30 April 2014

Burundi's Tax Success Story Under Threat


Burundi's revenue authority has dramatically increased government revenue, but it's struggling for funds itself.

When Transparency International (TI) published its annual East African Bribery Index (EABI) in 2011, it found Burundi to be the most corrupt nation in the region with bribery having a staggering prevalence of 37.9%.

TI's findings can be explained by 12 turbulent years of civil war claiming as many as 300,000 lives. Since the Arusha Peace and Reconciliation Agreement was signed in 2000, Burundi has experienced relative stability.

However, in recent months cuts to Burundi's tax revenue authority, and questions over its funding, along with President Nkurunziza's controversial constitutional reforms, have again jeopardised the country's future political and economic security.

Fitting in: reforming tax administration helped by EAC and EACU membership

In 2010 the EABI found Burundi's tax department to be the most bribery prone institution in the region. One year later it remained high on the list, only beaten by the Ugandan Police.

Since joining the East African Community (EAC), and subsequently the East African Customs Union in 2009, the desire to integrate further into the community, and address institutional corruption, has driven demands for tax reform.

This, combined with the crucial need to generate domestic revenue and Foreign Direct Investment (FDI) to achieve long-term development objectives, emerged as the main impetus for the creation of Burundi's very own Semi-Autonomous Revenue Authority, the 'Office Burundais des Recettes' (OBR), on 14 July 2009 by an Act of Parliament.

The OBR, as its first Commissioner-General Kieran Holmes asserts, constitutes a considerable achievement, not only in the domestic context but the development industry as a whole.

Holmes has helped to reform the tax administration in some of the world's poorest countries and, since graduating from Trinity College, Dublin with a degree in economics, has worked to advise governments about revenue administration and tax policy in Kiribati in the Central Pacific, Lesotho, Swaziland, Yemen and Rwanda, before joining the OBR in June 2010.

The rise and rise of Burundi's tax authority

It is perhaps a little too early to ascertain whether the OBR is a marked success story - it takes between six to eight years to establish a full functioning revenue authority and the OBR has just entered its fifth in operation. What is clear is that the organisation has so far seen a string of notable achievements. Revenue, says Holmes, represents one of its main accomplishments.

"The year before the OBR, revenue collection was at around BiF300 billion (195million USD) in 2009, and last year it was BiF560 billion (365million USD)," explains Holmes. "We've pretty much doubled revenue in the last four and a half years."

Corruption, as highlighted in the EABI, is another element that, under Holmes, the OBR has successfully attempted to combat. "We've gone from being the most corrupt revenue administration in East Africa to the best performing revenue administration in terms of fighting corruption," says Holmes.

The 2013 EABI backs-up Holmes' claim, with the OBR scoring 16, out of a perfect score of zero, compared to a 35 they received the year before.

Moreover, the OBR's current team of technical advisers recently received the 2014 British Expertise International Award for outstanding international development work in a fragile state.

Finally, Holmes highlights Burundi's position on the World Bank's Doing Business (DB) rankings as an indication of the OBR's success.

"Burundi has recorded some very, very big jumps," says Holmes. "It has been amongst the top ten reformers for the last couple of years running, and one of the things that has catapulted Burundi onto the rankings is the fact that you can now form a business inside Burundi inside one hour."

Financial Setbacks

The OBR's budget is agreed with the Burundian Ministry of Finance and it receives funding from the government for its day-to-day running costs. However, the organisation has been largely dependent on consistent donor support to cover capital costs and pursue its own strategic decisions.

Prior to the closure of its office in Burundi in 2011, the UK's Department for International Development (DFID) was the OBR's inaugural and largest donor, providing a grant of $18 million to the OBR.

Trade Mark East Africa (TMEA), a regional programme that seeks to promote economic growth and a reduction in poverty through increased trade, took over the administration of DFID's funds and the task of acquiring new donor support.

Most of the funds that the OBR receives from donor organisations are channeled through the TMEA. Its principal sponsors are DFID and the Belgian Government, through the auspices of the Belgian Development Agency (BTC).

The first phase of donor assistance included financing for the position of the first Commissioner General, new computer systems, capacity building, office renovations and adviser assistance.

