The Private Sector Federation (PSF), the umbrella arm of the business community in Rwanda has appealed to Rwanda Revenue Authority (RRA) to scrap the Value Added Tax (VAT) on the advance payment received by construction companies.

Construction companies in Rwanda are required to pay VAT on advance payment they receive from their clients, adding up to 20 percent of the total payment.  The PSF and constructors say that the VAT charge on advance payments is unfair because the payment is provided to facilitate the smooth commencement of construction work. In total they pay 20 percent of the payment. 

"When we receive an advance payment on our contracts, we use it to kick-start our work but not to provide services to the public. Therefore, while paying back the fund, we should not pay VAT, since the tax is meant to be charged on services rendered,” Paul Mubiligi, the President of the Constructors’ Association told Business Times.

Mubiligi together with the Chief Executive Officer of the PSF, Rogers Munyampenda, requested RRA to address the persistent taxation challenges affecting the construction sector.

The request, which was made yesterday during a meeting between players in the construction industry and RRA, is part of the wider effort by the PSF to lobby for a favourable tax regime across all sectors in order to promote business and increase investment in the country.

RRA’s Commissioner General, Mary Baine, urged the private sector for more collaboration in order to reduce the ambiguity in tax related matters in the construction sector and other sectors of the economy.

"In November last year, it was recommended that for purposes of massive sensitisation on tax information, we should meet with all chambers under PSF and discuss with them tax regulations that concern them,” Baine said.

Another issue raised by the constructors involved the withholding tax imposed on services rendered by non-registered clients, such as the bricklayers, whereby the Constructors’ Association is required by RRA to collect 15 percent of the tax from their services and remit it to the tax authority.

According to Mubiligi, the tax collection exercise is not a prerogative of the authority and should be done by a tax institution.

"Collecting the 15 percent from the unregistered clients is an overload on us and is not our objective. Instead, RRA should create a system where all these clients are also registered and taxed independently,” Mubiligi added.

Ends