in the contracting state in which the activies are
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exercised if the visit to the state is wholly or substantially supported by funds of any
of the contracting state or local authority.
13. Pensions
Pension and similar payment arising in a contracting state and paid in consideration of
past employment to resident of other contracting state is taxable in other state. On the
other hand, pension paid and other payments made under a public scheme which is
part of the social security system of a contracting state, a political subdivision or local
authority thereof is taxable only in that state.
14. Professors and teachers
Professors or teachers who makes a temporary visit to one of the contracting state for
a period net exceeding two years for the purpose of teaching or carrying out research
at a university, collage, school or other education institutions, the remuneration is
exempted from tax. However, the income from research which is not in the public
interest is not exempted.
15. Students and business apprentices
A student or a business apprentice who is present in a contracting state solely for the
purpose of his education or training and who is immediately before being so present is
exempted from tax.
ELIMINATION OF DOUBLE TAXATION

In Case of Rwanda
A tax paid by the resident of Rwanda in respect of income taxable outside is
deductible from the taxes due in accordance to the tax laws. Such deductions should
not however exceed the tax payable in Rwanda that would otherwise be payable on
the taxable income outside.
In case of Foreign Country
Where a resident of another country derives an income from Rwanda, the amount of tax on
that income payable in Rwanda is credited against the outside tax imposed on that resident.
Where a company which is a resident of Rwanda pays dividends to a resident of Mauritius
who controls directly or indirectly (5% of the capital), the credit may be allowed under the
addition to any Rwandan tax for which the credit may be allowed under the Rwandan tax
payable by the first mentioned company in respect of the profits of which such dividends is
paid

RWANDA AND JERSEY
Taxes covered
1. Dividends taxed at 10%
2. Interest taxed at 10%
3. Royalties 10%
4. Management or professional fees 12%
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5.

RWANDA AND TURKEY
Taxes covered
6. Dividends taxed at 10%
8. Royalties 10%
9. Technical fees 10%

RWANDA AND UNITED ARAB EMIRATES
Taxes covered
10. Dividends taxed at 7.5%
12. Royalties 10%
13. Management and Professional fees 10%
. Most Favoured Nation
Most Favoured Nation (MFN) is a status or level of treatment accorded by one state to
another in international trade. This means that the country which is the recipient of this
treatment must, nominally, receive equal trade advantages as the "most favoured nation"
by the country granting such treatment.
Such advantages would include such things as low tariffs or high import quotas. It
effectively means that a country that has been accorded MFN status may not be treated
less advantageously than any other country with MFN status by the country granting MFN
status.
MFN status is accorded by members of the World Trade Organization (WTO) to each
other. Preferential treatment of developing countries, regional free trade areas and customs
unions is
permitted by exception.
Some of the benefits conferred by MFN status are:
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As a consequence of MFN, smaller countries can participate in the advantages that
larger countries often grant to each other. In the absence of an MFN, smaller
countries would often not be powerful enough to negotiate such advantages by
themselves.
MFN provides domestic benefits: Administration is simplified. By having one set of

tariffs for all countries the rules are simplified and made more transparent. It also
lessens the frustrating problem of having to establish rules of origin to determine
which country a product (that may contain parts from all over the world) must be
attributed to for customs purposes.
MFN restrains domestic special interests from obtaining protectionist measures.

For example, butter producers in country A may not be able to lobby for high
tariffs on butter to prevent cheap imports from developing country B, because, as
the higher tariffs would apply to every country, the interests of A's principal ally
C might get impaired.
As MFN clauses promote non-discrimination among countries, they also tend
to promote the objective of free trade in general.
There is, however, a recognition that the MFN rule should be relaxed to accommodate
the needs of developing countries.
The emergence of powerful trade blocs (e.g the EU, or the North American Free trade
Agreement (NAFTA) has presented challenges to the MFN concept. In these blocs, tarriffs
have been lowered or eliminated among the members while maintaining tariff walls
between member nations and the rest of the world.
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CHAPTER SIX
TAXATION, MICRO, SMALL BUSINESS AND GAMING ACTIVITIES
INTRODUCTION
The Rwanda tax law classifies business enterprises into four; that is micro business
enterprises, small, medium and large business enterprises. The taxation of small and micro
enterprises follows a flat tax regime.
Micro Business Enterprises

They are business enterprises where the annual turnover follows between 2,000,000RWF to
12,000,000RWF. Micro-enterprises following their Annual turnover must pay the flat amount
of tax as shown in the table below:
Annual turnover Annual flat tax in RWF

From 2,000,000 – 4,000,000 60,000
From 4,000,000 – 7,000,000 120,000
From 7,000,001 – 10,000,000 210,000
From 10,000,001 – 12,000,000 300,000
Small Business
The law defines a Small-enterprise as any business activities, whose turnover is between
twelve million and one Rwandan francs (12,000,001RWF) and fifty million Rwandan francs
(50,000,000RWF) per tax period. Small-enterprise business activities must pay a lump sum
tax of three percent (3%) on annual turnover.
Examples
1. John is trader in Kigali town. His turnover during the accounting period ended
31/12/2013 was 25,800,000RWF. Calculate his tax liability for the period
Solution
Since John‘s annual turnover is more than 12,000,000RWF but less than 50,000,000RWF,
John is classified as a small business enterprise. His tax liability will be calculated using a flat
tax rate of 3%. Tax liability will be 3% X 25,800,000 = 774,000RWF
2. Frank is a business man in town; during the accounting period ended 31/12/2012 he made
a turnover of 48,000,000RWF. Calculate his tax liability.
Solution
Frank‘s annual turnover is 12,000,000 – 50,000,000; therefore he qualifies as a small
business. During the period he paid an instalment of 750,000 as income tax. Therefore his tax
liability will be calculated as below.
3% X 48,000,000 = 1,440,000RWF – 750,000RWF

= 690,000RWF
Small enterprises can renounce to the lump sum imposition by opting for the real regime in
carrying out accounting in compliance with national accounting plan. When they opt for the
real regime, they must inform the Tax Administration and this decision is irrevocable for a
period of three (3) years starting from the date the Tax administration shall be informed.
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1. Bwaceye is a business man in Musanze town. During the year ended 31/12/2010 he
made an annual turnover of 5,000,000RWF. Calculate his tax liability
2. Ange is a business lady in Rwaza sector, during the year ended 2012 she had a turnover
of 11,000,000RWF. Determine her tax liability.
3. Rukundo owns a supermarket in town. During the accounting period ended 31/12/2012,
the total sales were 36,500,000RWF and paid an instalment tax of 300,000RWF to RRA
as quarterly instalment. Calculate his tax liability and the tax payable to RRA.
4. Iradukunda Moses was born and raised in Nyiramata, Central province, Kigali and
inherited his late father‘s estate that comprised of 50 acres of arable land. Effective
January, 2014 Moses resigned his job at Rwanda Grain Millers Limited and started
engaging in commercial farming involving fish breeding and general agriculture. By the
end of December, 2014 Moses had over 10 fish ponds, 26 acres of tea and 20 acres of a
banana plantation. For the year ended 31 December, 2015 Moses sold 2 light weight
trucks of fresh fish with each truck valued at 2,000,000RWF. He also sold 100 tonnes of
green tea leaf to a nearby tea factory valued at 23,000RWF per tonne. Moses was
awarded a tender to supply fresh bunches of Matooke to Uburanga n'ikimero High
School on a weekly basis. A total of 30 bunches was sold per week for 52 weeks in 2015
with each bunch valued at 5,000RWF.
Required
a) Determine Moses‘ gross turnover in the year ended 31 December, 2015 and the tax
payable in accordance with the Rwanda Tax law.
b) Moses has expanded his agricultural projects and his total income and expenditure
for the year ended 31 December, 2016 are summarized below:
RWF“000”
Turnover 23,000
Administrative expenses 7,900
Operating expenses 8,700
Selling & distribution expenses 5,600
Profit before tax 800
Required
Advice Moses on his tax liability for the year ended 31 December, 2016.
c) Since the start of his business, Moses has been keeping records in a manual system
and although he can accurately determine his cash sales and purchases, he is unable
to tell his credit sales and purchases. He was recently visited by the Rwanda
Revenue Authority tax compliance team who advised him to start using an
electronic billing machine (EBM). Explain the challenges of using EBM.
TAXATION OF GAMING ACTIVITIES

Law 29 of the Rwanda tax law defines Gaming activities as any game played with cards,
dices, tickets, equipment or any mechanical, electronic or electro-mechanical device or
machine for money, property, cheque, credit or credit card or any representative of value.
Important Terms in Gaming

Wager: a sum of money or representative of value that is risked on an occurrence for which
the outcome is uncertain.
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Taxpayer: any gaming operator that is required to pay tax on gaming activities
Winnings: any money, merchandise, property, a cheque, credit, electronic credit collected, a
debit, a token, a ticket or anything else of more than nominal value received by a player
whether as a result of the skill of the player or operator, the application of the element of
chance and or both.
Categories of Gaming
The categories of gaming shall be the following:
1) Lottery;
2) Casino;
3) Gaming machine;
4) Sport books;
5) Internet gaming;
6) Any other kind of game that may be added to this list by the competent organ if deemed
necessary.
Calculation of Tax on Gaming Activities

The tax on gaming activities is calculated basing on the difference between the total amounts
wagered and the winnings awarded. The rate of the tax on gaming activities shall be at
thirteen percent (13%) on the difference between the wagered amounts and the amount won.
Examples:
1. Sarah owns a betting machine. During the month ended 31/8/2018, after the game Sarah
collected 200,000RWF and she paid out 50,000RWF on Arsenal Vs Manchester United
game. Calculate the tax liability
Solution
Payments 50,000RWF
Collections 200,000RWF
Tax liability will be (200,000 – 50,000)13% = 19,500RWF
2. Emran owns a betting company he collected 2,000,000RWF in the Casino and paid out
120,000RWF to players. Determine his tax liability
Payments 120,000RWF
Collections 2,000,000RWF
Tax liability (2,000,000- 120,000)13% = 234,000RWF

Super Betting Limited made the following transactions in the month of October 2018.
Date Receipts Payments

5/10/2018 12,000,000 8,800,000
10/10/2018 8,900,000 10,000,000
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15/10/2018 18,000,000 16,200,000
20/10/2018 9,890,000 11,000,000
25/10/2018 16,890,000 8,890,000
30/10/2018 7,500,000 6,000,000
Required
Compute the tax liability
Calculation of Withholding Tax on Winnings

A withholding tax of fifteen percent (15%) should be levied on winnings of a player of
gaming activities. The fifteen per cent (15%) tax applies to the difference between winnings
of a player and the amount of money invested by the player from the start until the end of the
game. In computing the withholding tax, an income not exceeding thirty thousand
(30,000RWF) Rwandan francs shall be rated at zero per cent.
Example
1. Elizabeth betted 1,000,000RWF on a football match. After the end of the game she was
awarded 1,500,000RWF by the operator. Calculate the withholding tax
Solution
Wagered 1,000,000RWF
Winning 1,500,000RWF
Taxable income 1,500,000 – 1,000,000
= 500,000RWF
Withholding = (500,000 -30,000)15% = 70,500RWF
2. Gasake won 20,000,000RWF in lotto after investing 2,000,000RWF. Calculate the

withholding tax.
Solution
Wagered amount 2,000,000RWF
Winning awarded 20,000,000RWF
Taxable income = 20,000,000 – 2,000,000 = 18,000,000RWF
Withholding Tax will be (18,000,000 – 30,000)15% = 2,695,500RWF
Declaration and Payment of the Tax on Gaming Activities

A taxpayer shall have to file and submit his/ her declaration of the tax on gaming activities
according to the form and procedure specified by the Commissioner General of the Rwanda
Revenue Authority and pay the tax due in a period not exceeding fifteen (15) days following
the end of each month.
Records and Reports

The gaming operator must keep, for a period of at least ten (10) years, the following records
and reports relating to the gaming operated:
1) Records of all written and unwritten contracts of purchase or sale of gambling devices or
services;
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2) Daily computations of the drop or turnover and win or loss for each game offered at the
gaming premises;
3) Banking records of all accounts used that clearly identify all transactions made in
connection with the operation conducted from the gaming premises.
Internal Control System

The gaming operator or promoter shall implement an internal control system that ensures
that:
1) The financial records that the gaming operator is required to keep are accurate, reliable
and prepared on a timely basis;
2) The duties and responsibilities of gaming employees at the gaming premises are
appropriately segregated;
3) Money and money equivalents are safeguarded;
4) Efficient operations are promoted.
Unlawful Gaming Activities

Without prejudice to provisions of other Laws, a person who directly or indirectly engages in,
conducts or makes available a gaming activity that is prohibited by the Law partly or entirely
with intention of getting an interest violates this Law and shall be punished.
Administrative Sanctions
Without prejudice to the provisions of the penal code, a person who violates this Law shall be
liable to an administrative fine of two million (2,000,000) to five million (5,000,000)
Rwandan Francs.
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CHAPTER SEVEN
CONSUMPTION TAX
INTRODUCTION
“Tax stamp” is a sign affixed on a product indicating that the product will be sold and tax
collected in Rwanda. Products are regarded as locally manufactured if the manufacturing or
processing factory is in the Rwandan territory. Products are regarded as imported if such
products require Customs formalities in accordance with the Customs system on the date
such products were brought in Rwanda.
Consumption tax is levied on the following products at the corresponding rates:
Products Tax
Natural fruit or vegetable 5%
juices
Juice, Soda and Lemonade 39%
Mineral water 10%
Beer whose local raw 30%
material content, excluding
water is at least 70% by
weight of its constituent
Other Bears 60%
Wine whose local raw 30%
material content, excluding
water, is at least 70% by
weight of its constituents
Other Wine 70%
Brandies, liquors and whisky 70%
Cigarettes 36% of retail
price of a
pack (of 20
rods) and 130
Frw per pack
Fuel (excluding jet fuel), Gas, oil, fuel 183 Frw/liter
on Premium 150 Frw/liter
on Gas oil
Lubricants 37%
Vehicles with engine less than 1500cc 5%
Vehicles with engine less than 2500 cc 10%
Vehicles with engine above 2500 cc 15%
Powdered milk 10%
Telephone communication 10%
2.24.1 Taxable Base of the Consumption Tax

Without prejudice to the tax procedure applicable to the quantity of certain products under
Article 4 of this Law, the tax base for imported products is calculated according to customs
legislation. For products manufactured in Rwanda, the tax base is the selling price of the
product. However, the tax base for cigarettes combines the specific base and the retail price.
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The selling price referred to under Paragraph one of this Article is the total amount excluding
the value added tax, paid or payable by a buyer or a recipient of a taxable product to the
producer of the product. If the producer and the buyer or recipient are related, the selling
price is the price that the product would reasonably be expected to fetch in an arm‘s length
transaction at that time at the wholesale level
2.24.2 Exemption
The following goods are exempt from the excise duty:
 goods for charitable organizations;

 vehicles assembled in Rwanda;
 one (1) personal vehicle of former diplomats returning from foreign diplomatic
missions;
 one (1) vehicle of Rwandan refugees or returnees from a foreign country who fulfil
exemption conditions set forth under the Customs Law;
 vehicles of the following categories: minibus and bus that can carry not less than
fourteen (14) persons, lorries and single cabin pickups manufactured to carry goods,
refrigerating vehicles, tourist vehicles, ambulances and vehicles designed for persons
with disabilities;
 products specifically manufactured for export;
 products sold to duty free shops and other specific persons legally determined
2.24.3 Article 7 Time for taxation
The tax is payable when:
1º a taxable product is cleared out of the factory, in case of products manufactured in
Rwanda;
2º a product is under the customs control in case of imported products;

3 º services is sold, for telephone communications
2.24.4 Taxable Value and Time for Tax Imposition

The taxable value on imported products is calculated according to Cost, Insurance and
Freight upon arrival in Kigali while on locally manufactured products, it is calculated
according to selling price exclusive of taxes.
The tax is payable when:

1) The taxable products are cleared out of the factory for consumer use in case of locally
manufactured products;
2) The taxable products are due for clearing at the customs under the customs system in
case of imports.
Taxable export products are exempted from consumption tax. However, the exporter
exempted from such a tax is obliged to indicate that he or she has fulfilled all the conditions
exporters are required to fulfil.
For imported goods the excise tax = (CIF + import duty) rate
Example
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1. Mary imported wines from France and the CIF to Mombasa was 50,000USD. The
exchange rate was 1USD = Frw880
Required
Compute the excise tax; assume the import duty of 25%
CIF 50,000 x 880 = 44,000,000

Import duty = 44,000,000 x 25% = 11,000,000
Excise tax = (44,000,000 + 11,000,000)70% = 38,500,000
2. Akandi limited produced 30,000 boxes of water. The factory price is 2500 per box.
Compute the excise tax.
The factory value = 30,000 x 2500 = 75,000,000

Excise tax 75,000,000 x 10% = 7,500,000
3. 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.
The excise tax on Cigarette is calculated on the retail price.

