Government introduces new tax on residential houses

A residential neighbourhood in Rebero, a Kigali suburb. Sam Ngendahimana.

People who own extra residential houses will soon start paying a property tax for each extra housing unit as part of new efforts to broaden sources for district revenues.

This is one of the highlights of a new bill on property tax passed by parliament on Thursday.

 

Referred to as the law determining the sources of revenue and property of decentralised entities, the draft legislation exempts only homeowners with one house that they live in but anyone else with an extra house that they do not stay in will be required to pay a property tax amounting to one per cent of the house’s value every year.

 

The tax will be paid by all owners of more than one residential home in the country regardless of the value of the house.

 

Some members of the parliamentary standing committee on National Budget and Patrimony in the Lower House, that analysed the new draft law before it was passed by the chamber, told The New Times that taxing extra residential homes is likely to boost district revenues.

“It’s a new tax and districts should be able to benefit from it,” said Théobald Mporanyi, a member of the committee.

Another member, Francesca Tengera, said districts need to raise their revenues in order to provide critical infrastructure that residents need.

“Taxes are progressive; the more you have the more you should contribute to the economy. Everyone needs a road, water, and electricity, there is no way districts will provide these services without generating revenue,” she told this newspaper on Friday.

The one per cent tax rate of the market value of residential houses will be applied on an incremental basis over a period of four years with owners paying 0.25 per cent in the first year, 0.5 per cent in the second, 0.75 per cent in third year and ultimately one per cent in the fourth year and onwards.

“The approach is a way of helping people to get used to paying the tax,” Tengera said.

Once it’s published in the official; gazette, the new legislation will effectively replace the old law, which was enacted in 2011. It outlines the sources of revenue for decentralised entities, including decentralised taxes, fees and charges levied on services rendered to citizens by local administration, transfers from central government, loans, and interests from their business activities and other grants from donors.  

The new legal instrument was informed by resolutions from the 12th National Leadership Retreat in 2015 which proposed the review of land tax law to promote efficient land use and help increase district revenues to enable them to provide basic infrastructure and other services to citizens.

Currently, districts heavily rely on central government funding that accounts for more than 90 per cent of their finances.

Apart from residential houses, the draft law also governs a number of taxes on many other things, including rental income, trading license, commercial buildings, as well as industrial and small and medium enterprise buildings.

The Ministry of Finance and Economic Planning said in a statement released after parliament passed the draft law on Thursday that the new property tax law is crucial for decentralised entities as it will allow them to mobilise the resources needed to provide the basic infrastructure for economic growth and efficient services delivery.

It said that new revenues collected by districts as a result of the reviewed law on property tax will be used to fund the implementation of different construction master plans across the country.

The ministry said that tax administration authorities will ensure smooth implementation of the new property tax law to achieve the intended objectives without overburdening taxpayers.

editorial@newtimes.co.rw

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