Risk & tax reform

Burundi is a small open economy on the western reaches of the East African Community bordering the Democratic Republic of Congo, Tanzania and Rwanda. How does such an economy, with a history of instability and conflict, deal with modernising its tax base whilst striving for economic independence?

Burundi, a predominantly Francophone country of about 28,000 sq km, is the newest member of the east African Community having joined with Rwanda in July 2009. Burundi has a population of around 10 million and in December 2011, its per capita GDP was US$271—2% of the world’s average GDP/capita and one of the poorest countries in the world.

Most income stems from agriculture and the country is highly aid-dependent. Burundi emerged from conflict in 2005 with a new government. Elections were held in 2010 but before then Burundi had begun to undertake some serious economic reforms.

Burundi enacted a Value Added Tax law in 2009 but the most daring reform was the creation of the Office Burundais des Recettes (OBR) in that same year. Despite the French title, the OBR is essentially an Anglophone construct, having its roots in common law and employing an operational configuration that somewhat separates the tax administration from the general civil service and establishes it as a semi-independent body with board oversight. This is clearly a radical move for any country and one fraught with risk.

Moreover, the OBR law provided for an expatriate Commissioner General (CG) as the first chief executive of the fledgling tax administration.

The OBR has proven the value of the political risks taken. Revenues in 2013 will be around BIF550 billion, compared to BIF300 billion in 2009. Moreover, service delivery has increased exponentially in the same period and, due to collaboration with other agencies, it is now possible to set up a business inside one hour in Burundi, including the receipt of a Taxpayer Identification Number.

With support from TradeMark East Africa (TMEA) and the African Development Bank, new One-Stop Border Posts have been established with Rwanda and Tanzania. TMEA is also supporting the computer systems to facilitate fully integrated border procedures. All of these reforms will greatly speed up the passage of goods and people across Burundi’s borders.

The OBR recruited its own staff in one of the biggest and most transparent mass recruitments ever seen in Burundi and has set about computerising the tax and customs administration. Staff have been trained using trainers from the other east African states, international advisers have been recruited and modern office accommodation has been secured, ensuring the OBR’s position as perhaps one of the leading institutions operating in Burundi. Additionally, the OBR has moved to play a leading role in the East Africa Revenue Authorities Forum—a caucus in which revenue administrations meet to exchange views on best practices in tax administration.

During 2013, Burundi enacted several new pieces of tax legislation. These were a new Income Tax law and a significant review of the Value Added Tax law. A new Tax Procedures law, designed to produce common tax procedures across all fiscal laws, is expected to pass imminently.

Significant risks attach to such root and branch fiscal reforms. There is, of course, the ever present risk that both government and special interests will wish to ‘cherry-pick’ the more acceptable aspects of the reform, such as lower tax rates, while being less than enthusiastic towards the more difficult base-broadening measures that are necessary to pay for the lower tax rates.

There is also the ever-present risk that ministers and parliamentarians may not fully understand some of the more arcane technical aspects of the new laws, particularly those aimed at preventing multinational companies and non-residents from making easy gains at the expense of the domestic tax base.

Finally, there is always the risk of unintended outcomes as laws make their way through the legislative process, particularly when laws are drafted in more than one language. Throughout the legislative process of 2013 Burundi managed all of these risks and the laws that are now enacted have produced lower tax rates while facilitating greater regional tax harmonisation.

As Burundi strives to reduce its aid dependency through trade and by mobilising its domestic revenues, it must also seek to facilitate investment at every opportunity. Last year Burundi was one of the best reformers in the World Bank’s Doing Business Index and was the only African country in the top 10 reformers.

Burundi must now develop a network of Agreements for the Avoidance of Double Taxation (DTAs) with its main trading partners while at the same time expanding its network of Bilateral Investment Treaties (BITs). Burundi currently has no DTAs and only has a limited number of BITs (with Belgium, Germany, Luxembourg and the UK).

Clearly, this network of international tax and investment agreements will need to be quickly expanded in the coming period to encourage foreign direct investment and to build successfully on the reforms already made.

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