Retail value 2,000,000 x 1000 = 2,000,000,000
Excise tax = 2,000,000,000 x 36% + (2,000,000 x 130)
= 980,000,000

1. John imported powered milk from UK
Particulars USD
FOB 25,000
Insurance 5,000
Freight 7,200
Transport to Kigali 2,000
Note: transport from Mombasa to Kigali is not considered under the CIF
2. Bralirwa produced the following units of beer in the month August
Date Units Factory price per unit

5/10/2018 20,000 6,200
18/10/2018 30,000 7,500
26/10/2018 1,500 5,400
Required
Compute the excise tax.
2.24.5 DECLARATION, PAYMENT AND ASSESSMENT OF TAX

For purposes of implementing this law, a month is divided into the following three periods:
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1. From 1st to 10th of every month;
2. From 11th to 20th of every month and;
3. from 21st towards the end of the month. A taxpayer is required to file his or her
declaration in respect of provisions of paragraph one of this article.
The taxpayer who pays consumption tax is required to deliver to tax administration a
declaration sheet and the proofs of how consumption tax was paid in a period not exceeding
five (5) days following periods mentioned in article 9 of the tax law. The consumption tax on
imports is paid concurrently with custom duties.
In respect of periods prescribed under article 9 of the consumption law, every taxpayer is
required to:
1. Keep the books of accounts filed in accordance with national accounting standards;
2. Provide information as the declaration form requires.
An assessment shall be conducted in the manner and in periods prescribed by the Ministerial
Order. Such an assessment shall be concluded by an action for recovery of the tax due,
interest and fines.
Certain reasons which lead to assessment are as follows:

1. Non conduction of declaration;
2. Returns found to be incorrect, inadequate, or intended to conceal some basic data.
2.24.6 ADMINISTRATION OF CONSUMPTION TAX

An authorised officer has the right to free access to a factory at any time it is operating. He or
she has the right to carry out any inspection or verification if considered necessary. Due to
such a reason, the authorised officer has prosecution powers during the performance of his or
her duties.
Without prejudice to the customs system, all taxable imported products subject to
consumption tax, whether by land, water, air or post, must subject to the control by an
authorized officer.
Every authorised officer should be issued with means of identification during his or her duties
and shall produce them on demand to any person who requires them. An authorised officer on
his or her duties may require the tax payer to give him or her in writing any necessary
information.
Where an authorized officer finds that a tax payer conceals certain products in order to evade
consumption tax, he or she may seize the products and put them into the custody of the
Authority. He or she may also issue a receipt of acknowledgement signed by the owner of the
products or his or her representative.
Where the owner of the products seized in accordance with article 16 of this law does not
provide information in fifteen (15) days, stating whether he or she complied with the
provisions of this law, such products may be sold by public auction. Such a period may be
reduced in case it is proved that such products are perishable. In case such products can
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deteriorate human and other biological health, they shall be immediately destroyed. Such an
act shall be at the expense of the owner of the products.
In fulfilment of his or her duties provided for by this law, an authorised officer should be
independent. No person shall obstruct or interfere with him or her in his or her duties with an
exception of competent authorities. Individuals, government institutions, commercial and
business associations are obliged to provide with the authorised officer all the relevant
information regarding the implementation of provisions of this law.
Secrets revealed in accordance with provisions of this article or in fulfilment of duties

required by this law shall not be disclosed to any person unless the Commissioner General,
who if it is in the national interest, upon which he or she shall order it in writing specifying
the information to be disclosed and the procedures of its disclosure.
Tax Payer‟s Rights and Obligations

A taxpayer has a right to self-assessment in accordance with provisions of this law and orders
relevant to it. Any disputes related to consumption tax arising between the Authority and the
taxpayer shall be submitted to the Commissioner General in order to take action in a period
not exceeding thirty (30) days from the day of receipt. The aggrieved tax payer shall have the
right, in a period not exceeding ten (10) days, to appeal to Appeals Council established by the
Order of the Minister and which shall take action on his or her behalf. The decision of the
Appeals Council may be appealed against before a competent Court in a period not exceeding
thirty (30) days. Any manufacturer of a product subject to consumption tax is required to
keep a register of daily inventory of the products manufactured and a sales register. The sales
register shall indicate the price and quantity offered to every customer, his or her names and
address.
Every taxpayer is required to keep a register of raw materials, an activity register and a
register of inventory of manufactured products. The register of raw materials should record
the materials to be used in the manufacturing of taxable products. In the activity register,
there should be recorded the information concerning the daily status of every equipment used
in the factory or industry.
An authorised officer shall sign in such a register during every his or her visit to the factory
or industry.
The register of inventory of the manufactured products indicates the products destroyed,
discarded or burnt after being inspected by the authorised officer, the quantity exported, and
those sold for consumption, so that at any time, the quantities within the factory can be
established and verified.
Any modification to the premises or to the functioning of the factory, any changes and
increases, repairs or replacements of one or more equipment or tools shall be notified to the
administration of the authority in the month of the last operation.
Any manufacturer of products subject to consumption tax shall own a register indicating, on a
daily basis, the following:
1. The date and time of starting and ending work;
2. The type, names and the nature of the equipment used;
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3. The type and quantity of the raw materials used and the batch number of production;
4. The quantity of the goods produced.
Any service or activities that are not carried out or that are cancelled shall be notified to the
Authority by their provider within a period of ten (10) days.
Some locally manufactured and imported taxable products shall be required to be affixed
with a tax stamp. The products to be affixed, the structure of tax stamps, manner and design
in which the tax stamps are to be affixed shall be determined by the Order of the Minister.
A tax stamps usage reconciliation statement shall be made by local taxable products
manufacturers and taxable product importer. The monthly reconciliation statement shall show
a summary of tax stamps indicating the following:
1) Stamps in stock at the closure of the month preceding the month in which taxable
products are manufactured;
2) Stamps received from the Authority;
3) Stamps applied to taxable products manufactured in Rwanda or imported into Rwanda
as the case may be;
4) Stamps spoiled or damaged during the manufacturing process as certified by the
Authority staff;
5) Stamps unaccounted for in the reconciliation statement;
6) Stamps in stock at the end of the month and carried forward for use in the following
month.
The reconciliation statement shall be submitted to the Authority within ten (10) days of the
end of the month covered by the statement. Tax stamps are exempted from all taxes and
duties levied in Rwanda. Locally manufactured products for export are exempt from
affixation of tax stamps. However, a written statement thereof shall be made before such
products are manufactured or exported.
Obligations that are Peculiar to Oil Products Dealers

Oil products dealers have the following obligations:
1) Allow the Authority easy access to all premises and petrol stations for evaluation and
inspection purposes;
2) Make a declaration to the Authority before any petrol station is started up so that its
premises may be inspected first;
3) Affix a standards certificate as required by an authorized officer;
4) Present any document providing details as to what is required by the Authority‘s
inspection;
5) Report beforehand to the Authority and in writing any changes, damage, increase or
decrease of tanks and pumps;
6) Make a declaration to the Authority as regards any premise used for the sell of oil
products;
7) Have underground tanks be tested;
8) Have pumps be inspected and present their related standards certificate;
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9) Store and sell oil products that are contained in tested underground tanks or any other
tested types of store;
10) Have standards certificates for meters of pumps meant for oil products selling;
11) Allow easy access for experts or those representing the Agency endowed with expertise
in testing whether underground tanks, pumps or meters respect standards;
12) Allow easy access to an authorized officer sent by the Commissioner General to carry
out relevant inspection in a given petrol station;
13) Authorize any qualified person to carry out any activity or check whether legal
provisions are respected;
14) Any other attribution as may be assigned to by the Minister where necessary and by
way of an order. Modalities for carrying out such inspection shall be determined by an
Order of the Minister.
2.24.6 PENALTIES
Administrative sanctions for the usage of tax stamps
A domestic manufacturer or importer of products subject to the excise duty who performs one
of the following acts:
1° failing to keep tax stamp registers, records or any other related documents;
2° failing to submit tax stamp reconciliation statements within the prescribed period; is
liable to an administrative fine of not less than one million Rwandan francs
(FRW1,000,000) and not more than two million Rwandan francs (FRW 2,000,000).
Penalties for the usage of tax stamps

Any domestic manufacturer or importer of products subject to the excise duty who performs
one of the following acts:
1° failing to affix tax stamps to products;

2° affixing tax stamps to products in a manner contrary to rules set forth by the
Authority;
3° making an overprint or defacing tax stamps affixed to taxable products;
4° submitting an incorrect or incomplete tax stamp reconciliation statement;
5° using tax stamps on products for which they are not intended;
6° selling products subject to the excise duty without tax stamps;
Commits an offence Upon conviction, he or she is liable to imprisonment for a term of not
less than six (6) months and not more than one (1) year or to a fine of not less than one
million Rwandan francs (FRW 1,000,000) and not more than two million Rwandan francs
(FRW 2,000.000)
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CHAPTER EIGHT
WITHHOLDING TAXES
ARTICLE 56: WITHHOLDING TAX ON EMPLOYMENT INCOME

The withholding tax on employment income referred to in Article 15 of this Law shall be
paid according to the rates provided below:
Monthly taxable Income (RWF) Tax Rate
30,000 (0%)
30,001 - 100,000 (20%)
100,001 - More (30%)
Notwithstanding Paragraph One of this Article, income from a casual labourer is subject to
tax on the special rate of fifteen percent (15%). However, in computing casual labourer‘s tax,
an income not exceeding thirty thousand (30,000 RWF) per month is rated at zero percent
(0%)
ARTICLE 57: PERSONS RESPONSIBLE FOR APPLYING A WITHHOLDING

TAX ON EMPLOYMENT INCOME
An individual or an entity that pays its employees in cash or in kind is responsible for
withholding and paying the withholding tax on employment income referred to in Article 15
of this Law. Employers referred to in Paragraph One of this Article paying the withholding
tax on employment income must, within fifteen (15) days following the end of each month or
quarter depending on the relevant laws:
1) File a tax declaration through procedures specified by the Tax Administration and
transmit the tax withheld;
2) Transmit to the employee a statement indicating his/her name, the amount and type of
income and the amount of tax withheld and paid.
An employer who is not the first employer shall withhold tax at the rate of thirty percent
(30%).
ARTICLE 58: TIME PERIOD OVER WHICH THE DECLARATION AND

PAYMENT OF THE TAX ON EMPLOYMENT INCOME ARE MADE BY THE
EMPLOYEE
Subject to the provisions of Article 57 of this Law, when the employer does not have the
responsibility to withhold the tax on employment income in accordance with ratified
international agreements, the employee must, within fifteen (15) days following the end of
each month, file a tax declaration and pay such a tax through procedures specified by the Tax
Administration.
ARTICLE 59: TAX ON SITTING ALLOWANCE

Sitting allowance allocated to the members of the Board of Directors is taxable at a rate of
thirty percent (30%).
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ARTICLE 60: WITHHOLDING TAX ON PAYMENTS OR OTHER METHODS
OF EXTINGUISHING AN OBLIGATION
A withholding tax of fifteen percent (15%) of the total amount excluding Value Added Tax
(VAT) where applicable is levied on payments or other methods of extinguishing an
obligation made by resident individuals including tax exempt entities, when such payments or
other methods of extinguishing an obligation are made to a person not registered in the
Rwandan tax administration or to a registered person who does not have recent income tax
declaration.
Payments or other methods of extinguishing an obligation subject to the withholding tax of

fifteen percent (15%) are related to the following:
1) Dividends, except income distributed to the holders of shares or units in collective
investment schemes;
2) Financial interests except:
a. Interests on deposits in financial institutions for at least a period of one year;
b. Interests on loans granted by a foreign development financial institution exempted
from income tax under applicable law in the country of origin;
c. Interests paid by banks operating in Rwanda to banks or other foreign financial
institutions;
3) Royalties;
4) Service fees including management and technical service fees except transport
services;
5) Performance payments made to a crafts person, a musician, an artist, a player, sports,
cultural and leisure activities irrespective of whether paid directly or indirectly;
6) Gambling activities;
7) Goods sold in Rwanda.
However, money which is recorded in the books of account as a liability of a taxpayer to

creditors and which reduces the taxable income is deemed a payment if it has exceeded six
(6) months following the tax period.
Paragraphs one and 2 of this Article are also applicable to non-resident persons for such
payments on behalf of their permanent establishments.
Subject to the provisions of the previous paragraphs of this Article, a fifteen per cent (15%)
tax shall be withheld on dividends attributed to a company registered in Rwanda. However,
the withholding tax shall be five percent (5%) if levied on the following interests:
1) Dividends and interest on securities listed on capital market when 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.
The withholding tax on payments made to a person registered with the Tax Administration
but without that person making the previous declaration is deducted from income tax during
its declaration and its payment.
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ARTICLE 61: WITHHOLDING TAX ON GOODS IMPORTED FOR
COMMERCIAL USE
A withholding tax of five percent (5%) of the value of goods imported for commercial use
shall be paid at custom on the cost insurance and freight (CIF) value before the goods are
released by customs. The withholding tax referred to in Paragraph one of this Article shall be
deducted from the income tax when it is declared and paid.
ARTICLE 62: WITHHOLDING TAX ON PUBLIC TENDERS

A withholding tax on public tenders of three percent (3%) of the sum of invoice, excluding
the Value Added Tax (VAT), is retained when public tenders are paid. However, a tax of
fifteen percent (15%) shall be withheld on public tenders if the recipient is not registered with
the Tax Administration or he/she is registered but does not have his/her previous income tax
declaration. A withholding tax on payment made to a person registered with the Tax
Administration shall be deducted from income tax during the income tax declaration and its
payment.
ARTICLE 63: TIME FOR DECLARATION OF WITHHOLDING TAXES

The person who withholds taxes referred to in Articles 59, 60 and 62 of this Law is required
to file a tax declaration and make payment in accordance with the procedures prescribed by
the Tax Administration within a period of fifteen (15) days after the month in which the taxes
were withheld.
ARTICLE 64: PERSONS EXEMPTED FROM WITHHOLDING TAXES

The following taxpayers are exempted from withholding taxes referred to in Articles 59, 60
and 62 of this Law:
1) Those whose business profit is exempted from taxation;
2) Those who have tax clearance certificate issued by the tax administration.
The Tax Administration may revoke a tax clearance certificate at any time if the conditions
required by the tax administration are not fulfilled.
ARTICLE 65: FAILURE TO WITHHOLD TAX

Any person who is required to withhold tax and who fails to do so in accordance with this
Law is personally liable to pay to the Tax Administration, the amount of tax which has not
been withheld, including penalties and interest on arrears. However, the person who is liable
to pay the tax not withheld has the right to appeal for the amount of the tax imposed or to
recover any excess amount of tax paid.
ARTICLE 66: RECORDS OF PAYMENTS AND TAX WITHHELD

Any person who pays a withholding tax keeps and makes available to the Tax
Administration, for inspection and whenever necessary, records in relation to each tax period
showing the following:
1) Payments made to taxpayer;
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2) Amount of tax withheld and paid.
A person who pays withholding tax shall keep the records referred to in Paragraph One of
this Article for a period of ten (10) years after the end of the tax period to which the records
relate.
The Tax Administration may require a person who pays a withholding tax to provide a copy
of records kept in accordance with Paragraph 2 of this Article.
DTAs ON WITHHOLDING TAXES
Country Dividends on Interest income Royalty Technical fees

shares
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%
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CHAPTER NINE
TAX PLANNING
DEFINITION
Arrange financial and tax matters with the purpose of minimizing the tax burden. In other
words, it is tax avoidance
Why is it Important to Undertake Tax Planning?

1. Minimize tax liabilities
2. Minimization in tax litigation
3. Healthy growth of the business. Once you pay on time no penalties.
4. Helps in the capital formation
5. Source of working capital.
Main Points of Tax Planning and Management

1. Compliance of tax laws by minimizing tax incidence.
2. Planning location
Example:
VW is establishing a regional office under investment code: CIT =0%.
Special Economic Zone: SEZ:
 CIT 15%
 Free zone
 Export processing zone
Nature of business
 Investment in commercial property
 Investment in machinery equipment
Example 1
You have been approached by an investor who is considering two investment opportunities.
To either invest in commercial properties or to invest in machine and equipment. Each
investment requires an initial capital of 200,000,000RWF; and will generate an annual
income of 100,000,000RWF. The investor wants to minimize tax as much as possible;
Advice the investor on which option to invest in.
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Answer
Option one investment in commercial property

Less allowable expenses (50,000,000)
Tax liability Rate Tax

0-180,000 0% 0
180,001-1,000,000 20% 164,000
1,000,001-50,000,000 30% 14,700,000
Option two investment in machinery and equipment
Particular Working Amount in RWF

Less allowable expenses 10%×100,000,000 (10,000,000)
Less depreciation 25%×200,000,000 (50,000,000)

0-360,000 0% 0
360,001-1,200,000 20% 168,000
1,200,001-40,000,000 30% 11,640,000
Example 2
Individual X is considering two investment opportunities which are commercial, agriculture
and livestock and wholesale hardware shop. From the forecast, the individual identified that
the agriculture and livestock will have an annual turnover of 50,000,000Rwf which is similar
to that of the hardware business. An individual wants to minimize the tax. Advise the
individual on which decision to take.
Answer
Agriculture and livestock
Particular working Amount in Rwf

Gross turnover 50,000,000
Exemption (12,000,000)
Tax liability 38,000,000×3% 1,140,000
Hardware shop
Gross turnover 50,000,000RWF
Tax liability 3% of 50,0000,000Rwf = 1,500,000RWF
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Example 3
Company X is considering two investment opportunities. One is to operate a microfinance
and another is to operate a juice processing plant. The forecasted profit for a period of six
years for the either investment is as below:
Y1= 8,000,000RWF
Y2= 10,000,000RWF
Y3= 6,000,000RWF
Y4= 2,000,000RWF
Y5= 20,000,000RWF
Y6= 50,000,000RWF
Advice the company on which investment opportunity to take.
Answer
Microfinance for CIT of 5 years is exempted; CIT= 0%
FORMS OF BUSINESS ORGANIZATION

 Sole trade
 Partnership
 companies
Sole Trade
Tax: 360,000 exempt
Tax rates: Certain income is taxed at 20%
Partnership and companies
Taxed as the same way at 30%
Advantages of partnership and companies
 Loss can be carried forward
 Discount on listed shares:
 40=20%
 30=25%
 20=28%
 Preferential CIT 0% and 15%
 Tax holidays
 Investment allowance
Example
You have been approached by an investor who is considering to register his business as a
company or to operate as an individual business. If he operates as individual business, he
expects to earn the following income for the next 5 years‘ profit. Y1= 2M; Y2=-5M;
Y3=10M; Y4=-3M; Y5=2M. dividend income of 2M each year from local company (not
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listed); he also expects to receive the same income if he operates as a company. Advise the
investor on which form of business to register
Answer
Individual Business
Y1 Y2 Y3 Y4 Y5
Profit 2,000,000 (5,000,000) 10,000,000 (3000,000) 2,000,000
Dividend 2M×100/85 2, 300,000 2,300,000 2,300,000 2,300,000 2,300,000
Taxable income 4,300,000 (2,700,000) 12,300,000 (700,000) 4,300,000
Taxable
0-360,000=0% 0 0 0 0 0
360,001-1,200,000=20% 168,000 - 168,000 - 168,000
1200,000-Above 930,000 - 2,520,000 - 720,000
Tax liability 1,098,000 0 2,688,000 0 888,000
Less withholding tax (300,000) (300,000) (300,000) (300,000) (300,000)
Claimable (300,000) (300,000)
Tax payable/claimable 798,000 (300,000) 2,088,000 (300,000) 288,000
Total tax= 3,174,000

Exemption= 360,000×3= 1,080,000 (Savings)
Company business
Y1 Y2 Y3 Y4 Y5
Profit 2,000,000 (5,000,000) 10,000,000 (3000,000) 2,000,000
Dividend not taxable - - - - -
Loss - 5,000,000 (5,000,000) 3,000,000 (3,000,000)
Taxable income 2,000,000 0 5,000,000 0 (1,000,000)
Tax liability at 30% 600,000 0 1,500,000 0 0
Total tax= 2,100,000

Dividend= 2,000,000×5=10,000,000 (Savings)
CAPITAL STRUCTURE
You can finance business using equity and debt
For equity dividend is non allowable expenses
For debt interest is a tax allowable
Example
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You have been approached by an investor who wants to invest in the business. The investor
has two options. To either finance a business using equity, that is, through issuing of shares
or to issue a debt.
The investment requires an initial capital of 500,000,000RWF. This will require the investor
to issue 250,000 shares of 2000RWF each. The dividend per share is 100RWF. The investor
can as well raise the required amount by borrowing the money from the bank.
The interest rate on the loan is 15% and the loan must be paid within a period of 5 years
making equal payment at the end of each year. The investor forecasted the following profit
for the next 3 years: Y1= 50,000,000RWF; Y2= 120,000,000RWF; Y3= 100,000,000RWF.
Required
Advise the investor on how to finance the business if he wants to minimize loses as much as
possible.
Solution
Loan= 500,000,000RWF
Interest= 15%
n= 5 years
Annuity= equal payment
PVA=PMT ( )
PVA: Present value annuity

PMT: Constant payment
r: interest
500,000,000= PMT ( )
Annuity at the end: ordinary

Annuity at the beginning: due
500,000,000=PMT [6.667-3.315]
=
PMT=149,169,677RWF
Year Constant Interest Principal Balance

