Tax experts and industry players have expressed concerns about the newly introduced sales tax on immovable property, which they claim is vague and too high.

In the new tax law, the government is introducing a 5 per cent tax on sale of any immovable property above Rwf30 million.

However, tax experts have said that, much as the principle is permissible, it is on the higher side, especially for companies, which are already paying capital gains.

“The principle is not wrong, but 5 per cent is high,” said Frobisher Mugambwa, the senior manager tax services at the audit firm PricewaterhouseCoopers.

“There will be a situation where companies will be overtaxed.

He said the tax is also vague, in that it does not properly define what is meant by “sale.”

Mr Mugambwa argued: “The way it is, even people or companies that will be transferring property to another company or individual will be taxed.
“The term ‘sale’ will need to be well defined by the law; they have to be careful with the wording.

“We hope that this tax will not be extended to companies, which are already paying capital gains tax; 30 per cent and an additional 5 per cent on the sale of company property will be too high for them.”

When contacted by Rwanda Today, Angello Musinguzi, manager, tax services at KPMG, said the tax does not favour investors.

“The principle is good because it aims at taxing people who are in informal sector,” said Mr Musinguzi. “Some people sell property worth billions of Rwandan francs tax-free because they are not tax residents.

“But the tax of 5 per cent does not favour investors who sell their property at a loss because they will still pay this tax despite losses.”

The tax on immovable assets is taxing capital gain on sale of assets, which is a good idea, he said, adding that, it should however be categorised as capital gains tax and computed as per CGT rules.

“The charging of 5 per cent tax on proceeds from immovable assets makes it sales tax, the type of tax that was abandoned in the year 2000 and replaced with the current value added tax,” he added.

When contacted by Rwanda Today, Charles Haba, the president Real Estate Association of Rwanda, described the tax as prohibitive, adding that introducing it was likely to undermine progress in the construction sector.

“We moved away from 3 per cent to a flat fee 10 years ago,” said Mr Haba. “This tax is going to take us back and will also be exposing us to risks.

“Five per cent is prohibitive; the more property exchanges hands, the more the economy grows.

“This tax is going to discourage transactions. If somebody knows the taxman is going to take away much, it discourages them from transacting.”

The tax is also likely to further make life difficult for people whose assets have been clamped by banks and are required to sell them to repay loans.

Many industry players have found the new law, which will come into force soon, unfair to local investors and other groups.

Much as some of its changes — such as exemptions on withholding tax on interest earned on savings and deposits for one year and above — are seen to be a good move which will boost savings and increase liquidity in the financial sector, other changes have been a point of pain.

A withholding tax of 15 per cent on intercompany dividends is one of the new taxes that have been highly contested by local firms, with experts saying it will hurt local companies.

The other point of contention is the decision to increase road maintenance levy by Rwf20 per litre of fuel, which is expected to increase prices of goods, with the pinch being likely to be felt by the consumers.