Rwanda:Government targets more revenues under new immovable property law

By: James Karuhanga

Minister Gatete. Nadege Imbabazi.

Rwandans with low income will be able to acquire decent homes by exempting them from building tax on the value of an affordable house in a new legislation that also seeks to increase tax rate on immovable property such as land and buildings.

The draft law was tabled before Parliament by Finance and Economic Planning minister Claver Gatete on Wednesday.
The minister said studies show that Rwanda’s current immovable property tax rate of 0.1 per cent was too low compared to other countries in the region.
MPs urged caution but still accepted the general rationale of the new draft law that revises the 2011 law establishing sources of revenue and property of decentralised entities and governing their management.
It is a revised piece of legislation that Gatete said comes to, among others, purge loopholes identified in the implementation of the current law.
In the draft law, the tax rate on buildings was increased from 0.1 per cent to one percent of the market value of a residential building; and from 0.1 percent to 0.5 per cent of the market value of a commercial building.
But the same is maintained at 0.1 per cent of market value for industrial buildings and those owned by small and medium enterprises so as “to support the development of the industrial sector and that of nascent enterprises,” with focus to the Made-in-Rwanda policy.
Land lease fee brackets were replaced by a land tax range of Rwf0 to Rwf500 per square metre. A Ministerial Order, it is indicated, will determine different ranges and criteria on which District Councils shall base to set specific tax rates per area.
There is an additional tax to discourage inefficient land use and undeveloped parcel of land. To encourage efficient use of land, the normal tax rate will increase by 50 per cent on every square meter of land in excess of the allowable standard size of a parcel of land – for residential and commercial buildings.
An additional tax rate of 100 per cent to the ordinary tax rate will be applied to any undeveloped parcel of land, it was noted.
In addition, it is proposed that there be some exemptions on land and immovable property tax in the current law. Exemption of immovable property exclusively used for medical services, research and religious activities were removed.
According to the minister, the rationale is that they were eroding the tax base and bringing distortion in tax administration without a strong rationale.
MP Constance Mukayuhi Rwaka, the chairperson of Standing Committee on National Budget and Patrimony, cautioned that amendments in the draft law had better be realistic and reflect the reality of the country’s tax base.
MP Ignacienne Nyirarukundo said taxpayers, especially unemployed home owners in the city, need not to be “squeezed.”
MP Theobald Mporanyi said: “These taxes are high. The minister says they conducted research, but conducting research and gathering information are different issues.”
According to the minister, in-depth research was conducted and results will be availed to lawmakers.
However, MP Abbas Mukama welcomed the removal of exemption of immovable property exclusively used for medical services, research and religious activities saying it was “long overdue.”
Support low income earners
Gatete said the Bill also comes to support Rwandans with low income to acquire decent homes by exempting the building tax on the value of an affordable house, and increase the exempted portion on the gross rental income to cover costs for maintenance of rented property in line with current market conditions.
He told the lawmakers that anyone who owns a residential house valued at less than Rwf30 million will not be required to pay tax on the house.
“If you are above this, they will first deduct the amount on affordable housing. This means that if you own a house currently valued at Rwf40 million, the taxable amount is Rwf10 million only. If your house’s value is Rwf50 million you only get taxed for the Rwf20 million extra alone,” he said, shedding light on the matter.
The Government is also keen on giving incentives to property developers who construct high rise residential apartments and help exhaust the possibilities efficient land use.
The current law’s revision, the minister explained, is aimed at implementing recommendations of the 12th leadership retreat which called for review of land taxation in a way that promotes efficient land use, among others.
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