0 500,000,000
1 149,157,776 75,000,000 74,157,776 425,842,224
2 149,157,776 63,876,334 85,281,442 340,560,782
3 149,157,776 51,084,117 98,073,659 242,487,123
4 149,157,776 36,373,068 112,784,708 129,702,415
5 149,157,778 19,455,362 129,702,416 0
Option 1 loan
Particulars Y1 „RWF‟ Y2 „RWF‟ Y3 „RWF‟
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PBT 50,000,000 120,000,000 100,000,000
Less interest (75,000,000) (63,876,334) (51,084,117)
P/L (25,000,000) 56,123,666 48,915,883
Less relief 25,000,000 (25,000,000) 0
Taxable income 0 31,123,666 48,915,883
Tax @ 30% 0 9,337,100 14,674,765
Retained profit 0 21,786,566 34,241,118
Dividend= 250,000×100= 25,000,000
Option 2 shares
particular Y1 „RWF‟ Y2 „RWF‟ Y3 „RWF‟

PBT 50,000,000 120,000,000 100,000,000
Tax @30% (15,000,000) (36,000,000) (30,000,000)
PAT 35,000,000 84,000,000 70,000,000
Dividend (25,000,000) (25,000,000) (25,000,000)
Retained profit 10,000,000 59,000,000 45,000,000
Conclusion: loan is more beneficial than the lease since it provides the least tax.
Example 2
An individual investor has approached you for advise on how to finance his investment. The
investor wants to invest in commercial properties; the investment requires an initial capital of
400,000,000RWF. The investor is considering two financing options which are to either
finance using his own savings or to borrow 80% of the required initial investment from the
bank. There is a bank that has expressed the willingness to lend him money but at an interest
rate of 18% paid in a 5 years‘ time making equal installments at the end of each year. The
forecasted rental income is 10,000,000RWF per month.
Required:
Advise the investor on how to finance the proposed investment.
Solution
PVA=PMT ( )
Loan = 400,000,000×80%=320,000,000
r=18%
n=5years
320,000,000= PMT ( )
320,000,000=PMT[5.5555556- ( )
320,000,000= PMT 3.127171

PMT= 102,328,909
Loan amortization Schedule
Year Constant Interest Principal Balance

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0 320,000,000
1 102,328,909 57600000 44,728,909 275,271,091
2 102,328,909 49548796 52,780,113 222,490,978
3 102,328,909 40048376 62,280,533 160,210,445
4 102,328,909 28837880 73,491,029 86,719,417
5 102,328,912 15609495 86,719,417 0
Option 1 Loan
Y1 ‗RWF‘ Y2 ‗RWF‘ Y3 ‗RWF‘ Y4 ‗RWF‘ Y5 ‗RWF‘

PBT 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000
Less interest
exp. (57,600,000) (49,548,796) (40,048,376) (28,837,880) (15,609,495)
Allowable exp.
30% (36,000,000) (36,000,000) (36,000,000) (36,000,000) (36,000,000)
PBT 26,400,000 34,451,204 43,951,624 55,162,120 68,390,505
TAX (7,784,000)7,920,000 (10,199,361) (13,049,487) (16,412,636) (20,381,151)
Retained profit 18,616,000 24,251,843 30,902,137 38,749,484 48,009,353
Y1 Y2 Y3 Y4 Y5
PBT 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000

Less allowable
exp. (60,000,000) (60,000,000) (60,000,000) (60,000,000) (60,000,000)
Profit 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000
Tax (17,864,000) (17,864,000) (17,864,000) (17,864,000) (17,864,000)
Retained profit 42,136,000 42,136,000 42,136,000 42,136,000 42,136,000

LEASE OR PURCHASE
Lease or purchase is an agreement between the lessor and lessee where the lessor offers an
asset to the lessee and the lessee pays installments.
Type of Lease
 Operating lease
 Financing lease
According to IFRS16, it only recognized one type of lease, which is a finance lease. If a lease
does not exceed 12 months it is considered as a normal rent. If it exceeds 12 months it is a
financing lease.
Benefits
Operating lease: you recognize a rent as an expense.
Financing lease: lessee recognizes depreciation and interest.
Depreciation of Leased Asset
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As per accounting standards, depreciation on the leased asset is calculated on the present
value of the lease. By considering the useful life of the asset or the lease term whichever is
lower.
PURCHASE
Benefits
 Depreciation
 Investment allowance
The higher the cost is better, because we need to minimize the taxable profit.
Example
Company X is considering two options. To either purchase the machine or to lease the
machine. If the company is to purchase the machine, it will pay 100,000,000RWF. If it
decides to lease, it will pay 12,000,000RWF at the end of each year for period of 10 years.
The interest rate on the lease is 10%. The machine has useful life of 20 years after which the
scrap value will be zero. The company has made the following forecast of profit for the next
5 years. Y1= 40M; Y2= 65M; Y3= 50M Y4= 70M; Y5= 45M. The company wants to
minimize the tax liability as much as possible.
Required
Advise the company on the alternative to take.
PMT= 12,000,000RWF
n=10 years
r= 10%
PVA=PMT ( )
12,000,000= PMT ( )
PVA= 73,734,805
This 73M will be the amount of liability in the balance sheet.
Lease amortization
Beginning Ending
balance Interest Total Constant balance
0 73,734, 805
1 73,734,805 7373481 81,108,286 12,000,000 69,108,286
2 69,108,286 6910829 76,019,114 12,000,000 64,019,114
3 64,019,114 6401911 70,421,025 12,000,000 58,421,025
4 58,421,025 5842103 64,263,128 12,000,000 52,263,128
5 52,263,128 5226313 57,489,441 12,000,000 45,489,441
6 45,489,441 4548944 50,038,385 12,000,000 38,038,385
7 38,038,385 3803838 41,842,223 12,000,000 29,842,223
8 29,842,223 2984222 32,826,446 12,000,000 20,826,446
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9 20,826,446 2082645 22,909,090 12,000,000 10,909,090
10 10,909,090 1090909 11,999,999 12,000,000 -1
Depreciation
PV= 73, 734,805
Depreciation= =7,373,480
NB: Useful life is 20 years and lease term is 10 years whichever is lower.
Y1 Y2 Y3 Y4 Y5
PBDIT 40,000,000 65,000,000 50,000,000 70,000,000 45,000,000
Interest 7,373,481 6,910,829 6,401,911 5,842,103 5,226,313
Depreciation 7,373,480 7,373,480 7,373,480 7,373,480 7,373,480
PBT 25,253,040 50,715,691 36,224,609 56,784,417 32,400,207
Tax @ 30% 7,575,912 15,214,707 10,867,383 17,035,325 9,720,062
Retained 17,677,128 35,500,984 25,357,226 39,749,092 22,680,145
Total tax 60,413,389
Liability
Option 2: Purchase a machine

Is it industrial machine or other machine? We assume it is a heavy machine (20 years).
Depreciation at 5%; cost 100,000,000
Depreciation= Y1………………Y20= 5,000,000 per year
Y1 Y2 Y3 Y4 Y5
PBDT 40,000,000 65,000,000 50,000,000 70,000,000 45,000,000
Depreciation 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
PBT 35,000,000 60,000,000 45,000,000 65,000,000 40,000,000
Tax @ 30% 10,500,000 18,000,000 13,500,000 19,500,000 12,000,000
total tax 73,500,000
Lease option will be taken
Example 2
Company X is registered investor and received RDB certificate to operate as a manufacturing
company. The company is considering two alternatives regarding the need for the moto
vehicle to transport its commodities around the country. The company is either to purchase a
moto vehicle or lease it from Akagera motors. The cost of moto vehicle is 100,000,000Frw. If
the company is to lease, it will pay 25,000,000Rwf at the end of each year for a period of 5
years. The moto vehicle has a useful life of 4 years after which the scrap value will be zero.
The interest rate on the lease is 12%. The company has made the following forecast of the
profit for the next 3 years. Y1= 60M; Y2= 45M; Y3=30M. Advise the company on the best
option it wants to minimize tax liability.
Answer
PMT= 25,000,000
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n= 5years
r= 12%
PV= 90,119,405
Beginning Ending
Balance Interest Total Constant Balance
0 90,119,405
1 90,119,405 10,814,329 100,933,734 25,000,000 75933734
2 75933734 9,112,048 85,045,782 25,000,000 60045782
3 60045782 7,205,494 67,251,275 25,000,000 42251275
4 42251275 5,070,153 47,321,428 25,000,000 22321428
5 22321428 2,678,571 25,000,000 25,000,000 0
Depreciation
Cost: 90,119,405
Dep= =22,529,851
NB: Useful life is 4 years and lease term is 5 years whichever is lower.
Y1 Y2 Y3
PBDIT 60,000,000 45,000,000 30,000,000
Interest 10,814,329 9,112,048 7,205,494
Depreciation 22,529,851 22,529,851 22,529,851
PBT 26,655,820 13,358,101 264,655
Tax @ 30% 7,996,746 4,007,430 79,397
Retained 18,659,074 9,350,671 185,259
Total tax 12,083,573
Purchase option
Cost= 100,000,000
Rate = 25%
Cost Investment Allowance Depreciation Book Value
1 100,000,000 50,000,000 12,500,000 37,500,000
2 37,500,000 9,375,000 28,125,000
3 28,125,000 7,031,250 21,093,750
4 21,093,750 5,273,438 15,820,313
Y1 Y2 Y3
PBDIT 60,000,000 45,000,000 30,000,000
Investment allowance 50,000,000
Depreciation 12,500,000 9,375,000 7,031,250
PBT (2,500,000) 35,625,000 22,968,750
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Loss relief 2,500,000 (2,500,000)
Taxable income - 33,125,000 22,968,750
Tax @ 30% - 9,937,500 6,890,625
Retained - 23,187,500 16,078,125
total tax 16,828,125
Best option is lease
BUY OR MAKE
Buy to purchase
Make
 Invest in asset
 Depreciation
 Investment allowance
 Raw material
 Other cost: direct or indirect
The management wants to take decision on the following products:
Products A B C D
Selling price 50 60 40 25
Variable cost per unit 40 55 50 30
The supplier has the following offers:
A B C D
He can sell at 35 75 30 25
N.B: when you consider fixed cost, please consider only fixed product cost.
Example
Company A producing 4 products A, B, C and D the selling price of each product is 100;
200; 120 and 80 respectively. The variable cost per unit each product is 150; 130; 70 and 90
respectively. The supplier has offered to supply the same products but at 80; 150; 100 and
120 respectively. The fixed production cost of each product is 10,000; 20,000; 8,000 and
25,000 respectively.
Required:
Should the company make or buy? Number of units: A=1,000; B=1,500; C=800 and
D=2000.
Answer
Product A B C D
Selling price 100 200 120 80
Variable cost /unit 150 130 70 90
Contribution (50) 70 50 (10)
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Units 1,000 1,500 800 2,000
Variable cost/Make 150 130 70 90
Variable cost/Buy 80 150 100 120
70 (20) (30) (30)
Amount saved 70,000 (30,000) (24,000) (60,000)
Fixed costs 10,000 20,000 8,000 25,000
Total amount saved 80,000 (10,000) (16,000) (35,000)
Option: management buy product A and make product B, C and D.
Example:
Company X has just received an offer from one of its customers. The offer requires the
company to supply 10,000 units at a price of 500Frw units. The company is considering two
options, that is to either make the product or to purchase the finished product from one
reliable supplier. The supplier has offered a price of 250Frw at unit in case of buying, the
operating cost is 1000,000Frw in case the company decides to make, it will require the
company to invest in a new machine which has a cost of 10,000,000. The company will have
to purchase raw material at 100Frw @ unit and to pay operating cost of 1,500,000Frw.
Required: should the company make or buy?
Answer
Option I: Buy
Particular Working Amounts (RWF)

Sales 10,000 units @ 500 5,000,000
Less purchase cost 10,000 units @ 250 (2,500,000)
Operating expenses (1,000,000)
Profit 1,500,000
Tax @ 30% 450,000
Option II: Make
Particular Working Amounts (RWF)

Sales 10,000 units @ 500 5,000,000
Raw material 10,000 units @ 100 (1,000,000)
Operating expenses (1,500,000)
Depreciation 25% of 10,00,000 (2,500,000)
Taxable profit 0
Tax @ 30% 0
Option to make; Tax is zero

Test One
Mabonga Construction Ltd, a company incorporated in Rwanda, has been in the construction
business since 1 January, 2010. Their main operational area is Kigali. The company‘s
authorized share capital is 200,000 shares of Frw 50,000 per share. All shares are fully paid.
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The company has been concentrating on the construction of high cost residential apartments.
However, during the board meeting held on 5 January, 2017, the directors passed a board
resolution to invest in the low cost housing area, with effect from 1 January, 2017, since the
demand for low cost houses is on the increase. This will require the company to mobilise
additional capital of Frw 10,000,000,000. They, therefore, signed a resolution to increase the
authorised share capital to 400,000 shares of Frw 50,000 each. The directors have also made
a resolution to apply for registration as an investor.
Below is the summary of projected financial position for the next two years:
Actual 2016 Projected 2017 Projection 2018

Frw “000” Frw „000” Frw “000”
Revenue 12,000,000 20,736,000 24,883,200
Cost of sales (8,000,000) (14,872,000) (16,359,200)
Gross profit 4,000,000 2,000,000 8,524,000
Less:
Marketing and administration (1,500,000) (2,000,0000) (1,000,000)
expenses
Depreciation (500,000) (1,000,000) (800,000)
Net profit 2,000,000 2,864,000 6,724,000
The company does not own any building and the Net book value of the assets as at 31
December, 2016 was Frw 3,500,000,000, of which Frw 400,000,000 related to computers.
The company intends to spend Frw 4,000,000,000 on acquiring assets other than computers
in 2017.
The company will pay dividends of Frw 2,000 per share per year. There are two options that
the company has considered for raising the additional capital:
(i) Raise the additional Frw 10,000,000 capital by listing shares of the company on the
Rwanda Securities Exchange.
(ii) Borrow Frw 10,000,000 on mortgage terms from a bank in Rwanda at an interest rate
of 15% over a period of 15 years.
The company directors of Mabonga Construction Ltd have approached you as their tax
consultant to examine the options and advise them on the most tax efficient way to raise more
capital.
Required
Evaluate the tax implications of each of the above mentioned two options and advise the
company on the most advantageous method for raising additional capital.
Test Two
GCBRL would like to expand their branch network in the country to forty in the next three
years commencing in 2018. This will necessitate additional funding of Frw 3,500,000,000.
The board of directors has made a decision to apply for an investment license from the
Rwanda Development Board with effect from 1 January, 2018. The options that the board of
directors is considering in order to raise the additional funding are as below:
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i) Sell 350,000,000 shares at Frw 10 per share to Mr. Smith, a foreign investor, who is
a resident of South Africa.
ii) Borrow USD 4,300,000 (Exchange rate 1 USD = Frw 830) from a venture capital
company based in South Africa. The venture capital company has no relationship to
the bank and avails loans on a non-discriminatory basis. The loan will carry an
interest rate of 10% on reducing balance and will be repayable in equal annual
installments in a period of 5 years, the first installment being due on 31 December,
2018.
The company‘s projection of the profits before interest and tax and the allowable depreciation
allowances (wear and tear) are as below:
2018 2019 2020

Frw "million Frw "million Frw "million
Profit before interest and tax 9,500 15,000 23,000
Wear and tear allowances 450 1,600 850
Investment allowance 2,300 1,200
The company expects to make a dividend payment of Frw 2 per share during the period under
consideration.
Required:
Advise GCBRL on the best available option of raising additional capital that will lead to a tax
advantage on the basis of the information provided.
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CHAPTER TEN
TAX AUDIT AND INVESTIGATION
10.1 Tax Audit
10.2 Tax Investigation
10.3 Interest, fines and Penalties
10.1 TAX AUDIT

It is the examination of the taxpayer‘s record in order to assess the compliance with tax Laws
10.1.2 Conditions in Auditing and Investigation

In case of an audit, the Tax Administration is required to inform in writing, the taxpayer the
following:
That he or she will be audited at least seven (7) days before the audit is conducted;
The place where the audit is to be conducted and the possible duration of the audit;
Any specific document the tax administration wants to see or any specific information it
requires.
In case of audit, the taxpayer is required to work effectively with the tax audit team and to do
the following:
To provide the team with suitable premises;
To give the team books and records
10.1.3 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:
º Complicity of the taxpayer and the tax auditor to evade taxes or commit any other act
intending to non-payment of required tax;
2 º if the first audit was based on forged documents;
3 º if the first audit was issue-oriented and the Tax administration wants to conduct a
comprehensive audit,
º when the Commissioner General cancels the first audit based on appeal
10.1.4 Use of available information and evidence

10.1.5 The Tax administration uses all available information and evidences, when:
1 º no tax declaration was carried out;
2 º the tax declaration was not certified by a competent person;
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3 º the tax declaration was not accompanied by all necessary documents;
4 º the taxpayer was unwilling to cooperate with a tax audit officer or did not provide the
explanations requested;
5 º books and records were not filled as prescribed by law;
6 º there are serious indications of tax fraud beyond reasonable doubt; the taxpayer did not
provide sufficient information on controlled transactions audit procedure
10.1.6 Tax audit is conducted in one of the following procedures:

1° contradictory procedure;
2° issue-oriented audit;
3° desk audit;
4° audit without notice.
10.1.6.1 Contradictory procedure

According to Article 36 Where the Tax Administration discovers a miscalculation, an
omission, an understatement, a misrepresentation of a tax or any other error in the tax
declaration or assessment, the Tax Administration sends a draft note for rectification to the
taxpayer containing all the elements taken into
10.1.6.2 Issue-oriented audit procedure

The Tax administration may proceed to an issue oriented audit when a comprehensive audit is
not necessary.
Disregarding the audit notice period referred to in Article 28 of this Law, in case of an issue-
oriented audit, the Tax administration must inform the taxpayer in writing, at least three (3)
working days before the audit is conducted
10.1.6.3 Correction of audit procedural errors

In case of error related to tax audit procedure, the Tax Administration is allowed to correct
the error only once, as follows:
1 º resumption of the entire audit if the error has a general impact
º Correction of the error at the corresponding step if the error only affects one step of the
audit.
10.1.7 Time limit of the power to audit

As the Article 45 the power to audit is limited to a period of five (5) years, starting from 1st
January following the concerned tax period.
However, if it is established that the taxpayer has concealed information with intent to evade
tax, the power to audit lapses after ten (10) years.
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10.1.8 Desk Audit
Desk audit is conducted by an auditor in his/her office on any of the following grounds:
Turnover of Value Added Tax is not corresponding to the turnover of income tax without
justification;
Tax declarations are not corresponding to paid taxes;
The taxpayer deducted from tax base non-deductible expenses;
One or more invoices were not declared;
Any other situations where the tax administration has sufficient documents that can be used
to assess taxes
10.1.9 Other sources of information

In case of audit by the Tax administration, the following must provide all requested
information in relation with the taxpayer:
1 º all public or private institutions;
2 º other persons in case the Tax administration needs to know the structure and use of
taxpayer‘s property.
The institution or person requested to provide such information must do so within fifteen (15)
days, from receipt of the request.
The provisions of Paragraph One of this Article also apply to a person or an institution bound
by secrecy
10.1.10 Final note for rectification

