Taxes and Customs Procedures
Senior 6 · Entrepreneurship
Taxes and Customs Procedures
Lesson 2 of 5
30 min
A school pays a Musanze retailer Frw 4,956,000 for a set of desks made in Mukamana's workshop: Frw 4,200,000 for the desks and Frw 756,000 VAT. Yet the retailer sends RRA far less than Frw 756,000 for that sale, because the sawmill and the workshop have each already sent a share. Value added tax is collected in slices, at every stage where value is added, and the slices add up to exactly 18% of the final price. In S2 you calculated VAT on a single sale. Here you follow it along a chain, prepare a monthly VAT position, and see why zero-rated and exempt are not the same thing.
Definition
Value added tax (VAT): an indirect tax charged on taxable goods and services at each stage of supply, and on imports. In Rwanda it is charged at 18%, or at 0% on zero-rated supplies (Law N° 049 of 2023; RRA, 2023).
Example: a hardware shop adds 18% VAT to the price of a bag of cement.
Definition
Output VAT: the VAT a registered business charges on its sales. Input VAT: the VAT it pays on its business purchases and imports. VAT payable: output VAT minus allowable input VAT; if input VAT is larger, the difference is a VAT credit that can be carried forward or refunded.
Definition
Zero-rated supply: a taxable supply charged at 0%, such as an export; the seller can still claim back its input VAT. Exempt supply: a supply outside VAT altogether; the seller charges no VAT and cannot claim back input VAT on what it buys to make it.
Examples: coffee sold to a buyer in Germany is zero-rated; a clinic's medical services are exempt.
Each registered business pays RRA only the VAT on the value it added, because it deducts the VAT already paid by the stage before. Nobody in the chain pays tax on tax, and the whole 18% falls on the final buyer, who cannot claim it back.
Worked example 1: the desk chain
A sawmill sells planks to Mukamana's workshop for Frw 2,000,000 before VAT (assume the sawmill's own inputs carried no VAT). The workshop sells the desks to a retailer for Frw 3,500,000 before VAT, and the retailer sells them to a school for Frw 4,200,000 before VAT. Find the VAT each business pays to RRA.
| Business | Sales before VAT | Output VAT (18%) | Input VAT | VAT payable |
|---|---|---|---|---|
| Sawmill | 2,000,000 | 360,000 | 0 | 360,000 |
| Workshop | 3,500,000 | 630,000 | 360,000 | 270,000 |
| Retailer | 4,200,000 | 756,000 | 630,000 | 126,000 |
| Total | 756,000 |
Check: . Each business's VAT is also 18% of its value added: the workshop added , and .
Worked example 2: a monthly VAT position
In March the workshop's sales are Frw 18,500,000 before VAT. Its purchases with EBM invoices cost Frw 9,440,000 including VAT. It also bought sandpaper for Frw 590,000 including VAT from a seller who gave no EBM invoice. Find the VAT payable.
Step 1: output VAT on a VAT-exclusive amount. francs.
Step 2: input VAT inside a VAT-inclusive amount. The inclusive price is 118% of the exclusive price, so
Step 3: the sandpaper. Its VAT, francs, cannot be claimed without a valid EBM invoice.
Step 4: francs payable. The missing invoice cost the business Frw 90,000.
Warning
18% of an inclusive price is wrong. The VAT inside a price of Frw 5,900 is , not . Multiply by 18% only when the price excludes VAT; use when it includes VAT.
Worked example 3: zero-rated or exempt?
A coffee exporter and a private clinic each buy inputs of Frw 6,000,000 plus VAT of Frw 1,080,000, and each earns Frw 10,000,000 from its sales. Compare their profits.
| Coffee exporter (zero-rated) | Clinic (exempt) | |
|---|---|---|
| Output VAT charged | 0% of 10,000,000 = 0 | None: outside VAT |
| Input VAT of 1,080,000 | Claimed back from RRA | Cannot be claimed |
| Cost of inputs | 6,000,000 | 7,080,000 |
| Profit | 4,000,000 | 2,920,000 |
Analysis: zero-rating removes VAT from the whole chain, which keeps exports competitive abroad. Exemption removes VAT only from the last sale; the input VAT becomes a cost, which the clinic must absorb or pass on in its fees.
| Rule | What RRA requires (RRA, 2023) |
|---|---|
| Who must register | A business whose taxable turnover passed Frw 20,000,000 in the last year or Frw 5,000,000 in the last quarter, within 7 days; smaller businesses may register voluntarily |
| Receipts | A registered seller gives every buyer an invoice from RRA's electronic billing system (EBM) |
| Declaring | Monthly; or quarterly if annual turnover is Frw 200,000,000 or less, within 15 days after the period |
| Paying | Within 15 days after the month or quarter; on imports, when the goods enter customs |
| Nothing to pay | A declaration is still due, even if the difference is zero |
Some supplies are exempt. Law N° 009 of 2025, which amended the VAT law, lists among them health and medical services, listed pharmaceutical products, sanitary pads, listed educational materials, books and newspapers, public transport of passengers in vehicles of 14 seats or more, residential rent for more than 90 days, and unprocessed agricultural and livestock products (with processed maize, rice and milk also exempt).
Tip
VAT is not the business's income. In the ledger (Unit 1), output VAT is credited and input VAT debited to a VAT account. A credit balance is money owed to RRA, a current liability on the balance sheet; never count it as sales.
International Monetary Fund, "What is VAT? | Back to Basics". Watch how a tax collected in slices at each stage reaches the final consumer, and compare it with the desk chain above.
Practice
Sources and credits
Written by Ganzaa: the chain diagram, the tables, the worked examples and the practice items. The businesses and their figures are illustrative (2026).
