The Rwanda Revenue Authority hopes to gain from the new income tax. FILE PHOTO | CYRIL NDEGEYA | NATION
The Rwandan government has started enjoying the benefits of the
new income tax law. However, some businesses say it has hit their
earnings.
The law, which came into force on April 16,
has widened the government’s tax net and promises better income flows to
fund the country’s budget.
“This is a good law,” said
Richard Tusabe, Commissioner-General of the Rwanda Revenue Authority,
adding that it widens the tax base, plugs domestic revenue leaks and
promotes business growth.
In this fiscal year, the taxman was tasked to collect Rwf1,351.7 billion ($1.5 billion) in domestic tax revenues.
As
a way of sealing the gaps employers and employees have been using to
avoid paying income taxes, the new law defines an employee and
introduces a 30 per cent income tax on wages and salaries.
It
has also roped in workers who previously preferred contracts so as to
pay 15 per cent withholding tax. The new law has also abolished the
three per cent lump sum withholding tax professionals in private
practice used to pay, and introduced a 30 per cent corporate income tax.
Direct or indirect sale or transfer of shares or debentures now
attracts a 5 per cent withholding tax, which is meant to ensure that
foreign companies that sell shares in a local company declare taxes on
gains made from the sale.
Tax experts argue that the
previous law was unable to fully capture such transactions. With the new
law, sitting allowances and similar payments to boards of directors are
now taxable at a rate of 30 per cent.
Whereas under
the repealed law it was the company that had to incur the tax cost,
under the new law, it is the directors who bear the tax cost.
Management,
royalty and technical fees paid to non-residents have been capped at 2
per cent of the company’s turnover. Anything above that is now taxable.
But
experts at PricewaterCoopers (PwC) say the provision could be
misinterpreted to mean that it captures all such payments to
non-residents.
Experts at PwC want the Commissioner
General to clarify this, given that a number of companies outsourcing
most of their core functions to non-resident entities could be
significantly affected.
The income tax law also
requires multinational companies to produce proof justifying the prices
of services and goods purchased or provided by sister companies to guard
against inflating costs, which impact the final corporate income tax
businesses pay.
Small businesses have been saved from the lengthy and costly process of proving insolvency.
The
new law has introduced a clause that says that for an individual whose
debt is less than Rwf 3 million ($3,400), the taxman does not need to
prove they are insolvent but rather that it has taken all reasonable
steps over three years to recover the debt.
But as the taxman rakes in more revenues, companies say their earnings have taken a hit.
Victor
Madiela, managing director of Bralirwa,the Rwanda Stock Exchange-listed
brewer, said the income tax law adversely impacted income and profit in
the first six months of 2018.
Bralirwa paid an
additional Rwf100 million ($115,574) in tax to comply with the law,
which increased withholding tax on dividends from 5 per cent to 15 per
cent.
This, according to the brewer, impacted shareholders based outside the East African Community.
MTN Rwanda CEO Bart Hofker also said that the new law has increased the telco’s tax burden, without giving details.
He
added that they are in discussions with RRA on interpretation of the
law. He said the firm paid Rwf27 billion ($307 million) in regular taxes
last year. It remains unclear whether MTN Rwanda will pay dividends to
its shareholders, who include MTN Group, which has 80 per cent stake,
and Crystal Telecom, an RSE-listed company.
Hofker said
much as is willing to pay dividends, is waiting for final outcome of
the negotiations MTN Rwanda has started with RRA on interpretation of
the new law.
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