Tax Administration issues to the taxpayer the final note for rectification in the following
cases:
1 º after a period of thirty (30) working days, in case of contradictory procedure, without any
reaction of the taxpayer to the draft note for rectification;
2 º after a period of five (5) working days, in case of issue-oriented audit, without any
reaction of the taxpayer to the draft note for rectification;
3 º after the Tax Administration has considered the explanations of the taxpayer on the draft
note for rectification.
The final note for rectification provides reasons of rejection of explanations provided by the
taxpayer and how the new tax was calculated
10.1.11 Audit without notice

Where there are serious indications of tax evasion, the Tax Administration may conduct an
audit without notice. In such a case a notice of assessment or a notification of fine is issued to
the taxpayer disregarding provisions of Articles 28, 36 and 37 of this Law.
6.1.12 Inadmissibility of documents
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Article 43 provides that a taxpayer is not allowed to provide at any stage of appeal, any
additional document that was not produced during the audit, unless he or she proves that the
document was not produced due to a valid reason.
10.1.13 Correction of audit procedural errors

According to Article 44 In case of error related to tax audit procedure, the Tax
Administration is allowed to correct the error only once, as follows:
1 º resumption of the entire audit if the error has a general impact;
2 º correction of the error at the corresponding step if the error only affects one step of the
audit.
10.1.14 Time limit of the power to audit

The power to audit is limited to a period of five (5) years, starting from 1st January following
the concerned tax period. However, if it is established that the taxpayer has concealed
information with intent to evade tax, the power to audit lapses after ten (10) years.
10.1.15 New audit based on appeal

After consideration of the appeal, the Commissioner General may cancel the audit conducted
and decide that a new audit be conducted, if there are faults committed by the taxpayer which
were not disclosed by the audit and which resulted into reduction of the tax. The new audit is
conducted in accordance with the provisions of this Law Amicable settlement and filing a
case to the court Article 52: Right to request for amicable settlement
10.2 TAX INVESTIGATION

Is the gathering of admissible evidence to recover tax undercharged where there is suspicion
of tax avoidance and evasion to enforce criminal aspect of tax Laws
10.2.1 SOME OF CRIMINAL ACTIVITIES
Deliberately underreporting or omitting income,

Overstating the amount of deductions
Keeping two sets of books
Making false entries in books and records
Claiming false deductions

Hiding or transferring assets or income
10.2.2 Article 46: Access to premises for search and seizure

The authorized officer may, without notice, visit or enter business premises of the taxpayer or
any other person in search of tax information about the taxpayer. If he or she considers it
necessary, the authorized officer may search and seize objects or documents related to the
business activities of the taxpayer.
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The authorized officer, having a search warrant delivered by the Prosecutor, may also enter
the residential premises, search and seize objects or documents related to the business
activities of the taxpayer, between six 6:00 am and 6:00 pm.
Before the search, the concerned person is given a copy of the search warrant.
An authorized officer who has a search warrant referred to in Paragraph 2 of this
Article may seek the assistance of the Rwanda National Police or the representatives of
decentralized administrative entities of the place of search.
10.2.3 Stages of Tax Investigation

The stages of tax investigation are:
• Surveillance or pre-investigation activities

• Evidential audit or investigation
• Case preparation
• Arraignment
• Termination of investigation.
10.2.4 INCOME RECONSTRUCTION

The Revenue authorities have an array of methods available to reconstruct income if it
suspects a taxpayer may have filed a fraudulent return or has not filed one. Courts will allow
the use of income reconstruction if the taxpayer has no records or if the records do not clearly
reflect income. If the Revenue authority meets its level of responsibility in presenting the
reconstruction, the derived income and tax liability are presumed correct and the taxpayer has
the burden of overcoming that presumption.
To rebut( to prove that it is false) the Revenue authority position, the taxpayer need not prove
the correct tax due, just that the reconstruction method used was arbitrary, capricious, or
erroneous. The taxpayer can do this by showing nontaxable sources for the reconstructed
income, such as gifts, inheritances, sale of assets at a loss, or loan proceeds. Depending on
the strength of the evidence, the Revenue authority may file civil or criminal charges against
the taxpayer.
In addition, the Revenue provides several penalties for underpayment of tax. Forensic
accounting is a practice whereby accountants use their business skills to investigate fraud,
embezzlement of funds, theft of assets, or perhaps find evidence of hidden assets in divorce
cases. One of the most useful tools available for the application of this skill is income
reconstruction
10.2.4 AUTHORITY TO RECONSTRUCT INCOME

The power to reconstruct income states that, if the taxpayer does not use a method of
accounting that clearly reflects income, the method for computation of taxable income can be
determined by Revenue authority. Treasury regulations explains that every taxpayer must
maintain accounting records to support the filing of a correct return.
The regulations require accounting records to perform three essential functions:
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Account for inventory,
Properly classify between expense and capital accounts, and
With respect to depreciable assets, record additions to those accounts for improvements
The obligation to maintain records is reiterated in Revenue authority, which states that
anyone liable for tax must keep records and file returns in accordance with rules and
regulations the secretary may prescribe. The only reprieve for the taxpayer has come through
the Cohan rule Deduction of expenses is, however, only half of the equation. Taxpayers are
also responsible for the proper inclusion of income items. Calculation of gross income is
often accomplished through the use of income reconstruction.
The Revenue authority is not permitted to use income reconstruction in every circumstance.
Properly kept records that show actual income cannot be disregarded by the Revenue
authority. Several tax court cases have established that mere suspicion that records do not
accurately reflect income is not a sufficient reason to use income reconstruction, even if the
records are not completely accurate. However, the burden of proof is on the taxpayer to show
that the records clearly reflect income. The Revenue authority does not require that a
preparer verify information against the taxpayer's actual records. Treasury regulations states
that the preparer may "rely in good faith" on information provided by the taxpayer. "The
preparer is not required to audit, examine, or review" documents or records, but the preparer
must make "reasonable inquiries" if the information seems to be incorrect or incomplete.
Income reconstruction can also be used as a verification tool. If the taxpayer uses an
unorthodox accounting system, income reconstruction can provide confirmation of taxable
income. If records are lost or stolen, income reconstruction may be the fastest method of
calculating income.
10.2.5 METHODS OF INCOME RECONSTRUCTION

Income reconstruction methods are divided into two groups: direct and indirect.
Direct methods are used to show a specific taxable transaction was either omitted or reported
incorrectly. Indirect methods provide circumstantial evidence about cash flow or
accumulation of assets rather than a specific transaction
10.2.5.1 DIRECT METHODS

When the taxpayer has only a few business transactions or sells to only a few major
customers, a direct method may be the most useful. Courthouse records can provide evidence
of real estate transactions. Billing invoices from major customers may give an indication that
all sales have not been reported. State motor vehicle records can reveal sales or transfers.
Insurance records may show jewelry or art objects sold and removed from policy riders.
Instances such as these would be called "specific omissions." If the Revenue authority
establishes that income was omitted from the return, it is up to the taxpayer to prove the
income is not taxable.
A simple bank deposit analysis may reveal deposits with no reported source.
The deposit analysis may lead to unreported hobby income or sales of securities.
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The taxpayer should be prepared to explain the source of the deposits.
Loans, gifts, garage sales, inheritances, transfers from other accounts, employee business
expense reimbursements, insurance proceeds, nontaxable damages, and savings bonds cashed
for education can all explain an unidentified deposit.
10.2.5.2 INDIRECT METHODS

The principal indirect methods are:
Net worth method,
Sources and applications of funds,
Sales markup,
Bank deposits,
Unit volume computations.
The Revenue authority may use one or more of the above methods to reconstruct income or a
different method for each year under examination. The taxpayer has no right to choose the
method used.
Net Worth Method

This method is a balance sheet approach to estimating income. The simple premise is that net
worth at the beginning of the period plus income equals net worth at the end of the period.
The Revenue authority may also add an estimate of nondeductible living expenses, since they
are normally paid from taxable income. If the reported income cannot explain the increase in
net worth plus living expenses, there must be an undisclosed source of income.
Sources and Applications of Funds

This method is also called the cash expenditures method or the excess expenditures method.
Sources and applications are generally useful when the taxpayer spends most of his or her
income rather than purchases assets. Deductible expenses that are far out of proportion to
reported income are an indication of unreported funds.
The method is easier to use if there is little or no change in net worth and there are only one
or two years in question. The Revenue authority still must perform a net worth analysis to
establish the taxpayer is not spending out of savings or liquidating investments. As in a net
worth case, the Revenue authority must investigate all reasonable leads and establish a likely
source for the unreported income
Percentage Markup
Also called the sales or unit markup method, this method is used only when a business is
under examination. The first key to using the markup method is to establish with certainty
either the cost of goods sold or some other key expenditure common to the industry. Then
use the simple formula from financial accounting: Net sales less cost of goods sold equals‘
gross margin. The second key is to establish an industry-wide percentage for gross margin or
the key expenditure.
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If invoices from suppliers are available, e.g., $180,000 and industry gross margin is 70%, the
cost of goods sold is 30%. Therefore, sales should be $600,000 ($180,000/30%). If the
reported sales are significantly less than $600,000, closer examination is warranted The
industry percentage must be carefully chosen to match the taxpayer's business for type of
merchandise, size of business, rural vs. urban location, seasonal variations, and
merchandising policies (e.g., high volume, low markup). If the taxpayer's business sells a
variety of goods, the product mix must be taken into account.
Bank Deposits
This method is generally used when a business is examined or the Revenue authority suspects
the taxpayer operates a business without reporting income. To rely on the bank deposits
method, the Revenue authority must-
establish the taxpayer engaged in an income-producing activity,
establish the taxpayer made regular periodic deposits into an account, and
make an adequate investigation to distinguish between taxable and nontaxable deposits.
Even if the Revenue authority makes some classification errors, the court can still accept the
overall use of the bank deposits method. The Revenue authority assumes the taxpayer's gross
income is the total of the deposits less obvious loan proceeds, transfers, and other nontaxable
income. All business expenses, other allowable deductions, and exemptions are subtracted
from gross income and the result is taxable income. Checks cleared through the account are
the best source of business expenses. When there are cash deposits rather than check
deposits, the Revenue authority must establish the taxpayer's beginning cash position to meet
its obligation of adequate investigation of nontaxable deposits.
Unit Volume Computation

Unit volume computation can be as simple as the "sheet count" to determine the number of
hotel guests. At the other end of the spectrum, the Revenue authority has used the amount of
flour purchased and chemical analysis of pizzas to compute the dollar sales that should have
been reported by a restaurant owner/operator. The audit training guide for small restaurants
tells what kind of pizzas to purchase for analysis, how to obtain a past year's retail prices,
how to sample a customer's pizza preferences, and how to use all that information to estimate
sales.
BURDEN OF PROOF
When the Revenue authority uses income reconstruction, it is usually attempting to show the
taxpayer has intentionally omitted income either by understating income or failing to file a
return.
To impose the fraud penalty, the Revenue authority must show the taxpayer knew the
contents of the return when it was signed, knew that it was false, and filed the return with the
fraudulent intent to evade tax.
The Revenue authority can also impose fraud penalties if the taxpayer failed to file a return
The primary difference between civil and criminal fraud is the issue of willfulness. Both have
the presence of specific intent to evade a tax. Civil fraud, however, contains no willful intent.
Also, there is a different burden of proof depending on whether the Revenue authority alleges
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civil or criminal fraud. In a civil case, the court only requires clear and convincing evidence
of fraud. In a criminal case, the Revenue authority must prove each element of a crime
beyond a reasonable doubt.
Acquittal from a criminal charge carries no weight in a subsequent civil trial, since the burden
of proof is less. In addition, a guilty plea in a criminal trial prevents the taxpayer from
contesting a charge brought in a civil trial.
Conduct that establishes willfulness includes-
maintaining a double set of books or records,
making false entries,

creating false documents,
supplying false information to a return preparer,
destroying records,
concealing assets or sources of income,
keeping a safe deposit box under an assumed name,
claiming to be exempt from taxes, or

failing to file tax returns.
However, understatement of income does not establish willfulness, unless it is part of a
consistent pattern. The court also evaluates the taxpayer's education when determining
willfulness. The higher the level of education or sophistication in business dealings, the more
willfulness can be attributed to the acts listed above.
When the Revenue authority uses income reconstruction to allege a deficiency and
substantive evidence is introduced that shows the taxpayer received unreported income, the
determination is presumed to be correct. The taxpayer must then prove the determination is
incorrect and provide a nontaxable source for the unreported income
Income Reconstruction Defenses
To prove an error exists in the income reconstruction and contest the deficiency or the
amount of a refund, taxpayers have used several tactics.
It is important for the taxpayer to focus on errors made by the Revenue authority in applying
the income reconstruction method, not the theory behind the method
All of the court-accepted methods are based on sound accounting principles. While lost or
stolen records do not lessen the burden of showing the reconstruction was arbitrary or
erroneous, the taxpayer can still be successful. When there are no records because of an
innocent loss, the court will accept credible testimony. Testimony as to how the records were
lost is important. If testimony can demonstrate the records would have shown the Revenue
authority s reconstruction to be arbitrary, capricious, or erroneous, the presumption of
correctness may be overcome.
Net Worth Method
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A common defense against the net worth method is that the opening net worth is too low.
Taxpayers often claim the existence of a cash hoard that was not taken into account by the
Revenue authority.
To be successful, the taxpayer must demonstrate a credible source for the cash hoard.
Circumstantial evidence such as regularly conducting business in cash, need for cash on a
regular basis, documented distrust of banks, and a large cash expenditure before the
examination period, can all lend credence to a cash hoard defense.
In addition, the taxpayer may be able to show there are other assets not included in the
beginning net worth, e.g., inventory on consignment, receivables, or assets owned by the
taxpayer but held by a third party. The difference between beginning and ending net worth
represents income. This income is reduced by the amount of any reported taxable and
nontaxable income received by the taxpayer.
The alleged unreported income can be reduced by the amount of any gifts, inheritances, tax
exempt interest, capital loss carryovers, and loans not taken into account by the Revenue
authority. The taxpayer may also assert the Revenue authority has overestimated personal
living expenses or other nondeductible expenses, thereby reducing the amount of income to
be explained.
Sources and Applications of Funds
The Revenue authority must establish what funds were available to the taxpayer at the
beginning of the year, funds acquired during the year, and then show the expenditures exceed
the sum of those funds. As in the net worth method, the Revenue authority must investigate
all reasonable leads provided by the taxpayer as to nontaxable sources of funds and establish
a likely source for the unreported income. Again, the taxpayer may attempt to prove the
beginning funds balance was understated because of a cash hoard or the existence of assets
later sold for cash but not included in the analysis by the Revenue authority.
Percentage Markup
This method has several weaknesses because the basis for comparison is an industry average.
The taxpayer may claim Revenue authority calculations do not take into account actual
breakage, shop lifting, or employee theft. Also, asset size often explains differences in
financial ratios.
Location, the age of assets, new competition entering the market, experience of the operator,
liberal discount policy, and product mix, can all account for a taxpayer failing to achieve
industry profit margins.
Bank Deposits
As with the net worth method, the Revenue authority must determine the taxpayer's
beginning position and investigate leads offered by the taxpayer to explain nontaxable
sources of cash. The best defense against this method is an alternative nontaxable source of
the deposits
Unit Volume Computation
To contest this method, the taxpayer may show that volume assumptions used are not true for
the taxpayer's business. The taxpayer may dispute the number of pizzas per bag of flour or
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drinks per quart of liquor as arbitrary and not realistic given the conditions of the taxpayer's
business.
The taxpayer may be able to document two-for-one marketing plans or losses due to poor
employee training and high turnover to dispute the calculation of units sold.
Sale of inventory in bulk for catering or to other businesses or abnormal employee theft or
breakage can explain lower than average unit volume sales.
Determination of Income through Back-duty cases
The taxpayer can declare income acceptable to the department supported by accounts and
other relevant documentation. A capital statement may be prepared as sufficient estimation of
growth in assets and therefore estimate income for such taxpayer if there are no reliable
records/accounts. A capital statement consists of details of assets and liabilities as at a given
date or period. This would show changes in total worth of a taxpayer between two or more
periods. The capital statement also considers capital losses or gains, living expenses, income
tax paid etc
Steps
Add all assets of taxpayer both tangible and intangible for a given period.
Deduct all liabilities both personal and business used to finance the assets. Net result will be
Net Assets for the period.
Calculate the growth or loss in Net assets for each time period by taking the Net Assets of the
period and comparing it with the Net Assets of the previous period. This represents
additional assets that the taxpayer acquired or disposed in the time period.
Deduct any non-taxable income that was used to finance the above growth in Net assets – e.g.
income or assets from a legacy or inheritances, capital gains, gifts, money from friends and
relatives. If looking for only the undeclared business profits taxable, then deduct any non-
trading business income from growth in Net Assets. The net figure would represent Net
Business savings.
Add to the balance (4) living expenses such as water & electricity, income tax paid, interest
on loans, premium on various types of insurance, rents and rates as supported by bills or
invoices. Add also personal expenses such as food, services, clothing, toiletries, medical
expenses, house servant, holidays, amusements, private motor vehicle running and
maintenance costs, donations and any cash stolen from house or shop etc.
If capital assets are sold at a loss, add the loss. If sold at a profit, deduct the profit. Deduct
any income declared during the year – balance is undeclared income.
The increase in capital is adjusted for the following items
Deduct
Legacies, gifts not taxable, income already taxed at source and not subject to further taxation,
relief and allowances, windfall gains, inherited wealth/property, life policies
matured/surrendered.
Add
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Taxes paid, gifts or donations made, non-allowable losses e.g. loss on sale of
investments/assets, personal expenditures, unexplained payments.
Example one
Charles Muhire has been operating a large scale sole proprietorship business the year 2008.
He has however not been maintaining a complete set of books of account for the business.
The revenue authority has issued Charles Muhire with estimated assessments for years 2016
and 2017 showing taxable income of Frw.250, 000,000 and Frw.31, 000,000 respectively
Charles Muhire has approached you for advice on the estimated assessments and whether he
should pay the tax thereon. He has provided you with the following information on his
financial position for the last three years
Year ended
PARTICLUARS 31 December 2015 31 December 2016 31 December 2017

Frw.000 Frw.000 Frw.000
Leased property 48,200 59,300 38,250

Plant and machinery 32,000 33,900 36,420
Motor vehicles:
-Commercial 420,000 450,350 516,000
-Private 150,000 132,000 112,500
Inventory in trade 10,580 7,340 5,620
Trade receivables 4,545 3,820 2,670

Residential house 108,000 100,300 92,800
Furniture 10,780 10,472 12,628
Trade payables 5,200 5,480 6,228
Bank loan 210,800 210,520 210,240
Loan from relative 1,200 960 840
Bank account (18,480) 110,880 55,440

Mortgage loan 4,600 4,280 3,800
During the year ended 31 December 2017,furniture was disposed at a gain of Frw.800,000
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Personal expenses were Frw.46,820,000 and Frw.68,980,000 for years 2016 and 2017
respectively.
Interest on the mortgage was at a rate of 15% per annum on reducing balance basis.
Maximum mortgage interest allowed is 150,000
Ignore capital allowances.
Required: Using suitable computations, advice Charles Muhire on whether to pay tax on the
estimated assessments.
Proposed answer:
CHARLES MUHIRE, CAPITAL STATEMET FOR THE YEARS ENDED 31 December
2015-2017.
ASSETS 31 December 2015 31 December 2016 31 December 2017

