Micro finance institutions misinterpreting tax law - RRA

Micro finance institutions are not double taxed as has been claimed, the Rwanda Revenue Authority has said.Richard Tusabe, the Rwanda Revenue Authority deputy commissioner, said the issue of value added tax (VAT) being levied on both leased equipment (generally at customs) and on payment of rentals by the lessee, which microfinnce banks considered as double taxation, is a misunderstanding. “There is no double taxation because when leasers are setting the amount of monthly rentals (price) to be paid by lessees, normally, they should not include the amount of VAT paid during acquisition of the leased asset since they recover that VAT when they submit their returns. That VAT input is offset from the output VAT,” Tusabe, who is also in charge of domestic customs, explained.The Association of Microfinance Institutions of Rwanda (AMIR) over a month ago complained to the Prime Minister that huge taxes, including double taxation on some products, were making the cost of loans, especially on leased assets, very expensive. Tusabe noted that because the issue was not about the law but rather the challenges that emanate from its implementation, the revenue body and the Private Sector Federation (PSF) would soon convene a meeting with all the actors in the leasing business to explain how VAT should properly be charged on leased assets. The Association of Microfinance Institutions of Rwanda (AMIR) argues that according to the law, a lease loan is viewed as any other service loan and therefore subjected to an income tax of 30 per cent. The association wants the loan to be considered as any other loans since the group supports mostly the unbanked and the neglected segment of the population. “We have been engaging the Rwanda Revenue Authority through PSF about the matter, but all they have told us is that 18 per cent income tax on collateral will be refunded with no interest at the time of declaring returns. But this is unfair considering that they refund it after three or so months without interest,” Damascene Hakuzimana, the Association of Microfinance Institutions of Rwanda communications officer, said in an interview with Business Times. “We are here to ensure that poor people, who don’t have collateral can access loans, but this is becoming hard for us. In fact, the drive to increase access to finance and fight poverty is being compromised,” Hakuzimana noted.New micro finance institutions are exempted from paying corporate tax for the first five years of operation. In a recent meeting with the business community, the Prime Minister Piere Damien Habumuremyi, directed the tax body to engage them and find a solution within two weeks (which have since elapsed). Tusabe said apart from the misunderstanding on how the lease tax should be applied, micro-finance institutions have not raised any other serious tax issues with the tax body.