Calculating VAT and Reading an EBM Receipt

1Why this matters

VAT is included in the price of most things you buy, from a bottle of juice to a phone repair. A VAT-registered business must add VAT to its prices, record it, pay it to RRA and give every buyer an EBM receipt. Getting the calculation wrong means either overcharging customers or paying RRA from your own profit.

2What VAT is

Value Added Tax (VAT) is an indirect tax on the value added at each stage of production and sale. A registered business charges VAT on what it sells (output VAT), pays VAT on what it buys for the business (input VAT), and pays RRA the difference.

• Standard rate: 18% of the price, for most goods and services supplied in Rwanda or imported.
• Zero-rated (0%): VAT is charged at 0%, for example on exports, and the seller can still reclaim input VAT.
• Exempt: no VAT is charged and the seller cannot reclaim input VAT; examples include health and education services.
• Who must register: a business whose taxable turnover was more than 20,000,000 Frw in the previous year, or more than 5,000,000 Frw in the previous quarter, must register within 7 days. Smaller businesses may register voluntarily.

3Calculation 1: adding VAT to a price that excludes VAT

VAT = price × 18 ÷ 100, and price including VAT = price × 1.18.

Example: a phone costs 150,000 Frw before VAT. VAT = 150,000 × 18 ÷ 100 = 27,000 Frw. The buyer pays 150,000 + 27,000 = 177,000 Frw.

4Calculation 2: finding the VAT inside a price that includes VAT

If 118 parts are the full price, then 18 of those parts are VAT. So VAT = price including VAT × 18 ÷ 118.

Example: an EBM receipt shows a total of 11,800 Frw including VAT. VAT = 11,800 × 18 ÷ 118 = 1,800 Frw, and the price before VAT is 11,800 − 1,800 = 10,000 Frw. Check: 18% of 10,000 = 1,800. ✔

Common error: taking 18% of 11,800 gives 2,124 Frw, which is wrong because 11,800 already contains the VAT.

5Calculation 3: VAT payable to RRA

VAT payable = output VAT − input VAT.

Worked example (written by Ganzaa). Keza's furniture workshop in Kicukiro is registered for VAT. In one quarter:

1. Output VAT = 144,000 Frw; input VAT = 90,000 Frw.
2. VAT payable = 144,000 − 90,000 = 54,000 Frw.
3. Check: the value Keza added is 800,000 − 500,000 = 300,000 Frw, and 18% of 300,000 = 54,000 Frw. VAT falls only on the value added at her stage.
4. The customer pays all the VAT in the end (144,000 Frw); Keza only passes it on to RRA in two steps (90,000 through her supplier and 54,000 herself).

If input VAT is greater than output VAT in a period, the business may claim the difference back as a refund.

6The EBM receipt

An EBM (Electronic Billing Machine) is the electronic invoicing system approved by RRA; it records each sale and sends the data to RRA. A VAT-registered seller must issue an EBM receipt to every buyer, whether or not the buyer asks. A typical receipt shows the seller's name and TIN, the buyer's TIN if the buyer gives it, the date and time, each item with its quantity and price, the total, the VAT included, and a receipt number and security codes that link it to RRA's system.

Asking for an EBM receipt proves your purchase (for returns and warranties), lets a business buyer claim input VAT, and makes sure the VAT you paid actually reaches RRA. Under RRA's guidance, a VAT-registered seller who sells without issuing an EBM receipt faces a fine of ten times the VAT evaded.

Practice