Frw.000 Frw.000 Frw.000
Leased property 48,200 59,300 38,250

Plant and machinery 32,000 33,900 36,420
Motor vehicles:
-Commercial 420,000 450,350 516,000
-Private 150,000 132,000 112,500
Inventory in trade 10,580 7,340 5,620
Trade receivables 4,545 3,820 2,670

Residential house 108,000 100,300 92,800
Furniture 10,780 10,472 12,628
Bank account - 110,880 55,440
TOTAL ASSETS 784,105 908,362 872,328
Trade payables 5,200 5,480 6,228
Bank loan 210,800 210,520 210,240

Loan from relative 1,200 960 840
Bank overdraft 18,480 -
Mortgage loan 4,600 4,280 3,800
TOTAL LIABILITIES 240,280 221,240 221,108
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NET ASSETS 543,825 687,122 651,220
Increase/decrease in net
assets
143,297 (35,902)
Personal expenses
46,820 68,980
Mortgage interest
(maximum 150,000)
Gain on sale of (150) (150)
furniture
(800)
TAXABLE INCOME
189,967 32,128
Advice:
Based on the computations above [189967+32,128=222,095,000], Charles Muhire should not
pay tax based on the estimated assessments [250,000,000+31,000,000=281,000,000] because
it is higher [281,000,000>222,095,000].
Question two / chapter four income reconstruction
Amos, a businessman, is facing a tax investigation by the revenue authority which suspects
that he has been under –declaring income for the four years from years 2011 to 2014.
You are the head of a team from the revenue authority conducting an investigation on Amos.
He has submitted to your team records of his private and business assets and liabilities from 1
January 2011 to 31 December 2014 as shown below:
PARTICLUARS 1 31 31 31 31
December December December December
January 2011 2011 2012 2013
2014
Frw.000 Frw.000 Frw.000 Frw.000
Frw.000
Factory premises 48,000 54,000 56,000 52,000 54,000

Plant and machinery 24,000 25,000 38,000 34,000 36,0000
Motor vehicles
(Commercial) 12,000 14,000 14,000 15,000 20,000
Inventory 4,600 5,200 9,000 10,000 8,000
Trade receivables 3,950 4,540 3,640 3,530 3,980
Private residence 8,240 14,600 14,600 14,600 14,600
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Trade payables 7,280 8,640 9,420 8,360 7,890
Bank loan 10,900 10,000 9,870 7,640 9,840
Loan from a friend 800 700 600 870 640
Mortgage loan 3,780 3,780 3,780 3,780 3,780

Cash balance 3,400 5,400 3,600 3,760 4,670
The cash balance on 31 December 2012 included Frw.600, 000 inherited from a relative on
30 August 2012.
His living expenses for each of the four years were as follows:
Year ended 31 December
PARTICLUARS 2011 2012 2013 2014
Living expenses (Frw.) 85,000 140,000 90,000 165,000
Ignore capital allowances.
Required:
Taxable income of Amos for each of the four years ended 31 December 2011, 2012, 2013
and 2014.
Proposed answer:
AMOS, CAPITAL STATEMET FOR THE YEARS ENDED 31 December 2011-2017.
ASSETS 1 31 31 31 31
January 2011 2012 2013
2011 2014
Frw.000 Frw.000 Frw.000
Frw.000 Frw.000
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Factory premises 48,000 54,000 56,000 52,000 54,000
Motor vehicles
(Commercial) 12,000 14,000 14,000 15,000 20,000

Inventory 4,600 5,200 9,000 10,000 8,000
Trade receivables 3,950 4,540 3,640 3,530 3,980
Cash Balance 3,400 5,400 3,600 3,760 4,670
TOTAL ASSETS 104,190 122,740 138,840 132,890 141,250
Trade payables 7,280 8,640 9,420 8,360 7,890

Bank loan 10,900 10,000 9,870 7,640 9,840
Loan from a friend 800 700 600 870 640
Mortgage loan 3,780 3,780 3,780 3,780 3,780
TOTAL LIABILITIES 22,760 23,120 23,670 20,650 22,150
NET ASSETS 81,430 99,620 115,170 112,240 119,100
Increase/decrease in net
assets
18,190 15,550 (2,930) 6,860
Living expenses
85 140 90 165
Inheritance
(600)
Mortgage interest
(150) (150) (150) (150)
TAXABLE INCOME
18,125 14940 (2,990) 6,875
Question three (REINFORCING QUESTION) / chapter four income reconstruction
Mr. David is a businessman with interests in the manufacturing sector. He is facing a back
duty investigation by the revenue authority which suspects that he has been under-declaring
income four years from 2013 to year 2016.
You are the head of the team from the revenue authority conducting this investigation. David
has submitted to you records of his private and business assets and liabilities from 1 January
2013 to 31 December 2016 as shown below:
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PARTICLUARS 1 31 31 31 31
January 2013 2013 2014 2015
2016
Frw.000 Frw.000 Frw.000 Frw.000
Frw.000
Factory buildings 36,000 48,000 48,000 52,000 54,000

Commercial
vehicles 9,000 12,000 12,000 15,000 18,000
Stock in trade 3,600 4,200 8,000 9,000 7,000
Trade debtors 2,960 3,540 2,640 2,530 2,980
Trade creditors 7,280 8,640 9,420 8,360 7,890
Bank loan 10,900 10,000 9,870 7,640 9,840
Loan from uncle 800 700 600 870 640
Mortgage loan 3,780 3,780 3,780 3,780 3,780
Bank balance 3,400 5,400 3,600 3,760 4,670
There were no disposals of fixed assets during the period under investigation.
The bank balance on 31 December 2014 included Frw.400, 000 inherited from a relative on
October 2014.
His living expenses for each of the four years were as follows:
Year ended 31 December
PARTICLUARS 2013 2014 2015 2016
Living expenses (Frw.) 70,000 120,000 90,000 150,000
Interest on mortgage is at a rate of 15% per annum.

Required:
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The taxable income of Mr. David for each of the four years ended 31 December
2013,2014,2015,2016.
10.3 Interest, fines and Penalties

10.3.1 Interest paid by Tax administration
If the taxpayer is discharged from tax, interest or penalties by an administrative or judicial
decision, or if no refund of excess taxes paid is done in the time prescribed by this Law, the
Tax Administration must pay interest on the due refund.
10.3.2 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 º 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 º 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;
º sixty percent (60%) of due tax, if the taxpayer exceeds the time limit for declaration and
payment by more than sixty (60) days.
10.3.3 Late payment of tax

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 º 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 º 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 º 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 referred to in item One of Paragraph 2
of this Article if the Administrative fine for understatement of tax levied after audit or
investigation
10.3.4 Understatement of tax

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 nonpaid tax and also be subject to an administrative fine
of ten percent (10%) of the amount of the understatement. The administrative fine referred to
in
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Paragraph one of this Article doubles if the understatement rate exceeds twenty percent
(20%) of the principal tax liability the taxpayer ought to have paid.
6.3.5 Late payment before notice assessment

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:
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 º 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 º 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
referred to in this Article. Administrative fine for nondeclaration 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.
Article 81: Failure to comply with modalities and conditions for the use of electronic
invoicing system Except for taxpayers registered for the value added tax, any person who is
required to issue an invoice generated by an electronic invoicing system recognized by the
Tax administration who fails to do so is liable to an administrative fine of two (2) times the
value of the transaction.
Any value addition tax unregistered person who carries out a taxable transaction and delivers
an electronic invoice with undervalued price or quantity of goods or services is liable to an
administrative fine of two (2)
Failure to provide information
A taxpayer who fails to provide information, or who provides incomplete, incorrect or
misleading information, in relation to audited transactions, is subject to an administrative fine
equivalent to five percent (5%) of the value of the transaction under audit. Special
administrative fine related to the Value Added Tax

Test One
Byiringiro Limited is in the business of importing and selling building materials in Rwanda
since 2010. The company owns a warehouse and shop in Kigali. During the year ended 31
December, 2015 their corporate tax return indicated that the company was in a tax loss
position of 254,000,000RWF. You are an officer in the Rwanda Revenue Authority (RRA)
Tax Investigation Department. On 15 March, 2017 an informer reported the following
information to you regarding the operations of the company which he thinks are unusual.
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1. The managing director, Mr. Byiringiro bought two new luxurious vehicles for himself
and his wife at a cost of 80,000,000RWF each. The vehicles, however, were neither
registered in the company names nor his or his wife‘s.
2. The imports that were processed through customs were 920,000,000RWF.
3. The company‘s mark up on sales is 20% and the closing trading inventory as at 31
December 2015 was Frw 125,000,000 while that at 31 December, 2016 was Frw
450,000,000.
4. The sales for the year ended 31 December, 2016 were recorded in the books as Frw
2,000,000,000.
5. The company expanded to the southern town of Butare and set up an additional shop.
The construction of the shop cost Frw 150,000,000. All the sales made at the Butare
shop were not recorded by the electronic billing system and the receipt books used are
different in form from the ones used in Kigali.
6. There is a bank account different from the ones that are declared to RRA in which
money is deposited and the balance in this account as at 31 December 2016 was Frw
350,000,000.
Required
(a) Advise your supervisor on whether RRA should carry out an audit explaining the reasons
for your decision.
(b) The supervisor made a decision that there is a need to investigate the activities of the
company and selected a team to conduct the audit. The RRA wrote to Byiringiro Limited
and the letter included the following:
1. The letter was written on 1 April, 2017 informing the company that the audit was to
commence on 2 April, 2017.
2. The company directors should expect the team any time at the company head office in
Kigali to commence the audit.
Mr. Byiringiro was confused on what this whole exercise was all about and called you
to advise him on what to do next since he was out of the country to procure building
materials and was not expected back until 10 April, 2017.
Required
Advise Mr. Byiringiro on his rights and obligations as a taxpayer before, during and after the
audit process.
(c) Highlight the importance of the final audit meeting between the RRA auditor and the
taxpayer.
Test Two
Mr. Rutagarama Vincent owns a shop that deals in general merchandise in Byumba town,
Northern Province. His average turnover is 150,000,000RWF and he is a registered taxpayer
for both direct taxes and VAT. On 30 April, 2017, Mr. Rutagarama received a telephone call
from the revenue office that the revenue officers will be coming to his shop on 2 May, 2017
to conduct an audit. They specifically informed him that they have information from a
reliable source that he had been under declaring his sales especially in 2016. They would like
to examine his Electronic Billing Machine (EBM), sales records and other financial
information that he keeps and they therefore requested him to prepare his information.
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Mr. Rutagarama has called you as a tax consultant to help him arrange the books the revenue
officers have requested for and to advise him on whether he should accept the audit or not.
He has never been audited in the five years that he has carried on business and he has been
filing both the income tax declaration and VAT return in time.
Required
(a) Advise Mr. Rutagarama on the procedure that is provided under the law for tax audits.
(b) Mr. Rutagarama has requested you to help him arrange his records before the revenue
officers come in to audit. During your discussions with him, you have found out that he
has a bank account which he jointly owns with his wife but he does not bank all the
money he receives from sales. He also sometimes picks some items from the shop for his
own use. He has provided you with his summarized profit statement as below:
RWF ―000‖
Revenue 152,000
Less: Purchases (117,952)
Gross profit 34,048
Less: expenses (13,710)
Profit before tax 20,338
The details of his other transactions that you have gathered are the following:
(i) At 1 January, 2016 the balance of cash at the shop was Frw 1,450,560 and the balance
on the bank account was Frw 35,076,960.
(ii) From his records, you have also established that he had the following balances at the
beginning of the year:
 Receivables Frw 14,500,000
 Payables Frw 7,520,000
 Inventories Frw 28,900,000
(iii) During the year, he invested Frw 50,000,000 in shares at the Rwanda Securities
Exchange. He has not yet received any dividends.
(iv) He withdraws cash of Frw 260,000 per week for living expenses from the business. In
addition, he has also withdrawn from the bank Frw 6,000,000 for private purposes.
No business expense was paid out of private sources.
(v) Items taken from the shop for private use at his home have not been paid for out of his
drawing, but are estimated to have been of a total cost price of Frw 4,000,000.
(vi) He rents his shop for Frw 6,000,000 per annum and lives in a flat above the shop. The
residential proportion is estimated to be approximately one third (1/3) of the total
area. The rent paid is included in the expenses in the income statement.
(vii) At 31 December, 2016 the balance of cash at the shop was Frw 2,850,000 and the
balance on the bank account was Frw 5,802,240. In addition, the balances on other
assets were:
 Receivables Frw 18,200,000
 Payables Frw 6,250,000
 Inventories Frw 26,700,000
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Required
(a) Establish whether the income statement that Mr. Rutagarama has given you can be
relied on by reconciling the opening and closing cash and bank balances.
(b) Determine Mr. Rutagarama‘s taxable income.
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CHAPTER ELEVEN
TRANSFER PRICING
INTRODUCTION
Transfer pricing refers to the determination of prices charged in transactions between related
parties. Such transactions can be sale or purchase of goods, provision of services, borrowing
or lending of money, use or transfer of intangibles.
This Order applies to controlled transactions or deemed controlled transactions in the
following circumstances:
1° when one of the persons involved in the transactions is located in Rwanda and subject to
tax in Rwanda while the other is a related person located in or outside Rwanda;
2° when a non-resident in Rwanda engages directly or indirectly in a transaction with a
related person not resident in Rwanda if the transaction is in relation to a permanent
establishment in Rwanda of one of the two related persons;
3° when a person resident in Rwanda engages in a transaction with a person located in a
country or a place where the tax administration considers to provide a beneficial tax regime,
whether such persons are related or not;
4° when a person resides in a country or a place where the tax administration considers to
provide a beneficial tax regime, engages in a transaction that relates to a permanent
establishment of a nonresident in Rwanda whether such persons are related or not. Deemed
controlled transactions referred to under Paragraph One, item 3o and item 4o of this Article
are transactions between persons that are not related but which fall under the category of
controlled transactions due to the fact that one of those persons is resident in a country or a
place where the tax administration considers to provide a beneficial tax regime
° related person:
Any person who acts or is likely to act in accordance with the directives, opinion or
intentions of another person whether such directives, opinion or intentions are communicated
or not communicated to them. In particular, the following persons are considered as related
persons:
a. an individual and his or her spouse and their direct lineal ascendants or direct lineal
descendants and their relatives in collateral lineage to at least third degree;
b. a person who participates directly or indirectly in the management, control or capital of
another;
c. a third person who participates directly or indirectly in the management, control or capital
or both control and capital of another person;
d. persons referred to under sub items a), b) and c) who participate directly or indirectly in the
management, control or capital of an enterprise;
tested party: an enterprise to which a transfer pricing method can be applied in the most
reliable manner and for which the most reliable comparables can be found;
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beneficial tax regime: tax legislation of a country or any other tax jurisdiction characterised
by any of the following: a. not to tax income or to tax it at a maximum rate of twenty percent
(20%); b. to grant tax breaks to non - resident individuals or companies; c. not to require a
taxpayer to carry out substantial economic activity within this country or tax jurisdiction; d.
not to tax foreign -sourced income or to tax it at a maximum rate of twenty percent (20%); e.
not to allow access to information about the corporate structure of legal entities, the
ownership of assets, other rights or economic transactions.
Comparable transactions
An uncontrolled transaction is comparable to a controlled transaction when:
1° there is no difference between them that could materially affect the factors being examined
under the appropriate transfer pricing method;
2° such a difference referred to in item 1 o of this Article exists, a reasonably accurate
comparability adjustment is made to the relevant factors of the uncontrolled transaction in
order to eliminate the effects of such a difference.
Transactions subject to adjustment of prices

Transactions subject to adjustment of prices include:
1° sale, purchase or transfer of goods for free
2. sale, purchase, transfer of goods for free or lease of tangible assets;
3° sale, purchase, transfer for free, giving or receiving the right to use intangible assets;
4° provision of services;
5° lending or borrowing of money;

6° any other transaction which may affect the profit or loss of the concerned person. Article
6: Comparability factors
In determining whether two (2) or more transactions are comparable to the extent that they
are economically relevant to the facts and circumstances of the transaction, the following
factors are to be considered:
1° characteristics of the property, goods or services transferred or supplied;

2° functions performed by each person involved in the transaction taking into account assets
used and risks assumed;
3° contractual terms of the transaction;
4° economic circumstances in which the transaction took place;

5° the business strategies pursued by the related persons in relation to the controlled
transaction. For purposes of determining whether two (2) transactions are comparable, the
allocation of risks between related persons must take into account the way the economically
significant risks are allocated in contracts between those persons and taking into account: 1°
the person who assumes the financial risk; 2° the person who performs significant risk
control and risk mitigation functions;
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Arm‟s length prices
If a person enters into a controlled transaction, he or she must determine the price and margin
resulting from the transaction, in a manner that complies with the arm‘s length principle. In
determining whether the result of a controlled transaction complies with the arm‘s length
principle, the appropriate transfer pricing method takes into account the following:
1° strengths and weaknesses of the transfer pricing methods, depending on the nature of the
controlled commercial transaction;
2° particularity of the transfer pricing method taking into consideration the nature of the
controlled transaction, through an analysis of the transaction undertaken taking into account
assets used and risks assumed by each person involved in the controlled transaction;
3° availability of reliable information necessary in applying the selected transfer pricing
methods;
4° degree of comparability between the controlled and uncontrolled transactions, including
the
reliability of adjustments that may be required to eliminate differences between them.
Methods of determining arm’s length prices
Article 9: Comparable uncontrolled price method

The comparable uncontrolled price method consists in comparing the price charged on
property, goods or services transferred or supplied in a controlled transaction to the price
charged on property, goods or services transferred or supplied in a comparable uncontrolled
transaction and done in comparable circumstances.
Article 10: Resale price method

The resale price method begins with the price at which a product that has been purchased
from a related person is resold to an independent person.
The price referred to in Paragraph One of this Article is reduced by an appropriate gross
margin from resale, determined by reference to gross margins in uncontrolled comparable
transactions representing the amount out of which the reseller would seek to cover the
expenses related to the transactions taking into account assets used and risks assumed to
make an appropriate profit.
After adjustment for other costs associated with the purchase of the product, the remaining
amount after deducting the gross margin is considered as an arm‘slength price for the original
transfer between the related persons.
However, the resale price margin in a controlled transaction is determined by reference to the
resale price margin that the same reseller earns in uncontrolled comparable transactions.
The resale price margin is also determined by reference to the resale price margin earned by
an independent person in uncontrolled comparable transactions.
Article 11: Cost plus method

The cost plus method begins with the costs incurred by the supplier of property, goods or
services in a controlled transaction.
An appropriate cost plus markup is added to the costs incurred to make an appropriate profit,
taking into account the functions performed and the market conditions. The result is
considered as an arm‘s length price of the original controlled transaction. The cost plus
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markup of the supplier in the controlled transaction is established by reference to the cost
plus markup that the same supplier earns in uncontrolled comparable transactions or to the
cost plus markup that an independent person earns in comparable transactions.
Article 12: Transactional net margin method

The transactional net margin method consists of comparing the net profit margin related to
the appropriate base such as costs, sales or assets that a person achieves in a controlled
transaction with the net profit margin achieved in a comparable uncontrolled transaction.
Article 13: Transactional profit split method