The latter came in the form of technical expertise in taxation, customs, human resources, auditing, information technology, procurement and communications. The technical assistance alone has cost roughly $10 million over the past four years.

Despite the clear successes of the OBR and the value for money that long-term support to revenue authorities represents, Kieran Holmes told Think Africa Press that the second phase of donor support to the OBR has yet to be agreed.

TMEA, which channels most of the donor funds that OBR receives, will continue to support the organisation in providing $11 million for the OBR's second phase of development, from June 2014 to June 2016, yet there will be a fundamental break in its support for the organisation's current technical assistance.

Under these circumstances, the OBR's award-winning team of technical advisers will terminate next month, around the same time as Holmes' departure.

Holmes has sought to persuade TMEA to extend the existing advisers for at least a few more months in order to ensure a smooth transition to the new phase of support, but the TMEA has cited procedural reasons as to why this will not be feasible.

"The organisation has a commitment to follow competitive procurement procedures in the use of donor funds to ensure good value for money," TMEA told Think Africa Press. "For the OBR project, TMEA has reached the thresholds stipulated in these procedures and must now go out to competition again."

Despite TMEA's iteration of continued technical support to the OBR, there remains the concern that the break in support, with regards to the current team of technical advisers, comes at a time when the revenue authority has yet to reach its full capacity.

The OBR has made progress in leaps and bounds over the past four years, but the current Commisioner-General's main preoccupation is that the investment made to date, which stands at about $23 million, along with all of the energy and time that went into building the organisation, could be lost and prove difficult to recover.

A race against time

To ensure the survival of the OBR, Holmes, whose mandate ends this June, and his team, are currently looking for other sources of donor funding. "Of course we and TMEA have been talking to other potential donors who are considering putting some bilateral funds into the OBR directly, from 2015 onwards."

The Burundian government, on the other hand, is not included in the list of alternative sources. "The government has zero capacity for capital expenditure in the revenue authority," says Holmes. "Even last year our budget was cut as part of the overall slashing of the government budget for 2013."

"We (the OBR) made the argument that it makes no logical sense to cut the budget of the only revenue collecting agency, but the government felt they had to cut everybody's budget to the same extent."

The ideal support from the second phase of donor funding to the OBR, says Holmes, would proposition a back of the envelope figure of between $30 to 40 million dollars over a four-year period for the purchase of a brand new information technology system for domestic taxes, the maintenance of adviser support, further capacity building and training of OBR staff.

Providing other donors, along with the TMEA, emerge to support the OBR, Holmes is optimistic that the organisation can continue to build on the foundations that have been laid over the past four years and continue to follow a corporate plan that has been assumed for the period from 2013 to 2017.

"My hope is that the government will keep the strong political support and that the next Commissioner-General, whoever he is, will be given full political support, but really it is outside of my control after June." says Holmes.

Looking to the future

Uncertainty over OBR's funding are proving even more ill-timed with President Nkurunziza intent on running for a third term in elections next year. The current constitution permits no more than two. Consequently, Nkurunziza is pressing for parliament to make the necessary amendments.

His political challengers have vocalised their opposition to the proposed changes, arguing that it is a total violation of democracy and evidence of the President's increasingly authoritarian stance.

Political fragility adds to the concerns of an organisation like the OBR since it threatens to undo the significant progress Burundi has made in terms of FDI growth, which more than doubled in 2012.

The TMEA's break in support for the OBR's current team of technical advisers, coming at the same time as Holmes's departure in June, combined with a huge cut in the domestic financing from the Burundian government, and the renewed threat of political instability, leaves the OBR in a precarious position.

One can hope that its second phase of donor funding will be swiftly agreed, with the mutual benefits realised, not only for Burundi's economic development but also for donor organisations themselves.

Furthermore, one can hope that President Nkurunziza will resolve to maintain the status quo in the run up to next year's elections in order to provide the best possible climate for investment. These conditions will prove integral to ensuring the continued successful operation of the OBR.

Rebecca Meeson-Frizelle is a freelance journalist, with a focus on Southern Africa. She has written for a number of South African publications. She holds a degree from the The University of Nottingham in French, History and Politics, but African affairs is her real passion.

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