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Key considerations in the new trading license tax calculations

The deadline for filing and payment of trading license tax for the year 2024 has been extended. Taxpayers can now file and pay their taxes until February 15, well ahead of the deadline, to avoid last-minute pressures.

The trading license tax applies to anyone initiating a business activity within a district, and taxpayers must file a tax declaration with the tax administration not later than January 31 of the corresponding year.

However, considering the time constraints faced by many taxpayers in fulfilling their tax obligations, the Rwanda Revenue Authority (RRA) has announced an extension of the deadline for filing and payment of the trading license tax for the year 2024 until February 15, 2024.

"The above extension is offered to taxpayers intending to pay the annual trading license and those opting for the declaration of the 1st quarter of 2024. Taxpayers are encouraged to declare and pay ahead of time instead of waiting for the deadline day," reads the communique signed by Commissioner General, Bizimana Ruganintwali Pascal.

Lawmakers proposed new trading license tax rates with the intention of alleviating the burden of monthly declarations on taxpayers who had to simultaneously pay various fees, including waiving monthly cleaning fees and market fees.

Ernest Karasira, Assistant Commissioner in charge of Provincial and Decentralized Revenue Division, explained the rationale behind the trading license tax proposal, emphasizing consideration for businesses capable of determining their turnover and those that cannot.

This change is significant as, previously, only businesses registered on value-added tax and those not registered on this tax but exceeding the Frw 20 million turnover, could use their turnover for trading license tax calculations. Initially, a business with up to Frw 50 billion had to pay the same trading license tax as those with Frw 150 million turnover. Now, different categories have been initiated.

According to Law nº 048/2023 of 05/09/2023, determining the sources of revenue and property of decentralized entities, the trading license tax can be paid at once for the whole year or quarterly.

For businesses capable of determining their turnover, the annual due tax for turnovers ranging from Frw 2 million to Frw 7 million is Frw 100,000, and from Frw 7 million to Frw 12 million, it is Frw 120,000. Various categories are set, until a turnover of Frw 50 billion and above, which requires a payment of Frw 2 million for a trading license.

Other profit-oriented activities not registered on income tax, in urban zones, pay Frw 60,000 per year, and Frw 30,000 in rural areas. This amount can be paid in four quarters as well.

Individual transport activities by vehicle pay Frw 40,000 per year, and transport activities by boat pay Frw 20,000. Transport activities by motorcycle are subject to paying a trading license of Frw 8,000 per year or Frw 2,000 per quarter.

"The best thing I can mention is that this law brought new provisions that businesses can use different ways of paying their trading license tax. You can pay the whole amount for the year; if it is like Frw 300,000, you can transact them at once, or you can opt to pay quarterly," Karasira said.

"We have divided a year into four quarters so that you can pay taxes for the first quarter in January, the second in March, the third quarter in June, and the fourth quarter in September, completing the trading license tax for the year. This was introduced to ease the service for traders who don’t have enough financial capabilities but also for those who can pay the whole amount at once, as provided by the law," he added.

If a taxpayer has branches located in a district other than that of the head office, the trading license tax is unique and calculated based on the turnover of the branch with the highest turnover.

"However, if a business owner has different branches in one district, for example, a bank with five branches in Kicukiro district, it will pay taxes for one branch, and the remaining four will be exempted from trade license tax. However, if all the branches are located in the same district as the head office, the taxpayer pays the trading license tax according to the turnover of the head office," Karasira added.

He urged concerned taxpayers to declare and pay ahead of time, emphasizing the importance of avoiding the last-minute rush that can lead to unintended penalties.

"We now know the deadline; it is important to declare and pay ahead of time. For those who can’t pay immediately, they can submit their declarations and reserve the time to pay before the deadline," he urged.

The trading license tax assessed by a taxpayer himself is paid to the tax administration not later than January 31 of the tax year. If taxable trading activities start after January, the taxpayer pays trading license tax equivalent to the remaining months of the year, including the one in which the activities started.

In case the taxpayer terminates or changes his/her business activities during a tax year, he/she is, after an audit, refunded the paid trading license tax depending on the remaining months until 31st December of the tax period.

Persons exempted from the trading license tax include non-commercial public institutions and micro-enterprises and small businesses during the first two years following their establishment.

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