The transactional profit. If it is possible to determine arm‘s length profits for some of the
functions performed by related persons in connection with the transaction using one of the
approved transfer pricing methods, the transactional profit split method is applied based on
the common residual profit that results once such functions are so remunerated.
Article 14: Use of alternative method

A person may apply a transfer pricing method other than methods provided for in Articles 9,
10, 11, 12 and 13 of this Order, only if the tax administration is satisfied that:
1° none of the approved methods may be reasonably applied to determine arm‘s length
conditions for the controlled transaction;
2° such other method yields a result consistent with that which would be achieved by
independent persons engaging in uncontrolled comparable transactions under comparable
circumstances of controlled transactions.
Article 15: Selection of the tested party

When applying a cost plus, resale price or transactional net margin method, it is compulsory
to select the tested party to the transaction for which a financial indicator is tested under the
most appropriate transfer pricing method.
Arm‟s length range

An arm‘s length range is a range of relevant financial indicator figures produced by the
application of the most appropriate transfer pricing method to a number of uncontrolled
transactions that are all comparable, and equally comparable to the controlled transaction
based on a comparability analysis conducted in accordance with Article 4 of this Order.
If the application of the most appropriate method results in a number of financial indicators
for which the degree of comparability of each to the controlled transactions, and to each
other, is uncertain, a statistical approach is used. If such an approach is used, the interquartile
range is considered to be an arm‘s length range.
A controlled transaction or a set of controlled transactions that are combined are not subject
to an adjustment where the relevant financial indicator derived from the controlled
transaction or set of controlled transactions and being tested under the appropriate transfer
pricing method is within the arm‘s length range.
If the relevant financial indicator derived from a controlled transaction or from a set of
controlled transactions that are combined falls outside the arm‘s length
Documentation and information
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Article 17: Documentation
In addition to books, other records and information required by Rwandan tax laws, a person
involved in controlled transactions is required to develop a transfer pricing policy, to prepare
and keep the documentation that verifies that the conditions of its controlled transactions for
the relevant tax period are consistent with the arm‘s length principle.
The transfer pricing policy referred to in Paragraph One of this Article must include at least
the following information:
1° an overview of the taxpayer‘s business operations and their organisation;
2° a description of the corporate organisational structure to which the taxpayer is a member

and the corporate group‘s operational structure;
3° a general description of multinational enterprise business including:
a. important drivers of business profit;
b. a description of the supply chain for the group‘s five (5) largest products or service
offerings by turnover plus any other products or services amounting to more than five percent
(5%) of group turnover;
4° a detailed description of the business strategy pursued by the taxpayer including an

indication whether the taxpayer has been involved in or affected by business restructurings or
intangible transfers in the present or
immediately preceding year and an explanation of such aspects on transactions that affect the
taxpayer;
5° a list of the taxpayer‘s key competitors in Rwanda for each material category of controlled
transactions in which the taxpayer is involved;
6° a description of the controlled transactions and the context in which such transactions took
place including an analysis of the comparability factors;
7° detailed comparability and functional analysis of the related persons in relation to the
controlled transaction;
8° explanation of the important assumptions made for the selection of most appropriate
transfer pricing method, and, where relevant, the selection of the tested party and the
financial indicator;
9° a summary of financial information used in applying the transfer pricing method;
10°an explanation of the reasons for performing a multi-year analysis, if any;
11°a comparability analysis that includes:
a. a description of the process undertaken to identify uncontrolled comparable transactions;
b. an explanation of the basis for the rejection of any potential internal uncontrolled
comparable transactions;
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c. a description of the uncontrolled comparable transactions;
d. an analysis of comparability of the controlled transactions and the uncontrolled comparable

transactions;
e. detailed information on any comparability adjustments made;
12°details of any industry analysis, economic analysis, budgets or projections relied on;
13°a conclusion as to consistency of the conditions of the controlled transactions with the
arm‘s length principle, including details of any adjustment made to ensure compliance;
14°information and allocation schedules showing how the financial data used in applying the
transfer pricing method may be tied to the annual financial statements;
15°a summary of schedules of relevant financial data for comparables used in the analysis
and the sources from which that data was obtained.
The documentation referred to in Paragraph One of this Article must include at least the
following documents:
1° copies of all material intercompany agreements concluded by the taxpayer;
2° the country by country report where the ultimate parent of the taxpayer is required to
prepare such a report;
3° controlled transactions schedule with the model form annexed to this Order;
4° any other documentation or information that is necessary for determination of the

taxpayer‘s compliance with the arm‘s length principle with respect to the controlled
transactions.
the taxpayer provides the documentation referred to in this Order within seven (7) days from
the date of receipt of the written request
Taxpayer discharged from the obligation to prepare documentation
A taxpayer with an annual turnover below six hundred million Rwandan francs (FRW
600,000,000) is not required to prepare the documentation referred to in Article 17 of this
Order.
However, to be discharged from the obligation to prepare documentation, a taxpayer referred
to in Paragraph One of this Article must have made controlled transactions with the value
below ten million Rwandan francs (FRW 10,000,000) or with an aggregate value below one
hundred million Rwandan francs (FRW 100,000,000).
A taxpayer discharged from the obligation to prepare documentation referred to in Article 17
of this Order must comply with the arm‘s length principle.
Sources of information on uncontrolled comparable transactions
Sources of information on uncontrolled comparable transactions include:
1° internal uncontrolled transactions of a taxpayer, if one of the parties to the controlled
transaction is also a party to the uncontrolled transaction;
2° external uncontrolled transactions of a taxpayer, which are uncontrolled transactions to

which none of the parties to the controlled transaction is a party.
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Information concerning a comparable external uncontrolled transaction is not relied upon by
the tax administration for the purposes of making an adjustment of prices if the information is
not available to the taxpayer.
Information concerning a comparable uncontrolled transaction is not relied upon by the
taxpayer for the purposes of demonstrating the compliance of a transaction with arm‘s length
principle if the information on the transaction is not available to the tax administration.
Where no comparable uncontrolled transaction is available in Rwanda, the taxpayer or the tax
administration may use foreign country comparable transactions in taxpayer‘s transfer pricing
analysis.
Determination of reliable comparables from a foreign country is made on a case-by-case
basis.
The taxpayer or the tax administration using comparable transactions must analyse the impact
of geographic differences and other factors contributing to changes of prices such as:
1° consumer preferences;
2° transport cost;
3° market competition level;
4° differences in accounting standards.
Article 22: Consistency of services between related persons with the arm’s
length principle
A service fee between a taxpayer and a related person is considered consistent with the arm‘s
length principle if:
1° the fee is charged for a service that is actually rendered;
2° the service provides, or when rendered was expected to provide, the recipient with
economic or commercial value to enhance its commercial position;
3° the fee is charged for a service that an independent person in comparable circumstances
would wish to pay for such a service if performed by an independent person or would have
performed in-house for itself;
4° its amount corresponds to that which would have been agreed between independent
persons for comparable services in comparable circumstances.
However, a service fee paid to a person is inconsistent with the arm‘s length principle if it is
paid by a related person solely because of the shareholder‘s ownership interest in one or more
other group members, including any of the following costs incurred or activities undertaken
by such related person:
1° costs or activities relating to the juridical structure of the parent company of the related
person, such as meetings of shareholders of
the parent, issuing of shares in the parent company and costs of the parent company‘s
supervisory board;
2° costs or activities relating to reporting requirements of the parent company of the related
person, including the consolidation of reports;
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3° costs or activities related to raising funds for the acquisition of participations, unless those
participations are directly or indirectly acquired by the related person and the acquisition
benefits or is expected to benefit that first-mentioned person.
If it is possible to identify specific services provided by a taxpayer to a related person, the

determination whether the service charge is consistent with the arm‘s length principle for
each specific service is needed.
Transactions involving intangible property

The determination of arm‘s length conditions for controlled transactions involving the
exploitation of an intangible asset must take into account the contractual arrangements and
the following factors with regard to the development, enhancement, maintenance, protection
and exploitation of the intangible assets:
1° functions performed by the related person;
2° management and control of those functions;
3° contribution of assets by the related person including financial assets;
4° management and control regarding the contribution of assets including financial assets;
5° risks assumed by the related person;
6° management and control of risks referred to in item 5o of this Paragraph;
7° financial capacity to assume the risks.
If the contractual arrangements diverge from the factors listed in Paragraph One of this
Article, consideration is taken on those factors in determining the arm‘s length reward from
the exploitation of the intangible property.
The determination of arm‘s length conditions for controlled transactions involving licenses,
sales or other transfers of intangible property between related persons takes into account both
the perspective of the transfer or of the property and the perspective of the transferee,
including in particular, the pricing at which a comparable independent person would be
willing to transfer the property and the value and usefulness of the intangible property to the
transferee in its business.
In applying the provisions of Paragraph 3 of this Article to a transaction involving a license,
sale or other transfer of intangible property, any of the following special factors relevant to
the comparability of the controlled and uncontrolled transactions are considered:
1° the expected benefits from the intangible property;
2° the commercial alternatives otherwise available to the acquirer or licensee derived from
the intangible property;
3° any geographic limitations on the exercise of rights to the intangible property;
4° the exclusive or non-exclusive character of the rights transferred;
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5° whether the transferee has the right to participate in further developments of the intangible
property by the transferor.
If the intangible assets are hard to value, the tax administration may consider ex-post
outcomes as presumptive evidence of the ex-ante pricing arrangements
Necessary adjustments of prices
Article 24: Necessary adjustments of prices in case of non-compliance with

the arm’s length principle
If a taxpayer fails to comply with the arm‘s length principle and the non-compliance has the
effect of reducing or deferring the taxpayer‘s tax liability for the tax year, the taxable income
must be computed as if the conditions of transaction were consistent with the arm‘s length
principle.
Corresponding adjustments for domestic transactions

If an adjustment is made by the tax administration to the taxable income of a taxpayer in
relation to domestic transaction, the tax administration makes an appropriate adjustment to
the taxable income of the other party to the transaction.
Article 26: Corresponding adjustments for international transactions

Corresponding adjustments for international transactions are made in one of the following
conditions:
1° an adjustment to the conditions of transactions between a person resident in Rwanda and a
related person is made or proposed by a tax administration of a foreign country;
2° an adjustment results in the taxation in that other country of an amount of income on

which the person resident in Rwanda has already been charged to tax in Rwanda;
3° a country making or proposing the adjustment has a treaty with Rwanda that reflects an
intention to provide for the relief of economic double taxation.
The tax administration, upon request by a person resident in Rwanda, examines the
consistency of that adjustment with the arm‘s length principle consulting as necessary with
the competent authority of the other country.
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CHAPTER THIRTEEN: DECENTRALISED TAX STRUCTURE
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 city of
Kigali and other districts.
IMPORTANT DEFINITIONS
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;
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;
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.
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 decentralised 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.
Types of Taxes to be paid to Decentralized Entities

Taxes to be paid to decentralized entities include the following:
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i. Immovable property tax;
ii. Trading licence tax;
iii. Rental income tax.
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.
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.
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 collectively as a group of taxpayers. If co-owners of immovable property did not appoint a
co-owner or a proxy to represent them collectively as a group of taxpayers, the tax obligations
related to the immovable property are settled in accordance with laws regulating co-owned
property.
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; an administrator of an abandoned property.
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 decentralised tax Law
Immovable Property Tax Base
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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.
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 whose 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 Article 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.
Period of Immovable Property Valuation

As per Article 13 of Law 75/2018, the date of valuation of immovable property is 1st January of
the first taxable year. The value of immovable property is determined for a cyclical period of five
(5) years. This means that every 5 years the property is revalued. It includes the market value of
the building and the plot of land. For the five (5) years assessment cycle to enable the taxpayer to
assess the market value of the immovable property, the following must be taken into account:
i. In the beginning of the second assessment cycle which commences after five (5) years
and in the beginning of every next assessment cycle, a general revision of market value
takes place;
ii. A global fluctuation of the market value between two (2) general revisions is not a reason
for a new assessment of immovable property.
However, the value of immovable property can be reviewed before the end of the assessment
cycle due to increase or decrease of its value.
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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.
i. If the immovable property was valued within the previous five (5) years and no major
changes in the buildings and structures, leading to an increase or decrease of the
immovable property value by more than twenty percent (20%), have occurred, this value
is regarded as the market value. In this case, the taxpayer must provide the certificate of
valuation to the tax administration for verification purposes;
ii. 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;
iii. 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.
Example
John owns a property in Gikondo valued at 100,000,000 RWF during the year ended 31/12/2017,
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
a. Appreciation of the asset 10,000,000/100,000,000 = 10% since the increase in the value
of the asset is below 20%, the tax base will remain the same.
b. Appreciation 30,000,000/100,000,000 = 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 =
130,000,000
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 Article.
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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 two five percent (0.25%) from the first year after the commencement of this
Law;
b. Zero point five percent (0.50%) from the second year after the commencement of this
Law;
c. Zero point seven five percent (0.75%) from the third year after the commencement of this
Law
d. One percent (1%) from the fourth year after the commencement of this Law;
2. For commercial buildings a progressive rate is applied as follows:

a. Zero point two percent (0.2%) of the market value of the building is applied in the first
year of the commencement of this Law;
b. Zero point three percent (0.3%) during the second year of the commencement of this
Law;
c. Zero point four per cent (0.4%) during the third year of the commencement of this Law;
d. Zero point five percent (0.5%) during the fourth year of the commencement of this Law.
Residential apartments having a minimum of four floors, including basement floors, benefit from
reduction of tax rates, equivalent to fifty percent (50%) of the ordinary rate.
Example:
Ndamaje owns the following properties in Muhanga valued on 1/1/2019
Particular Market value

Residential building occupied by the owner and his family 200,000,000
Apartment with two floors 450,000,000
Apartments with five floors 800,000,000
Commercial building 500,000,000
Solution
Particular Market value Working Tax
Residential building 200,000,000 Exempted
occupied by the owner
and his family
Apartment with two 450,000,000 0.25% 1,1250,000
floors x450,000,000
Apartments with five 800,000,000 0.25% x50% x 1,000,000
floors 800,000,000
Commercial building 500,000,000 0.2% x 1,000,000
500,000,000
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Total tax 3,125,000
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
250RWF per square meter. Required: compute property tax
Since the standard plot is 300m2 , the first 300m2, will be taxed at 250RWF, the excess to 200m2,
the tax will be increased by 50%.
Workings Tax RWF

300 x 250 75,000
200 x (250 + (250 x 50%) 75,000
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
administrator 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. A new
declaration of immovable property tax is filed by not later than 31st December of the last year of
each tax assessment cycle.
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.
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.
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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.
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.
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;
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
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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
OneFrank is located in Musanze 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 RWF 130, 000,000 and the market value
of the commercial building is RWF 250, 000,000.
Solution
Since the residential house is dwelled by the owner, it is exempted from the property tax.
The commercial building will be taxed in the following ways
1st year (0.2%) 2nd year (0.3%) 3rd year (0.4%) 4th year (0.5%)
Property tax 0.2% x 0.3% x 0.4% x 0.5% x
250,000,000 250,000,000 250,000,000 250,000,000
= 500,000 = 750,000 = 1,000,000 = 1,250,000,000
Example 2
Uwamariya owns the following properties
Residential house 1 occupied by the owner 200,000,000

Residential house 2 rented 100,000.000
Total 300,000,000
Required: Compute her property tax
The residential house occupied by the owner is exempted from the property tax and the one
which is rented is taxed under the property tax law.
Computation of property tax
1st year (0.25%) 2nd year (0.5%) 3rd year (0.75%) 4th year (1%)
Property tax 100,000,000 x 100,000,000 x 100,000,000 x 100,000,000 x
0.25% = 250,000 0.5% = 500,000 0.75% 1% = 1,000,000
= 750,000
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TRADING LICENSE TAX
The trading license tax is paid by any person who commences a profit-oriented activity in
Rwanda.
Tax Year
The tax year 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.
Tax Exemption
The Government entities are exempted from trading license tax.
Tax Declaration
Not later than 31st March of the tax year, every taxpayer must file an official tax declaration to
the decentralized entity where his/her activities are undertaken. If a taxpayer operates branch
offices, tax declaration shall be required for the head office as well as for each branch. When
several activities are carried out by the same company or a natural person in the same premises,
only one trading license tax certificate shall be required.
The tax declaration shall show details of the taxable activities including the self-assessed tax due.
The tax declaration must be personally signed by the person who will receive the trading
certificate. In case of a corporate entity, the tax declaration shall be signed by its properly
authorized representative.
The trading license tax shall be calculated on the basis of the following tables:
All value added tax registered tax payers
Turnover in RWF Tax in RWF

40,000,000 60,000
40,000,001 – 60,000,000 90,000
60,000,001 – 150,000,000 150,000
150,000,000 and above 250,000
Other profit-oriented activities
Type of the activities Rural Areas Towns City of Kigali

A) Vendors without shops, small scale 4,000 6,000 8,000
technicians who do not use machines
B) Transport of people and goods on 8,000 8,000 8,000
motorcycles
Traders and technicians who use 20,000 30,000 40,000
machines
All other vehicles besides bicycles 40,000 on each 40,000 on 40,000 on each
vehicle each vehicle vehicle
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Transport activities by motor boat 20,000 on each 20,000 on 20,000 on each
boat each boat boat
Other profit-oriented activities 20,000 30,000 40,000
RENTAL INCOME TAX

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 1 st and ends on December 31st of the
previous year which shall be the income taxable year.
Taxable Income
Rental income tax is charged to the following:
1. Income from rented buildings in all or part;
2. Income from rented improvements in whole or in part;
3. Any other activity to which rental income may be accrued
Tax Computation Method

The taxable 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 income shall be determined by
deducting from gross rental income thirty percent (50 %) considered as the expenses incurred
plus actual bank interest paid from the beginning of the rental period.
Tax Rate
The rental income tax is calculated as follows:
1. The bracket part of annual income generated through rental of a building from Rwf 1 to
Rwf 180,000 shall be taxed at zero percent (0 %);
2. The bracket part of annual income generated through rental of a building from Rwf
180,001 to Rwf 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 Rwf
1,000,000 shall be taxed at thirty percent (30 %).
Example 1
Habineza owns two properties in Nyenyeri which he rents to various business men. In Property
one he receives a monthly rent of 800,000Rwf and in Property two he receives a monthly rent of
1,200,000Rwf. Property two was constructed using a loan of 15,000,000 Rwf from the bank at an
interest rate of 16% per annum.
Required:
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a). Calculate His taxable rental income
b). Determine His Tax liability and the Tax Payable.
Computation of Rental income for Habineza for the Year Ended 31/12/2014
Property One:
Particulars Workings Amount Amount
(RWF) (RWF)
Property One
Gross Rent 800,000 x 12 9,600,000
Less Allowable expense 50% x 9,600,000 (4,800,000)
Taxable Rental Income 4,800,000
Property Two:
Gross Rent 1,200,000 x 12 14,400,000
Less Allowable expenses 14,400,000 x 50% (7,200,000)
7,200,000
Less interest expenses 16% x 15,000,000 (2,400,000) 4,800,000
Total income 9,600,000
Tax liability Tax rate Tax
0 – 180,000 0% 0
180,000 – 1,000,000 20% 164,000
1,000,000 – 9,600,000 30% 2,580,000
Total liability 2,744,000
Example 2
Uwimana owns two properties in Gikondo. The first property was constructed in 2010 at a cost
150,000,000Rwf. During the construction, she borrowed 50,000,000Rwf 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 125,000,000Rwf using her own money. The
property was occupied from 1/5/2015 to 31/12/2015. Each property is rented at 3,500,000rwf per
month. Uwimana incurred the following expenses on the two properties during the year.
i. Salaries of the manager 4,800,000Rwf

ii. Electricity 2,500,000Rwf
iii. Painting 4,500,000Rwf
iv. Water 1,200,000Rwf
v. Depreciation 10,500,000 RWf
vi. Security personal 5,000,000RWf
Required
Compute the taxable rental income and the tax liability for the year ended 31/12/2015
a. Computation of Rental Income and Tax of Uwimana for the Year Ended 31/12/2015
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Items Workings Amount RWF Amount RWF
Property one:
Gross income 3,500,000 x 12 42,000,000
Less allowable 50% x 42,000,000 21,000,000
expenses
Less interest 50,000,000 x 15% 7,500,000 (28,500,000)
Property Two:
Gross income 8 x 3,500,000 28,000,000
Less allowable 50% x 28,000,000 14,000,000
expenses
Total taxable 27,500,000
income
0 - 180,000 0% 0
180,001 – 20% 164,000
1,000,000
1,000,001 – 30% 7,950,000
27,500,000
Example 3
Nina is a resident of Rwanda. He owns two commercial properties in Gikondo which she rents to
various individuals. Each property is rented at 1,200,000Rwf per month. All properties received
tenants the whole year. In the construction of the first property, Nina borrowed 20,000,000Rwf
from KCB and she pays annual interest rate of 18%. Compute her rental income and the rental
tax liability.
Computation of Rental Income and Tax of Nina for the Year Ended 31/12/2016
Property One: WORKINGS AMOUNT RWF

Gross income 12 x1,200,000 14,400,000
less allowable expenses 50% x 14,400,000 (7,200,000)
less interest expenses 18% x 20,000,000 (3,600,000)
taxable rental income 3,600,000
Property Two:
Gross income 12 x 1,200,000 14,400,000
less allowable expenses 50% x 14,400,000 (7,200,000)
taxable rental income 7,200,000
Total taxable rental income 10,800,000
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Tax Liability rate
0 - 180,000 0% -
180,001 - 1,000,000 20% 164,000
1,000,001 – 10,800,000 30% 2,940,000
Tax Liability 3,104,000
Tax Declaration
Any person who earns an income referred to in Article 52 of Law 75/2018 of Rwanda tax Law
must, on or before January 31st each year, file an official tax declaration as provided for by laws.

