Tax treatment of the transport allowance given to employees is sometimes problematic. Some employers give the allowance in cash and this should be added to the gross pay. Others prefer to give their employees company vehicles to facilitate their work and they use these even for private affairs.

This is a benefit in kind and should be taxed as explained in our previous articles on taxation of benefit in kind.

Another commonly cited problem is the tax treatment of foreigners. All foreigners working in Rwanda are not diplomats and should pay taxes. This applies to both workers in not for profit organisations and profit making organisations. Exempted persons and income were explained in the previous article for your ease of reference.

Treatment of housing allowance has caused some problems to certain employers. Some employers opt to avail accommodation to their staff. This is common among senior staff of organisations. This is a benefit in kind and should be charged tax in a manner described in the previous benefit in kind article. In the event housing allowance is given to staff in cash, it should be added to gross pay of the employee.

Even other costs on the house such as house guards and gardeners to the employee paid by the employer are benefits in-kind and should be taxed.

Loans and advances provided by the employer to employees. In some cases, organisations avail loans and advances to their employees at reduced or interest free rate. The law requires that income on a loan including advance on a salary exceeding a three months salary given to an employee is valued at a difference between: 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 commercial banks by the central bank and the actual interest paid by the employee in that month.

Telephone allowances given to employees should be taxed. This is a common benefit in kind employers ignore to include in the gross pay.  In most cases, employees use this allowance for business and private purposes. The law requires that an expense to be allowed for tax purposes should be wholly and exclusively for business purposes. Telephone allowance should be added to the gross pay unless the employer can sufficiently demonstrate that it was used for business purposes only.

In some cases, organisations employ people for a short period of time and call them casual labourers. Even consultants are sometimes referred to as casual labourers. This is not a correct treatment. A casual labourer is defined as an employee or worker who performs unskilled labour activities, who does not use machinery or equipments requiring special skills, and who is engaged by an employer for an aggregate period not exceeding 30 days during a tax period.

PAYE computation is still a problem to some taxpayers.

Some employers simply apply 30 per cent to payments they make to staff to arrive at the tax due. This is not correct as the first Rwf30,000 is exempt while the next Rwf70,000 is paid at 20 per cent and the rest is charged 30 per cent. 

Employers and self employed persons should take care and compute taxes properly since the interests and penalties for non compliance are very heavy. In the event PAYE is not computed properly, interest is paid to RRA based on the interbank offered rate of the central bank increased by 2 per cent and this is not compounded and is still payable even upon appeal by the taxpayer. Interest accrued does not exceed 100 per cent of the amount of tax.  Please note that in addition to interests, fines are also payable.

Angello Musinguzi is a Tax Manager at KPMG Rwanda
E-mail: amusinguzi@kpmg.com

Tel: +250252579790/0788507675.