Various changes in tax laws are taking effect, all aimed at reducing tax rates, broadening the tax base, improving tax compliance, and curbing tax evasion. The overarching goal is to ensure that tax revenues increase by 1% of GDP by the fiscal year 2025/26.

The year 2023 witnessed comprehensive tax revisions, beginning with the law on tax procedures to streamline tax processes, the law establishing value-added tax, the law establishing excise duty, amendments of the law establishing taxes on income, and the law determining the sources of revenue and property for decentralized entities, which reviewed taxes and fees collected by such entities.

A big number of taxpayers begun benefiting from the new changes, including but not limited to paying income tax at the reduced rate of 28%, down from 30%, reduced fines and penalties, the revised tax brackets for computing Pay As You Earn, and others.

Moving forward, the trading license tax for 2024 is scheduled to be declared and paid by January 31, 2024, while the rental income tax for 2023 and the tax on immovable property, specifically for buildings and related plots of land, are set for February 29, 2024.

In this article, we delve into the changes in the law determining the sources of revenue and property for decentralized entities, regarding fees levied on services and certificates delivered by decentralized entities, tax on the surface of land, rental income tax, trading license, and tax on immovable property.

1. New tax rate per square meter of the surface of land

In the new ministerial order, the tax rate per square meter of the surface of land was reduced from a range of zero to Rwf300 to a range of zero to Rwf80 per square meter.

From these limits, the District Councils and the City of Kigali set respective rates considering the location of the land, be it urban and rural, and usage, be it for agricultural, residential, industrial, or commercial purposes.

Land used for agricultural, livestock, or forestry activities, with an area equal to or less than two hectares, is exempt from immovable property tax. The same applies to land reserved for the construction of residential houses without basic infrastructure like roads, water and electricity.

2. Ease of tax for residential buildings

Prior to the revisions, the law stipulated a tax rate of 1% of the market value of a building, with the related plot taxed separately. The new law has reduced the tax rate to 0.5% of the market value of the residential building and related plot.

An exemption is granted for one building intended for the owner's dwelling, along with its annex buildings, located in a residential plot for one family. If the owner has multiple residential buildings, only the building intended for their dwelling is exempt; other buildings are taxed at a rate of 0.5%.

3. Exclusivity on residential storeyed houses

The new provisions aim to enhance land use and promote storeyed buildings. A plot and a building for residential use with three floors are taxed at a rate of 0.25% of their market value, reduced from the initial 0.5%. For buildings with more than three floors, the tax rate is further reduced to 0.1% of their market value.

When a tall building contains different houses (condominiums) with different owners, the related land is exempt from taxes, while the owner pays taxes for their personal space.

Other exemptions include immovable property owned by vulnerable persons, as determined by the District Council or the Council of the City of Kigali, and immovable property belonging to foreign diplomatic missions in Rwanda, if their countries do not levy tax on immovable property owned by Rwanda's diplomatic missions.

4. New tax for commercial buildings

In the latest changes, the tax rate for commercial buildings was reduced from 0.5% to 0.3% of the market value of the building and the related plot, consolidating the two separate tax rates.

5. Taxes for industrial buildings

In this category, the tax rate remains at 0.1%.

However, unlike the previous situation, when buildings and related plots were taxed separately, the market value of the building and related plot of land for industrial use is now counted together. This applies to buildings and plots belonging to micro-enterprises and small businesses.

Machinery and other equipment attached to the building are not considered in determining the taxable value of a commercial or industrial building.

6. Exemption on land used for agricultural activities

The law exempts land used for agricultural, livestock, or forestry activities with an area equal to or less than two hectares from immovable property tax. For land over two hectares, only the exceeding surface is taxed, based on rates approved by the District Council.

7. New tax on sale of immovable property

This tax is levied on the balance of the sale value of the property after deducting Rwf5 million, which is not subject to tax.

If the sale value exceeds Rwf5 million, the extra amount is taxed at a rate of 2% for an immovable property with commercial use if the seller is a taxpayer registered for income tax. A rate of 2.5% is levied on the sale value of an immovable property sold by a person not registered for income tax, further protecting low-income earners.

8. Rental income tax

Rental income tax is applicable to income from rented buildings or any other rented immovable property in Rwanda. The taxable rental income is calculated by deducting 50% from the gross rental income, assumed as the expenses incurred by the taxpayer on maintenance and upkeep of the property. This deduction remains at 50%, regardless of whether the owner has undertaken any renovations.

If the taxpayer provides proof of bank interest payments on a loan for the construction or purchase of a rented property, the taxable rental income is determined by deducting 50% from the gross rental income, along with the actual bank interest paid from the beginning of the rental period within the tax period.

The rental income tax rate is structured as follows: 0% for an annual rental income from one Rwandan franc to Rwf180,000; 20% for an annual rental income from Rwf180,001 to Rwf1,000,000, and 30% for an annual rental income above Rwf1,000,000.

9. New trading licence tax

The trading license tax is paid by any person opening a business activity within a district. The new rates for trading license tax aim to ease the burden for traders who previously had to pay various fees monthly, including cleaning fees and market fees.

Under the new changes, businesses with different turnovers will not pay the same amount. For example, the annual due tax for turnovers ranging from Rwf2,000,000 to Rwf7,000,000 is Rwf100,000, and for turnovers from Rwf7 million to Rwf12 million, it is Rwf120,000. Various categories are set until a turnover of Rwf50 billion which requires a payment of Rwf2,000,000 for a trading license. The due amount can be paid in quarters.

For taxpayers engaging in seasonal or periodic trading activities, the trading license tax is paid for the entire year, even if taxable trading activities do not occur throughout the whole year. If a business operates across multiple districts, the taxpayer files a declaration of trade license tax in each district where they operate.

The trading license tax, assessed by the taxpayer, must be paid to the tax administration no later than January 31 of the tax year. Micro-enterprises and small businesses are exempted from the trading license tax during the first two years following their establishment.

10. Waived fees for decentralized services

To facilitate access to various services, some fees were waived, including the Rwf30,000 fee for land transfer services. This fee posed a hindrance, especially in cases where land ownership transfer didn't involve monetary transactions, such as a parent gifting plots to their children.

Other waived fees include market and public cleaning services fees that were monthly charged, fees for certificates of land registration, renovating buildings, fencing, construction in rural settlements, certificates of being alive and certificates of death.

While these reductions and waivers may temporarily impact generated income, the Ministry of Finance and Economic Planning expresses hope that as the economy evolves over time, the tax base will also grow.

Enhanced education, improved compliance, streamlined tax procedures, and the use of technology and data analytics are expected to contribute to an increase in the number of compliant taxpayers, hence an increase of tax revenues. Timely payment of due taxes will help bridge any possible gaps as well.

Declarations can be done through the RRA website, or by dialling *800#.