Tax issues are high on the agenda of African governments. At an international level,\u00a0Prime Minister David Cameron has used the UK\u2019s presidency of the G8 to call for greater efforts to promote trade, tax compliance and transparency. Clause 4 of the Lough Erne Declaration released at the G8 summit in June 2013 stated that \u201cdeveloping countries should have the information and capacity to collect the taxes owed them \u2013 and other countries have a duty to help them\u201d.<\/p>\n
While the commitment to counter deleterious international tax scheming is laudable, in many of the poorest countries in sub-Saharan Africa a similar \u2013 and arguably even more imperative \u2013 campaign is being waged to achieve efficient collection and administration of domestic tax revenues. That is the focus of this Policy Voice <\/i>authored by the senior management of the Office Burundais des Recettes <\/i>(OBR).<\/p>\n
In 2010, the Transparency International (TI) East African Bribery Index listed Burundi as the most corrupt country in the region. Burundi\u2019s tax department was named as the most corrupt institution, dislodging the Kenya Police from the top spot. Even allowing for the limitations of such indices, the backdrop for the creation of the OBR \u2013 a new, semi-autonomous revenue authority \u2013 was inauspicious.<\/p>\n
A mountain to climb…<\/strong><\/p>\n The scale of corruption in Burundi noted by TI in 2010 was crippling, though not surprising.\u00a0The Arusha peace agreement signed a decade earlier had been a major step towards ending a civil war that claimed the lives of more than 200,000 Burundians since 1993. However, that peace was still fragile and the economy prostrate. Burundi\u2019s GDP per capita was the lowest in the world at US$150. Four-fifths of the population subsisted below the US$1 income per day poverty line. It was estimated that annual GDP growth of 8% would be required until 2015 for Burundi even to regain its limited pre-war level of national income per capita. Yet average GDP growth during the 2000s had been a mere 3%, barely outstripping the rate of population growth. Foreign direct investment in Burundi for the period 2000-08 amounted to less than 0.2% of GDP.<\/p>\n Given the economic and political backdrop, the assertion in the 2010 African Economic Outlook <\/i><\/a>that \u201cvast financial resources will have to be raised via sufficient direct or indirect taxation [in Burundi]\u201d\u00a0seemed to articulate an utterly implausible ambition. An almost simultaneous report from the African Development Bank observed that the structure of \u2013 and outlook for \u2013 the Burundian economy were \u201csevere binding constraints to domestic resource mobilisation”\u00a0<\/a>Most important of all, in a society riven with distrust after years of conflict the state was arguably the most distrusted entity of all. While revenue collection had not collapsed during the war \u2013 it was in the interests of the political elite to retain access to this important source of rent and the tax base was very narrow \u2013 public tax \u201cmorale\u201d, or the willingness to comply, was non-existent.<\/p>\n A route to reform<\/strong><\/p>\n In 2009, despite the signally inhibitive outlook, the Burundian government began implementing a number of measures to improve public financial management. One of these was a tax revenue modernisation programme which included the creation of the OBR and the introduction of value added tax (VAT). Having joined the East African Customs Union in 2009, regional integration was a stated priority of the government following the 2010 elections. The potential of a market of 120m people was self-evident Burundi is a small, landlocked country of nine million inhabitants, with an undiversified economy vulnerable to external shocks and lacking basic infrastructure.<\/p>\n In 2011, Burundi held the presidency of the East African Community. That year, tax revenue collected by the OBR was nearly 60% higher than in 2009 \u2013 one-third higher in real terms. An initial target of improving the contribution of tax revenues to GDP by 1% before 2016 had already been achieved. In 2012, taxes collected by the OBR rose to BIF527 billion US$350m), 75% more than in 2009, and the contribution of tax revenues to GDP was 16.7% against 13.8% in 2009.<\/p>\n The actions taken by the OBR to achieve this substantial improvement are described in this Policy Voice<\/i><\/a>. They included a recruitment drive of unprecedented proportions for Burundi and the strict enforcement of a rigorous Code of Conduct for employees. An anti-corruption drive was supported by President Nkurunziza\u2019s own commitment to zero tolerance of corruption. Legislative reforms, more efficient procedures, co-operation with other government agencies and ministries where possible, investment in IT systems, an on-going effort to widen the tax base and a drive to professionalise customs operations at the borders have been equally important. Rather unusually, many modern practices and \u201cgood governance\u201d initiatives applied by tax administrations in developed economies have proved equally appropriate and effective in Africa.<\/p>\n The OBR is targeting the collection of BIF1.2 trillion (US$800m) in tax revenue by 2017. If this were achieved, a much higher proportion of the government\u2019s budget would be funded by taxes than the current 50%. A series of business reforms, included those in which the OBR has been instrumental, have seen Burundi\u2019s position in the World Bank\u2019s Doing Business rankings rise from 181 out of 183 countries in 2011 to 159 in 2013.<\/p>\n Consolidation is key<\/strong><\/p>\n Despite its achievements to date, the OBR sees no room for complacency. As the authors point out, it takes between six and eight years to establish a fully functioning revenue authority. Many similar institutions in Africa have found the initial rate of improvement in tax collection impossible to sustain. Retention of the best staff is particularly difficult as they are keenly sought by private sector employers. Autonomy \u2013 or semi-autonomy \u2013 is often compromised by repeated political intervention. Revenue authorities are typically designed to deal with formal entities, whereas the livelihoods of the vast majority of the population are informal and, in most cases, rural.<\/p>\n For the OBR, continued progress is dependent on a favourable political, economic and legislative environment. President Nkurunziza has declared <\/a>that Burundi \u201cis now out of the post-conflict period and is truly committed to the path of development\u201d, but a complex and multipolar political landscape remains tense, GDP growth at 4% is inadequate and the return of hundreds of thousands of refugees creates considerable social and economic strain.<\/p>\n