1. Explain the term trade license tax and who is liable to pay the tax.
2. Mr. Makuza Emmanuel owns the following fixed assets in Kigali City, Nyarugenge District
and their values as at 1st January, 2016 were:
Asset Value (RWF)

A commercial building that houses 10 shops 400,000,000
A residential house 200,000,000
Required: Calculate the total asset tax payable by Mr. Makuza for the year ended 31 st
December, 2016 and indicate the due dates for payment.
3. James also has rental properties in the same district from which he earns a monthly gross
income of RWF 5,000,000. These rentals were constructed using a bank loan of RWF
150,000,000 for which he paid interest of RWF 8,000,000 during the year ended 31 December,
2016. However, he could only provide supporting documents for the interest paid of RWF
7,000,000 to Rwanda Revenue Authority.
Required
(i) Compute James‘ rental income and tax liability for the year ended 31 December,
2016.
(ii) Advise him on when he is required to file his return and the likely penalty that he
would pay if the tax per return is paid 3 months late assuming tax payable is
RWF7,000,000.
4. Nsengiyumva Damian, a resident in Rwanda, owns rental apartment in Nyarutarama, Kigali.

He completed the construction of the apartments in December, 2014 and the first occupants
entered the apartments in January, 2015. The total cost of construction of the apartments was
RWF1.2 billion. Part of the construction costs was funded by mortgage loan from bank of
Kigali of RWF 500,000,000 repayable in 15 years at an interest rate of 15% per annum.
There is sufficient documentation to support the interest paid during the year. The rental
income earned for the year ended 31st December, 2015 was RWF 185,250,000. The expenses
incurred during the year were:
RWF ―000‖
Cleaning and garbage disposal 8,000
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Security services 52,000
Other general maintenance expenses 70,000
Total 130,000
Required
Compute the taxable rental income and tax payable by Nsengiyumva Damian for the year
ended 31st December, 2015 and state the due date of payment.
5. Nsengiyumva Damian was not in position to pay the rental tax due in time because of
unforeseen circumstances. He was advised that it is possible to defer the tax payment
without incurring any fines. Explain the circumstances under which he differs the payment
of the rental tax
6. Maniriho owns the following properties in Musanze town.
Particular Market value RWF

Residential property where he stays with the 100,000,000
family
Commercial building 340,000,000
Residential apartments with five floors 624,000,000
Residential apartment with two floors 270,000,000
Commercial building is located on 600M2
Five floors apartment is located on 400M2
Two floor apartment is located on 1000M2
The district council approved a tax of 200RWF per square metre. Due to many commitments,
Maniriho was unable to declare and pay the property tax on time; he was late for two months.
Required: Compute the property taxes due and the penalties due.
FISCAL POLICY
One major function of the government is to stabilize the economy (prevent unemployment or
inflation). Stabilization can be achieved in part by manipulating the public budget-government
spending and tax collections-to increase output and employment or to reduce inflation.
Expansionary and Contractionary Fiscal Policy
Fiscal policy involves the taxing and spending policies of the government. Expansionary fiscal
policy (to fight a recession by increasing aggregate demand)
1. increase government spending

2. cut taxes
Contractionary fiscal policy (to deal with inflation by reducing aggregate demand)
1. decrease government spending
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2. raise taxes
Two arguments for Fiscal Policy

Efficiency
Efficiency refers to the collective wellbeing of an economy. That is how to use the fiscal policy
to increase aggregate income
Equity
Equity refers to the distribution of wellbeing across individual in an economy. That is how to
use fiscal policy to redistribute income in a ―fair‖ way?
Major Government outlays

1. Government Purchases (G)= government expenditures on currently produced goods and
services and capital goods.
2. Transfer Payments (TR) =Payments made to individuals for which the government does not receive
current goods or services in exchange
3. Net Interest Payment= Interest Paid to the holders of government bonds less the interest received by
the government
Government Revenues
The Government revenues come from taxes 1. .Personal taxes and property taxes Tax increases:
2.Contributions for Social Insurance Social insurance contributions usually are levied as fixed
percentage of a worker‘s salary up to a ceiling (increases both in the contribution rate and in the
ceiling)
3.Taxes on production and imports Sales taxes declined
4.Corporate taxes (on profits)

Fiscal policy is the use of government spending G and taxes T • Objective: stabilize the economy•
Governments can have: Output targets–Output targets–Price targets–Unemployment targets •
Stabilizing the economy means moving the economy towards its targets.
Preventing Deficits
Limit spending. If spend today, government must:1) Raise Taxes Now 2) Raise Taxes in
Future)3) Print Money In Future (will lead to Inflation) Solutions (2) and (3) may be more costly
from an economic point of view but are politically more appealing. However the balanced
budget amendments can make recessions worse.
Costs and Benefits of Government Spending
Consumption: Governments can provide services that may be inefficiently provided in private
sector(i.e., police protection, parks, post office, etc).
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Investment: Physical Capital Governments can provide investment that is used as an input into
other production(i.e., highway and transportation infrastructure, bridges, enforce property rights).
Investment: Training and Education Governments can train the work force (i e student loan
programs public education state colleges etc)(i.e., student loan programs, public education, state
colleges, etc).
Cost and benefits of Government Spending

Diverts resources from private sector!
Benefits of Government Spending?--- Helps increase A in a country (roads, property skilled
labor etc). Provides goods not provided in market place. Must compare the benefits to the costs
of government spending!
Challenges of Public Debt:
A Burden on Future Generations Higher deficits means higher consumption. Thus higher
deficits potentially mean lower national saving. Does the Debt Payback Hurt Future Generations
?•If we run deficits today, future generations will have to pay for our spending. Policy makers
often say that our spending today will decrease the consumption of our children by •When
government borrows to finance a deficit, they borrow from the current generation (give bonds to
me and you). Eventually, these bonds will end up in the hands of the future generation (we will
leave them to future generation directly or hands of the future generation. When government
repays the debt - it will take taxes from the future generation and pay off the same future
generation - they own the debt! (caveat - some debt is held by foreign citizens and distributional
issues). •Summary: when we leave a deficit to our children, we leave them both the assets and
the liabilities associated with the debt. The paying back of debt is a zero sum game(just a
reshuffling in the economy)
All else equal, higher government deficits today could reduce the earnings potential (Y) of future
generations.
Advantages of public debt

Higher deficits can come from higher investment (infrastructure, education) that create higher
future A. Higher future A could make future generations better off even if future consumption is
lower
Social Security and Taxes:
Increasing tax revenues coming to the system How? Could be either by raising payroll taxes or
subjecting more income to the tax. Reducing benefit payments How? By raising retirement age
(to match increase in life expectancy) or by changing the formula relating benefits to the average
increase in wages and prices
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Tax Incentives: Fiscal policies affect the macroeconomics also through the supply side: tax
policies affect incentives!•Average tax rate= total amount of taxes paid by a person divided by
the person‘s before-tax income •Marginal tax rate= fraction of an additional dollar of income that
must be paid in taxes •Example: Tax of 25% levied on income above $10,000. Person with
income of $18,000 pays $2,000. Average tax rate = 11.1%. Marginal tax rate = 25%.•Increase in
average tax rate, with constant marginal, will increase labor supply. Income effect! •Increase in
marginal tax rate, with constant average, will reduce labor supply.
Substitution effect!
Supply Side Economics Emphasize substitution effects of marginal tax rates. Common idea:
people would work more if tax were lower and would save more if tax were lower. Where it may
be wrong: Tax cuts have income effects which can potentially dominate. Tax Reforms do not
have income effects, but only substitution effects:
Notes on Supply Side Economics By Tax Reform economists mean revenue-neutral reform in
the way taxes are collected. In some Flat Tax proposals this involves eliminating tax deductions
(e.g. home mortgage interest) and lowering income tax rates To see how this can be revenue-
neutral interest) and lowering income tax rates. Tax reforms that lower taxes have substitution
effects, but no income effects since T=0. Such Tax Reforms have positive effects on labor
supply and on private saving(with no negative effects on government saving).
The Use of Fiscal Policy to Stabilize the Economy
Fiscal policy—the use of government expenditures and taxes to influence the level of economic
activity—is the government counterpart to monetary policy. Like monetary policy, it can be used
in an effort to close a recessionary or an inflationary gap.
Automatic Stabilizers
Certain government expenditure and taxation policies tend to insulate individuals from the
impact of shocks to the economy. Transfer payments have this effect. Because more people
become eligible for income supplements when income is falling, transfer payments reduce the
effect of a change in real GDP on disposable personal income and thus help to insulate
households from the impact of the change. Income taxes also have this effect. As incomes fall,
people pay less in income taxes.
Any government program that tends to reduce fluctuations in GDP automatically is called an
automatic stabilizer. Automatic stabilizers tend to increase GDP when it is falling and reduce
GDP when it is rising.
To see how automatic stabilizers work, consider the decline in real GDP that occurred during the
recession of 1990–1991. Real GDP fell 1.6% from the peak to the trough of that recession. The
reduction in economic activity automatically reduced tax payments, reducing the impact of the
downturn on disposable personal income. Furthermore, the reduction in incomes increased
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transfer payment spending, boosting disposable personal income further. Real disposable
personal income thus fell by only 0.9% during the 1990—1991 recession, a much smaller
percentage than the reduction in real GDP. Rising transfer payments and falling tax collections
helped cushion households from the impact of the recession and kept real GDP from falling as
much as it would have otherwise.
Automatic stabilizers have emerged as key elements of fiscal policy. Increases in income tax
rates and unemployment benefits have enhanced their importance as automatic stabilizers. The
introduction in the 1960s and 1970s of means-tested federal transfer payments, in which
individuals qualify depending on their income, added to the nation‘s arsenal of automatic
stabilizers. The advantage of automatic stabilizers is suggested by their name. As soon as income
starts to change, they go to work. Because they affect disposable personal income directly, and
because changes in disposable personal income are closely linked to changes in consumption,
automatic stabilizers act swiftly to reduce the degree of changes in real GDP.
It is important to note that changes in expenditures and taxes that occur through automatic
stabilizers do not shift the aggregate demand curve. Because they are automatic, their operation
is already incorporated in the curve itself.
Discretionary Fiscal Policy Tools
As we begin to look at deliberate government efforts to stabilize the economy through fiscal
policy choices, we note that most of the government‘s taxing and spending is for purposes other
than economic stabilization. For example, the increase in defense spending in the early 1980s
under President Ronald Reagan and in the administration of George W. Bush were undertaken
primarily to promote national security. That the increased spending affected real GDP and
employment was a by-product. The effect of such changes on real GDP and the price level is
secondary, but it cannot be ignored. Our focus here, however, is on discretionary fiscal policy
that is undertaken with the intention of stabilizing the economy. As we have seen, the tax cuts
introduced by the Bush administration were justified as expansionary measures.
Discretionary government spending and tax policies can be used to shift aggregate demand.
Expansionary fiscal policy might consist of an increase in government purchases or transfer
payments, a reduction in taxes, or a combination of these tools to shift the aggregate demand
curve to the right. A contractionary fiscal policy might involve a reduction in government
purchases or transfer payments, an increase in taxes, or a mix of all three to shift the aggregate
demand curve to the left.
The discussion in the previous section about the use of fiscal policy to close gaps suggests that
economies can be easily stabilized by government actions to shift the aggregate demand curve.
However, as we discovered with monetary policy in the previous chapter, government attempts
at stabilization are fraught with difficulties.
Lags
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Discretionary fiscal policy is subject to the same lags that we discussed for monetary policy. It
takes some time for policy makers to realize that a recessionary or an inflationary gap exists—
the recognition lag. Recognition lags stem largely from the difficulty of collecting economic data
in a timely and accurate fashion. The current recession was not identified until October 2008,
when the Business Cycle Dating Committee of the National Bureau of Economic Research
announced that it had begun in December 2007. Then, more time elapses before a fiscal policy,
such as a change in government purchases or a change in taxes, is agreed to and put into effect—
the implementation lag. Finally, still more time goes by before the policy has its full effect on
aggregate demand—the impact lag.
Changes in fiscal policy are likely to involve a particularly long implementation lag. A tax cut
was proposed to presidential candidate John F. Kennedy in 1960 as a means of ending the
recession that year. He recommended it to Congress in 1962. It was not passed until 1964, three
years after the recession had ended. Some economists have concluded that the long
implementation lag for discretionary fiscal policy makes this stabilization tool ineffective.
Fortunately, automatic stabilizers respond automatically to changes in the economy. They thus
avoid not only the implementation lag but also the recognition lag.
The implementation lag results partly from the nature of bureaucracy itself. The CBO estimate
that only a portion of the spending for the stimulus plan passed in 2009 will be spent in the next
two years is an example of the implementation lag. Government spending requires bureaucratic
approval of that spending. For example, a portion of the stimulus plan must go through the
Department of Energy. One division of the department focuses on approving loan guarantees for
energy-saving industrial projects. It was created early in 2007 as part of another effort to
stimulate economic activity.
Crowding Out
Because an expansionary fiscal policy either increases government spending or reduces

revenues, it increases the government budget deficit or reduces the surplus. A contractionary
policy is likely to reduce a deficit or increase a surplus. In either case, fiscal policy thus affects
the bond market.
The increase in government purchases increases the deficit or reduces the surplus. In either case,
the Treasury will sell more bonds than it would have otherwise, shifting the supply curve for
bonds to the right in Panel (a). That reduces the price of bonds, raising the interest rate. The
increase in the interest rate reduces the quantity of private investment demanded. The higher
interest rate increases the demand for and reduces the supply of dollars in the foreign exchange
market, raising the exchange rate in Panel (b). A higher exchange rate reduces net exports.
Crowding out reduces the effectiveness of any expansionary fiscal policy, whether it be an
increase in government purchases, an increase in transfer payments, or a reduction in income
taxes. Each of these policies increases the deficit and thus increases government borrowing. The
supply of bonds increases, interest rates rise, investment falls, the exchange rate rises, and net
exports fall.
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Note, however, that it is private investment that is crowded out. The expansionary fiscal policy
could take the form of an increase in the investment component of government purchases. As we
have learned, some government purchases are for goods, such as office supplies, and services.
But the government can also purchase investment items, such as roads and schools. In that case,
government investment may be crowding out private investment.
The reverse of crowding out occurs with a contractionary fiscal policy—a cut in government
purchases or transfer payments, or an increase in taxes. Such policies reduce the deficit (or
increase the surplus) and thus reduce government borrowing, shifting the supply curve for bonds
to the left. Interest rates drop, inducing a greater quantity of investment. Lower interest rates also
reduce the demand for and increase the supply of dollars, lowering the exchange rate and
boosting net exports. This phenomenon is known as ―crowding in.‖
Crowding out and crowding in clearly weaken the impact of fiscal policy. An expansionary fiscal
policy has less punch; a contractionary policy puts less of a damper on economic activity. Some
economists argue that these forces are so powerful that a change in fiscal policy will have no
effect on aggregate demand. Because empirical studies have been inconclusive, the extent of
crowding out (and its reverse) remains a very controversial area of study.
Also, the fact that government deficits today may reduce the capital stock that would otherwise
be available to future generations does not imply that such deficits are wrong. If, for example,
the deficits are used to finance public sector investment, then the reduction in private capital
provided to the future is offset by the increased provision of public sector capital. Future
generations may have fewer office buildings but more schools.
Choice of Policy
We have learned that fiscal policies that increase government purchases, reduce taxes, or
increase transfer payments—or do a combination of these—all have the potential, theoretically,
to raise real GDP. The government must decide which kind of fiscal policy to employ. Because
the decision makers who determine fiscal policy are all elected politicians, the choice among the
policy options available is an intensely political matter, often reflecting the ideology of the
politicians.
For example, those who believe that government is too big would argue for tax cuts to close
recessionary gaps and for spending cuts to close inflationary gaps. Those who believe that the
private sector has failed to provide adequately a host of services that would benefit society, such
as better education or public transportation systems, tend to advocate increases in government
purchases to close recessionary gaps and tax increases to close inflationary gaps.
Another area of contention comes from those who believe that fiscal policy should be
constructed primarily so as to promote long-term growth. Supply-side economics is the school of
thought that promotes the use of fiscal policy to stimulate long-run aggregate supply. Supply-
side economists advocate reducing tax rates in order to encourage people to work more or more
individuals to work and providing investment tax credits to stimulate capital formation.
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Finally, even when there is agreement to stimulate the economy, say through increasing
government expenditures on highways, the how question remains. How should the expenditures
be allocated? Specifically, which states should the highways run through? Each member of
Congress has a political stake in the outcome. These types of considerations make the
implementation lag particularly long for fiscal policy.
Key Takeaways
 Discretionary fiscal policy involves the same kind of lags as monetary policy. However,
the implementation lag in fiscal policy is likely to be more pronounced, while the impact
lag is likely to be less pronounced.
 Expansionary fiscal policy may result in the crowding out of private investment and net
exports, reducing the impact of the policy. Similarly, contractionary policy may ―crowd
in‖ additional investment and net exports, reducing the contractionary impact of the
policy.
 Supply-side economics stresses the use of fiscal policy to stimulate economic growth.
Advocates of supply-side economics generally favor tax cuts to stimulate economic
growth.
PROFESSIONAL ETHICS IN TAXATION

PROFESSIONAL ETHICS- This are professional standards of personal and business behavior
values and guiding principles established by professional organizations to help guide members
in performing their job functions according to ethical principle
A distinguishing mark of the accountancy profession is its acceptance of the responsibility to

act in the public interest.
Acting in the public interest involves having regard to the legitimate interests of clients,
government, financial institutions, employers, employees, investors, the business and financial
community and others who rely upon the objectivity and integrity of the accounting profession
to support the propriety and orderly functioning of commerce. This reliance imposes a public
interest responsibility on the profession. Professional accountants shall take into consideration
the public interest and reasonable and informed public perception in deciding whether to accept
or continue with an engagement or appointment, bearing in mind that the level of the public
interest will be greater in larger entities and entities which are in the public eye
Therefore, a professional accountant‘s responsibility is not exclusively to satisfy the needs of an
individual client or employer. In acting in the public interest, a professional accountant shall
observe and comply with the Code of ethics. If a professional accountant is prohibited from
complying with certain parts of this Code by law or regulation, the professional accountant
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FUNDAMENTAL PRINCIPLES
A professional accountant shall comply with the following fundamental principles:
1. Professional competence and due care - To maintain professional knowledge and skill at
the level required to ensure that a client or employer receives competent professional services
based on current developments in practice, legislation and techniques and act diligently and
in accordance with applicable technical and professional standards.
2. Confidentiality - To respect the confidentiality of information acquired as a result of
professional and business relationships and, therefore, not disclose any such information to
third parties without proper and specific authority, unless there is a legal or professional right
or duty to disclose, nor use the information for the personal advantage of the professional
accountant or third parties.
shall comply with all other parts of the Code of ethics.

