The Government has proposed a new law that seeks to levy of 5 per cent on the sale or free transfer of immovable property such as houses and land.
The proposed law governing income tax is being debated at the committee level in the Lower House by members of the parliamentary Committee on National Budget and Patrimony.
If enacted into law, it will replace Law no16/2005 of 18/08/2005 on direct income taxes and all prior legal provisions in the country that will be contrary to its new provisions.
While most provisions in the proposed law are about the already existing taxation arrangements, its provisions on taxing the sale or free transfer of immovable properties constitute a new approach to taxing business based on individual sale of immovable property.
Under the current income tax law, the sale or free transfer of immovable properties owned by companies is taxed but the levies are not applied when the property is owned by an individual.
Now the proposed income tax law seeks to impose a tax on the sale or free transfer of immovable property if it’s of high value in line with the threshold decided by the ministry in charge of infrastructure.
The provision is found in Article 35 of the proposed 60-article income tax law.
“Without prejudice to provisions of Paragraph One of Article 17, any immovable property sold or transferred for free to a third party is liable to a tax of 5 per cent . The tax on sale of an immovable property shall be withheld by the buyer on the sale price, it must be declared and paid by the buyer within 15 days following the end of the month in which the sale was done,” reads Article 35 of the proposed income tax law.
Article 17 of the draft law expounds on income on commercial activities, which has to be taxed in line with income tax law principles.
Under the proposed income tax law, the tax on transfer for free of an immovable property shall be calculated on the basis of the value of the immovable transferred and must be declared and paid by the recipient of the immovable within six months following the end of the month in which the transfer for free was done.
However, the proposed tax on sale or transfer of an immovable property will not apply in four cases; the sale of an affordable residential house whose value is determined by an order of the minister in charge of infrastructure, the sale of a residential house constructed and sold by a real estate developer, the transfer for free of immovable property to the child of the deceased aged below 21 years, and the transfer for free of immovable property to the surviving spouse under the regime of community of property.
The commissioner for domestic taxes at Rwanda Revenue Authority, Aimable Kayigi Habiyambere, told The New Times that the tax on the sale or free transfer of property will help the tax administrator to collect taxes on profits made by a growing number of people involved in the business of building homes and selling them.
“People would make profits without paying taxes for it. You may find that someone makes a profit of Rwf100 million after selling a house for Rwf300 million and they didn’t have to pay taxes on that income. We want to ensure that a certain income earned on the sale of land, house, or farm is taxed,” he said.
Paul Mugambwa, a senior tax manager at PriceWaterHouseCoopers, a multinational professional services network, agrees with Kayigi, explaining that in any case the new tax charges are aimed at those who are making profits and not ordinary owners of small value homes.
“The key point is to look at who is being taxed; it’s the person who is making money. That has to be clear,” Mugambwa told The New Times.
Kayigi hinted that the new tax on the sale or free transfer of homes is likely to concern homes that are worth more than Rwf30 million and those details will be put in an order of the minister in charge of infrastructure.
Debate on the newly-proposed law governing taxes on income will continue over the next few weeks at the committee level in the Lower House, a process that will allow more room for necessary modifications on the Bill.