Taxes and Customs Procedures
Senior 6 · Entrepreneurship
Taxes and Customs Procedures
Lesson 3 of 5
30 min
Kalisa, a production supervisor in Mukamana's workshop, is offered a raise from Frw 190,000 to Frw 210,000 a month. A friend warns him: "Above 200,000 you pay 30%, so you will lose money!" Is the friend right? To answer, you need to see how Rwanda's personal income tax is built: in bands, where each rate applies only to the slice of income inside its band.
Definition
Personal income tax (PIT): tax on an individual's income for the year, from employment, business and investment, at rates that rise in bands. Pay As You Earn (PAYE): the part of PIT on employment income, which the employer deducts from each month's pay and pays to RRA within 15 days after the month.
Example: Kalisa never visits RRA; the workshop withholds his PAYE and declares it.
Definition
Marginal tax rate: the rate on the last (next) franc earned. Average (effective) tax rate: total tax as a percentage of total income.
Example: on pay of Frw 350,000 the marginal rate is 30% but the average rate is under 20%.
| Monthly taxable pay (Frw) | Annual taxable income (Frw) | Rate on the slice in this band |
|---|---|---|
| 0 to 60,000 | 0 to 720,000 | 0% |
| 60,001 to 100,000 | 720,001 to 1,200,000 | 10% |
| 100,001 to 200,000 | 1,200,001 to 2,400,000 | 20% |
| above 200,000 | above 2,400,000 | 30% |
The monthly bands are RRA's PAYE rates (RRA, 2023), set by Law N° 027 of 2022; the 2023 and 2025 amendments did not change them. The annual bands, twelve times larger, apply to a sole trader's or partner's business profit. Two special cases (RRA, 2023): a casual labourer (unskilled work for no more than 30 days in 12 months) pays 15% on pay above Frw 60,000 a month, and a second employer withholds PAYE at a flat 30%.
Worked example 1: PAYE band by band
Find the PAYE on a monthly pay of Frw 350,000, the net pay after PAYE, and the average rate.
| Slice | Amount in slice | Rate | Tax |
|---|---|---|---|
| 0 to 60,000 | 60,000 | 0% | 0 |
| 60,001 to 100,000 | 40,000 | 10% | 4,000 |
| 100,001 to 200,000 | 100,000 | 20% | 20,000 |
| 200,001 to 350,000 | 150,000 | 30% | 45,000 |
| Total | 350,000 | 69,000 |
Net pay after PAYE: francs. Average rate: .
Note: employers also deduct social security contributions for RSSB. These are separate from PAYE and are not part of this calculation.
Adding the full lower bands once gives a formula for any monthly pay (in francs):
The constants are the tax on the full bands below: , and . The graph shows the result: a line that never jumps, only gets steeper.
Worked example 2: Kalisa's raise
Before: : PAYE ; net 168,000.
After: : PAYE ; net 183,000.
Effect: the raise of Frw 20,000 adds Frw 5,000 of tax, so Kalisa keeps Frw 15,000 more each month. Only the Frw 10,000 above 200,000 is taxed at 30%. His friend confused the marginal rate with a rate on all his pay; because the PAYE line has no jumps, a raise in Rwanda always leaves the employee better off.
Worked example 3: a sole trader's annual tax, and incorporating
Uwase runs a printing business as a sole trader under the real regime. Her taxable profit for the year is Frw 3,600,000.
Her average rate is . If the same profit were earned by a company, corporate income tax at 28% would be francs, before any 15% withholding tax on dividends paid out to her.
Evaluation: at this level of profit, staying a sole trader costs less tax. A company still has other advantages, such as limited liability and easier access to investors (Unit 4), so the choice is not about tax alone.
Warning
Two common errors. Applying the top rate to the whole pay (30% of 350,000 = 105,000, far too much); and forgetting that the 0% band is a slice too, so every taxpayer earning more than Frw 60,000 a month has 60,000 taxed at 0%.
tutor2u, "Mastering Average & Marginal Tax Rates", with Geoff Riley. The examples use British tax bands, but the method is exactly the one used for PAYE in Rwanda. Listen for why the average rate is always below the top marginal rate.
Practice
Sources and credits
Written by Ganzaa: the raise case, the graph, the band formula, the worked examples and the practice items. Kalisa, Uwase and their figures are illustrative (2026).
