Burundi’s new tax system improves investment transparency

Intense efforts at reforming the income tax system have paid off. Investors in East-Africa can rejoice as the playing field for businesses in Burundi is stabilized.

An autonomous government agency has overhauled the tax system of small, landlocked Burundi, increasing income from taxes significantly. If the trend continues, Burundi may be free from aid dependency in 2017.

Kieran Holmes gets credit as the mastermind behind the improvements. In 2011, he took charge of the newly established Office Burundais des Recettes (OBR). He smashed down walls to create an open-plan office, introduced tough entrance exams for tax collectors and changed the organization’s culture by bringing in new people.

This produced results: Between 2010 and 2013, OBR raised Burundi’s tax revenues from 62 percent of national expenditures to the current level of nearly 80 percent.

Investment stability from tax reform

Corporate income tax has also been lowered from 35 to 30 percent. This means that investors, on top of facing a more stable system, now get bigger returns on their investments. Mr. Holmes says the new system is gradually persuading businesses to “swap corruption for tax.”

Burundi is one of the absolute poorest countries in the world. Infrastructure is particularly lacking. But the potential for growth is there, and the existence of a reliable and stable tax system is key to attracting serious investors.

This is the reason why the simple reduction in corporate tax is not as good news for businesses as the general overhaul of the system. Securing a fair and transparent playing-field is first priority. With this in place, investors can confidently calculate outcomes of their business decisions with less noise from corruption and informal taxes. The actual tax rate only matters when this primary calculation is done – and everyone can trust the results of it.

Burundi climbs indexes

Underlying all of this is the constant fight against corruption: one of the worst handicaps of many emerging markets.

According to Transparency International, Burundi is still one of the most corrupt countries in the world. But since 2011, it has slowly climbed 15 spots on the global Corruption Perception Index. Whether this is a result of its stronger tax system, or just a fluke, is impossible to tell at this point in time. It is worth keeping an eye on Burundi’s performances over the next few years to find out.

Over the last two years, the country has also risen 30 places on the World Bank’s Doing Business index. Last year it was among the top ten most improving countries. Most trends thus seem to be pointing upwards.

Emerging sectors?

The most important source of income for Burundi is agriculture – primarily export of coffee and tea. But with increasing distance from the civil war that ended in the mid-2000s, the country now has the potential to build on other industries. In a land with a variety of mineral resources, mining is a priority sector for the government.

Tourism is also a candidate for becoming a strong sector in the Burundian economy.

Anyone interested in the region should keep an eye open for Burundi in the coming years. If the country can continue its positive tax trend, things could become very interesting.

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Categories: Economics, Sub-Saharan Africa

Author:Hallvard Barbogen

Hallvard is a writer and commentator currently based in London. He has worked for the Norwegian Ministry of Foreign Affairs, as well as in the NGO-sector and as a student journalist. Hallvard holds an MA in international politics from King's College London. He took his BA at the University of Oslo, and has also studied at the University of California, Berkeley.

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