Since 31/03/2022 is the deadline for declaration and payment for 2021 Income Tax, we have compiled and documented the most important changes that income taxpayers need to take note of in order to avoid any penalties as provided for by the tax law.

According to recent tax data analysis, there is a remarkable difference between the tax reveunes collected and the actual taxpayer turnover due to tax evasion. Some of the malpractices that traders use in order to evade tax payment, include undervaluation of goods during customs declaration, not issuing EBM receipts, and issuing counterfeit receipts amongst others.

In order to address such tax evasion issues, as well as the inequalities between compliant and non-compliant traders (as some would benefit a lot more than the others because those who evade taxes don’t sell at the same price as those who don’t) particulary those who deal in spare parts, lubricants, construction materials, mines, supermarkets, shopping malls, hotels, restaurants and others, in 2020, RRA introduced the "EBM For All” policy which obliges all traders, both VAT and Non-VAT registered to adopt the EBM issuing culture as provided by tax Law in Rwanda. In the same year, it was also announced that during the tax declaration period for the fiscal year 2021, exepenses not supported by the EBM invoices or customs declarations will not be accepted as deductible expenses during income tax declaration for the tax period of 2021.

There have since been intense awareness campaigns through various media channels and interface with traders across the country by the RRA leadership. These interfaces enable the RRA management to explain the EBM for All project. The Authority has also undertaken various consultative meetings with various business sector representatives to ensure that these changes are understood early on and that the challenges faced by each business sector is  addressed as appropriately. The agriculture and construction sectors are some of the sectors whose challenges were ably addressed as a result of these consultations.

Even though there has been an EBM solution for Non-VAT registered traders, at the beginning of 2021, RRA introduced 5 more new EBM solutions in order to facilitate everyone to comply with the new tax law. Further still, in order to facilitate taxpayers to declare their deductible expenses with no challenges, RRA allowed taxpayers who acquired non-EBM receipts since the beginning of 2021 to enter them into the EBM system so that they can be able to declare them during the 2021 income tax declaration.

Use of technology for invoice verification during the declaration of 2021 income tax

In order for the declaration of income tax to be carried out in accordance with the provisions of the law, to ensure that deductible expenses are indeed supported by valid EBM receipts or Customs declaration (DMC), RRA has introduced a technology that will help in verifying whether the information provided on deductible expenses during the declaration really meets the requirements.

This "expenses validation control" system relies on the information stored by the RRA systems and other related systems to verify the authenticity of the information provided during the tax declaration. This will prevent taxpayers from declaring deductible expenses that exceed what is recorded in the system, whether they are supported by EBM receipts or the Customs declaration (DMC).

Through various discussions between RRA and various categories of traders, where it has been pointed out that there are expenses for which traders can’t find EBM receipts, based on an in-depth analysis, taxpayers were allowed up to 27% deductible expenses that are not supported by EBM receipts or cutoms declaration, of all the allowable deductible expenses for the year 2021 supported by EBM and customs declaration or withholding tax declaration.

When the value of deductible expenses that are not supported by EBM receipts, customs declaration or withholding tax declaration exceed 27%  yet there is proof that they were indeed brought, the taxpayer is required to declare the allowable expenses and then visit the nearest RRA office or send the declaration via e-mail deductibleexpenses@rra.gov.rw and wait for a response in due time.

RRA warns traders who might attempt to misuse this 27%, that the "expense validation control” will be effectively used to ensure that expenses declared are valid (genuinely have no EBM receipts). RRA also urges those who do accounting to do so in accordance with what the law provides in relation to this.

RRA further urges all traders to verify if their physical stock records match with what is recorded in the EBM system. This will enable each trader to identify products that were sold without issuing EBM receipts in order to rectify that. It will also relieve some traders of the penalties they could incur due to related mistakes, hence pay only the basic tax. However, RRA affirms that it has records of every trader’s stock, and warns that those who will not comply with this will be penalized in accordance with the law.  

All taxpayers are also advised to do tax declarations ahead of time as this will help them to get farmiliar with the changes in the system as well as seek RRA support where needed. It is in this recurring training sessions have been established to help taxpayers undertsand how to declare income tax based on actual interest. An e-mail (deductibleexpenses@rra.gov.rw) has also been set up for anyone who needs the training to send their request and there are also tutorial videos on youtube

As this policy will still be applicable for deductible expenses of the year 2022, RRA urges  everyone to always ask for EBM receipts at every purchase, as well as traders to continue issuing the receipts to every buyer. Traders are also required to keep their EBM receipts properly, even those that are not yet in the real regime category.