This Code contains the fundamental principles of professional ethics for professional
accountants and provides a conceptual framework that professional accountants shall apply to:
1. Identify threats to compliance with the fundamental principles;

2. Evaluate the significance of the threats identified; and
3. Apply safeguards, when necessary, to eliminate the threats or reduce them to an
acceptable level. Safeguards are necessary when the professional accountant determines
that the threats are not at a level at which a reasonable and informed third party would be
likely to conclude, weighing all the specific facts and circumstances available to the
professional accountant at that time, that compliance with the fundamental principles is
not compromised
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3. Professional behavior - To comply with relevant laws and regulations and avoid any action
that discredits the profession.
4. Integrity - To be straightforward and honest in all professional and business relationships.
5. Objectivity - To not allow bias, conflict of interest or undue influence of others to override
professional or business judgments.
CONCEPTUAL FRAMEWORK APPROACH

The circumstances in which professional accountants operate may create specific threats to
compliance with the fundamental principles. In addition, the nature of engagements and work
assignments may differ and, consequently, different threats may be created, requiring the
application of different safeguards. Therefore, this Code establishes a conceptual framework
that requires a professional accountant to identify, evaluate, and address threats to compliance
with the fundamental principles. The conceptual framework approach assists professional
accountants in complying with the ethical requirements of this Code and meeting their
responsibility to act in the public interest.
When a professional accountant identifies threats to compliance with the fundamental principles
and, based on an evaluation of those threats, determines that they are not at an acceptable level,
the professional accountant shall determine whether appropriate safeguards are available and
can be applied to eliminate the threats or reduce them to an acceptable level.
A professional accountant shall take qualitative as well as quantitative factors into account when
evaluating the significance of a threat. When applying the conceptual framework, a professional
accountant may encounter situations in which threats cannot be eliminated or reduced to an
acceptable level, either because the threat is too significant or because appropriate safeguards
are not available or cannot be applied. In such situations, the professional accountant shall
decline or discontinue the specific professional service involved or, when necessary, resign from
the engagement (in the case of a professional accountant in public practice) or the employing
organization.
Threats may be created by a broad range of relationships and circumstances. When a
relationship or circumstance creates a threat, such a threat could compromise, or could be
perceived to compromise, a professional accountant's compliance with the fundamental
principles.
Threats fall into one or more of the following categories:
1. SELF-INTEREST THREAT
The threat that a financial or other interest will inappropriately influence the
professional accountant's judgment or behavior e.g.
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a. Holding a senior position within a client‘s organization.
b. Holding a financial interest in, or receiving a loan or guarantee from the client.
c. Participating in incentive compensation arrangements offered by the client‘s
organization.
d. Firm having undue dependence on total fees from a client.
e. A member of the professional accountant team entering into employment
negotiations with the client.
f. Commercial pressure from outside the employing organization.
g. A firm being concerned about the possibility of losing a significant client.
h. A professional accountant discovering a significant error when evaluating the
results of a previous professional service performed by a member of the
professional accountant‘s firm.
SELF-REVIEW THREAT
The threat that a professional accountant will not appropriately evaluate the results of a
previous judgment made or service performed by the professional accountant, or by
another individual within the professional accountant's firm or employing organisation,
on which the accountant will rely when forming a judgment as part of providing a
current service;
ADVOCACY THREAT
The threat that a professional accountant will promote a client's or employer's position
to the point that the professional accountant's objectivity is compromised;
FAMILIARITY THREAT
The threat that due to a long or close relationship with a client or employer, a
professional accountant will be too sympathetic to their interests or too accepting of their
work e.g.
a. Being responsible for the employing organization‘s financial reporting

b. Long association with business contacts influencing business decisions
c. Accepting a gift or preferential treatment, unless otherwise trivial and
inconsequential.
d. A member of the engagement team having a close or immediate family member
who is an employee of the client who is in a position to exert significant
influence over the subject matter of the engagement.
INTIMIDATION THREAT
a. The threat that a professional accountant will be deterred from acting objectively
because of actual or perceived pressures, including attempts to exercise undue
influence over the professional accountant.
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b. Threat of dismissal or replacement of professional accountant
c. Dominant personality attempting to influence the decision making process.
A professional accountant being informed by a partner of the firm that a planned
promotion will not occur unless the accountant agrees with a client‘s inappropriate
tax treatment.
d. A firm being pressured to reduce inappropriately the extent of work performed in
order to reduce fees.
THREATS TO PROFESSIONAL COMPETENCE AND DUE CARE.
a. Insufficient time for properly performing or completing the relevant duties.

b. Incomplete, restricted or inadequate information for performing duties properly.
c. Insufficient experience, training and/or education
d. Inadequate resources for the proper performance of the duties.
THREATS AND SAFEGUARDS

Safeguards are actions or other measures that may eliminate threats or reduce them to an
acceptable level. They fall into two broad categories:
1. Safeguards created by the profession, legislation or regulation

2. Safeguards in the work environment.
SAFEGUARDS CREATED BY THE PROFESSION, LEGISLATION OR

REGULATION INCLUDE.
1. Educational, training and experience requirements for entry into the profession.
2. Continuing professional development requirements.
3. Corporate governance regulations.
4. Professional standards.
5. Professional or regulatory monitoring and disciplinary procedures.
6. External review by a legally empowered third party of the reports, returns,
communications or information produced by a professional accountant.
Certain safeguards may increase the likelihood of identifying or deterring unethical behaviour.
Such safeguards, which may be created by the accounting profession, legislation, regulation, or
an employing organisation, include:
1. Effective, well-publicized complaint systems operated by the employing organization,

the profession or a regulator, which enable colleagues, employers and members of the
public to draw attention to unprofessional or unethical behavior.
2. An explicitly stated duty to report breaches of ethical requirements.
SAFEGUARDS IN THE WORK ENVIRONMENT
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1. The clients organization‘s system of corporate oversight
2. The client‘s organization‘s ethics and conduct programs.
3. Recruitment procedures in the employing organization emphasing the importance of
employing high caliber competent staff.
4. Strong internal controls
5. Policies and procedures to empower and encourage employees to communicate to senior
levels within the clients organisation any ethical issues
6. Consultation with another appropriate professional accountant.
7. Timely communication of the employing client‘s organisation policies and procedures
8. Leadership that stress the importance of ethical behaviour.
ETHICAL CONFLICT RESOLUTION

A professional accountant may be required to resolve a conflict in complying with the
fundamental principles.
When initiating either a formal or informal conflict resolution process, the following factors,
either individually or together with other factors, may be relevant to the resolution process:
1. Relevant facts;
2. Relevant parties;
3. Ethical issues involved;
4. Fundamental principles related to the matter in question;
5. Established internal procedures; and
6. Alternative courses of action.
Having considered the relevant factors, a professional accountant shall determine the
appropriate course of action, weighing the consequences of each possible course of action. If the
matter remains unresolved, the professional accountant may wish to consult with other
appropriate persons within the firm or employing organisation for help in obtaining resolution.
Where a matter involves a conflict with, or within, an organisation, a professional accountant
shall determine whether to consult with those charged with governance of the organisation, such
as the board of directors or the audit committee.
If a significant conflict cannot be resolved, a professional accountant may consider obtaining
professional advice from ICPAR or from legal advisors. The professional accountant generally
can obtain guidance on ethical issues without breaching the fundamental principle of
confidentiality if the matter is discussed with ICPAR ethics helpline or with a legal advisor
under the protection of legal privilege. Instances in which the professional accountant may
consider obtaining legal advice vary. For example, a professional accountant may have
encountered a fraud, the reporting of which could breach the professional accountant's
responsibility to respect confidentiality. The professional accountant may consider obtaining
legal advice in that instance to determine whether there is a requirement to report.
If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a
professional accountant shall, where possible, refuse to remain associated with the matter
creating the conflict. The professional accountant shall determine whether, in the circumstances,
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it is appropriate to withdraw from the engagement team or specific assignment, or to resign
altogether from the engagement, the firm or the employing organisation.
INTEGRITY
The principle of integrity imposes an obligation on all professional accountants to be
straightforward and honest in all professional and business relationships. Integrity also implies
fair dealing and truthfulness.
A professional accountant shall not knowingly be associated with reports, returns,
communications or other information where the professional accountant believes that the
information:
1. Contains a materially false or misleading statement;

2. Contains statements or information furnished recklessly; or
3. Omits or obscures information required to be included where such omission or obscurity
would be misleading.
When a professional accountant becomes aware that the accountant has been associated with
such information, the accountant shall take steps to be disassociated from that information.
OBJECTIVITY
The principle of objectivity imposes an obligation on all professional accountants not to
compromise their professional or business judgment because of bias, conflict of interest or the
undue influence of others. Objectivity is the state of mind which has regard to all considerations
relevant to the task in hand but no other.
PROFESSIONAL COMPETENCE AND DUE CARE

The principle of professional competence and due care imposes the following obligations on all
professional accountants:
1. To maintain professional knowledge and skill at the level required to ensure that clients
or employers receive competent professional service.
2. To act diligently in accordance with applicable technical and professional standards
when providing professional services.
Competent professional service requires the exercise of sound judgment in applying

professional knowledge and skill in the performance of such service. Professional competence
may be divided into two separate phases:
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1. Attainment of professional competence; and
2. Maintenance of professional competence.
The maintenance of professional competence requires a continuing awareness and an

understanding of relevant technical, professional and business developments. Continuing
professional development enables a professional accountant to develop and maintain the
capabilities to perform competently within the professional environment.
Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
A professional accountant shall take reasonable steps to ensure that those working under the
professional accountant's authority in a professional capacity have appropriate training and
supervision.
CONFIDENTIALITY
The principle of confidentiality is not only to keep information confidential, but also to take all
reasonable steps to preserve confidentiality.
The principle of confidentiality imposes an obligation on all professional accountants to refrain
from:
1. Disclosing outside the firm or employing organisation confidential information acquired

as a result of professional and business relationships without proper and specific
authority or unless there is a legal or professional right or duty to disclose; and
2. Using confidential information acquired as a result of professional and business
relationships to their personal advantage or the advantage of third parties.
Professional accountants in public practice must not disclose confidential information to a client
even though the information is relevant to an engagement for, or would be beneficial to, that
client.
A professional accountant shall maintain confidentiality, including in a social environment,
being alert to the possibility of inadvertent disclosure, particularly to a close business associate
or a close or immediate family member.
A professional accountant shall maintain confidentiality of information disclosed by a
prospective client or employer.
This requirement extends not only to clients, past and present, but also to third parties from or
about whom information has been received in confidence.
A professional accountant shall maintain confidentiality of information within the firm or
employing organisation.
A professional accountant shall take reasonable steps to ensure that staff under the professional
accountant's control and persons from whom advice and assistance is obtained respect the
290 | P a g e
professional accountant's duty of confidentiality.
Member firms shall ensure that all who work on their behalf are trained in, and understand:
1. The importance of confidentiality;

2. The importance of identifying any conflicts of interest and confidentiality issues
between clients, or between themselves or the firm and a client, in relation to a current
or prospective engagement
3. The procedures the firm has in place for the recognition and consideration of possible
conflicts of interest and confidentiality issues.
The professional accountant shall not, however, use or disclose any confidential information
either acquired or received as a result of a professional or business relationship.
DISCLOSURE OF CONFIDENTIAL INFORMATION

The following are circumstances where professional accountants are or may be required to
disclose confidential information or when such disclosure may be appropriate:
1. Disclosure is permitted by law and is authorized by the client or the employer;

2. Disclosure is required by law, for example:
a. Production of documents or other provision of evidence in the course of legal
proceedings; or
b. Disclosure to the appropriate public authorities of infringements of the law that
come to light.
3. There is a professional duty or right to disclose, when not prohibited by law:
a. To comply with the quality review of ICPAR or professional regulator or
professional body;
b. To respond to an inquiry or investigation by ICPAR or regulatory body;
c. To protect the professional interests of a professional accountant in legal
proceedings; or
d. To comply with technical standards and ethics requirements.
EMERGING TRENDS IN TAXATIONS
RRA ADMINISTRATIVE MEASURES TO COPE UP WITH COVID

1. Extension of Quitus fiscal 2020 validity: This has been extended up to 15/02/2021 for all
taxpayer appearing in the list
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2. Extension of deadline for rental income tax and trading license: this has been extended to
28/2/2020
3. Temporary suspension of strict debt recovery measures, customs comprehensive audits
and motor vehicle ownership transfer services : both in domestic taxes and customs
services, garnishments on taxpayers‘ bank account and public auction of seized
assets/goods will temporarily be put on hold until the end of February
4. Custom services has suspended all comprehensive audits that require physical interaction
with the taxpayers and remained with the desk audit only
5. The service of motor vehicle ownership transfer have been suspended
6. Flexibility in the customs operation: prioritise and expedite immediate release of goods
based on risk management and pre clearance mechanism of essential goods
REQUIREMENTS FOR QUITUS 2020 APPLICATION

1. Has filed taxes at least of profit of at least declaration of profit tax for last 2years abd
VAT for last 12 months
2. Has imported at least 4times the last year
3. Has imported the goods with the CIF value worth 20,000,000RWF
4. Has not been involved in the following practices intended to evade taxes
a. Under reporting of sales proved during EBM monitoring
b. Underpricing of EBM invoices
c. Claiming fictitious VAT input
d. Not invoiced in any other form of tax fraud
5. Has not tax errears both domestic and customs
6. Has no difference in VAT and income tax turnovers
7. Has not filed losses for three consecutive years unless has presented and investment
certificate
8. Has no unjustifiable losses carried forward
9. Has filed financial statements certified as required by the Law
10. Has filed VAT declarations with detailed attachments
11. Has filed PAYE as required especially for construction companies
12. Has a physical business address in Rwanda
13. Has a domestic company registration certificate
14. Has a proof of payment of tax clearance certificate
15. Has not been convicted for tax evasion
16. Use electronic payment system in paying taxes
17. Has a recommendation letter from PSF
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ADVANCED TAXATION

DR TWESIGE DANIEL ............................................................................................... 1

CHAPTER TWO .................................................................................................................... 41

CHAPTER FOUR ................................................................................................................. 126

CUSTOMS ADMINISTRATION .............................................................................. 169

CHAPTER THIRTEEN: DECENTRALISED TAX STRUCTURE ................................................... 263

Article 9: Base of Personal Income Tax

Annual taxable profit (FRW) Tax rate

RATES OF INCOME TAX FOR VEHICLES TRANSPORTING PERSONS AND

PAYMENT OF PERSONAL INCOME TAX

CAPITAL GAIN TAX

Particulars RWF RWF

Proceeds from the shares transferred 200,000 x 1,200 240,000,000

Withholding and Declaration of Capital Gain Tax

According to Article 60 of Law 16/2018, interest income is subject to a withholding tax of

Income Workings Withholding taxes

3. Interest 8,000,000 x 100/85 (since maturity is below 3

Income from Rent of

Computation of taxable rental income and tax liability

Gross income 120,000,000

TEST YOUR UNDERSTANDING

Month Notes Nature of transaction

EMPLOYMENT AND SELF-EMPLOYMENT

Factors Indicating Employment

Factors Indicating Self-Employment

PAYMENTS EXEMPTED FROM EMPLOYMENT INCOME TAX

PERSONS EXEMPTED FROM EMPLOYMENT INCOME TAX

Loan and Salary Advances

As said above, the three months‘ salary is exempted 1,500,000 x 3 = 4, 500,000

VALUATION OF BENEFITS IN KIND

Any Other Benefit/Assistance

Monthly Tax Liability

Annual Tax Liability

In addition to employment income, he carries out agriculture and livestock farming.

Computation of Taxable Employment Income of Lwewa for the Year Ended

Particulars Workings Amount RWF„000‟ Amount RWF„000‟

TEST YOUR UNDERSTANDING

(i) A monthly salary of Frw 1,000,000.

1. Pension from previous employment Frw 20,000 per month.

(a) A monthly basic salary Frw 5,000,000.

Other relevant information:

1 Annual salary 20,000,000RWF.

Other income sources:

An employee may be a member of his employer's occupational pension scheme. Any

An individual is encouraged by the Government to make financial provision to cover his

Occupational Pension Scheme

More than One Pension Arrangement

CONTRIBUTING TO A PENSION SCHEME

Statutory Pension Scheme

METHODS OF GIVING TAX RELIEF

QUALIFIED PENSION FUND

TAX EXEMPTION FOR INDIVIDUAL INCOME

TAX EXEMPTION FOR PROFIT ON AGRICULTURAL AND LIVESTOCK

Item Turnover in amount RWF

Taxable income 24,820,000 – 12,000,000 = 12,820,000

Tax liability 3% x 12,820,000 = 384,600

PROFIT ON ASSETS IN FOREIGN CURRENCY

DEDUCTIONS FROM TAXABLE INCOME/ALLOWABLE EXPENSES

NON-DEDUCTIBLE EXPENSES FROM TAXABLE INCOME

TRADING STOCK VALUE

Training and Research Expenses

Computation of Adjusted Profit

Computation of Taxable Income for the Year Ended 31/12/2016