For nearly half a century, Burundi maintained an income tax system inherited from the colonial period. This tax system has recently been reformed to modernize it and make it more business-friendly. However, the reform process was hampered by the inability to ensure sufficient collection of tax revenues. Some of the measures that were removed to make the system more convenient for doing business were unfortunately reintroduced within one year.
History of tax reform in Burundi
Following the end of the civil war in 2005 (which lasted more than ten years) and its accession to the East African Community (EAC, made up of Burundi, Kenya, Rwanda, Tanzania, and Uganda) in July 2007, Burundi started on this process regenerating their tax arrangement.
To date, this process has led to the creation of the Burundi Tax Authority (Office Burundais de Recettes (OBR) in 2009 (replacing the then Tax Administration Department of the Ministry of Finance), the enactment of a new revenue tax law in 2013, the introduction of a value-added tax (VAT) in 2009 (and its revision in 2013, replacing the then tax on the consumption of goods and services (or the law on tax on transactions), the adoption of a new Investment Code (providing, among other things, tax incentives) in 2008, the creation of the Agency for investment promotion (Agence Burundaise de Promotion des Investissements (API), which, inter alia, is responsible for administering various tax incentives) in 2009 and the implementation of the Code of Tax Procedures in 2013. Two additional laws that are still pending developments include one on excise taxes, and the other on the tax system of local entities, to support the policy of decentralization. Currently, Axis excise taxes are stipulated in the budget law, which is adopted in December of each year and revised in July of the following year.
This short article strives to highlight the notable modifications performed to the income tax law in Burundi as a consequence of these reformations. These changes relate to (1) the transition from a typically scheduled taxation system to a combination of elements of the global income taxation system with elements of a scheduled system (semi-global system), (2) the transition from the original relationship as the basis of the exclusive basis for taxation of income tax in combination with the original base and the residence base for taxation of income, (3) the transition from the principle of territoriality in determining the income tax obligation to a combination of the worldwide income tax obligation (for resident taxpayers) and the principle of territoriality (for non-resident taxpayers), (4) the introduction of measures to mitigate international double taxation, (5) the application of a simplified tax rate structure and (6) the introduction of new measures to prevent tax evasion provisions.
The Income Tax Act, which was applied in Burundi before the January 2013 reformation, was acquired from the Belgian colonial powers and recorded back to 1963. In this law, income was classified into three categories, as well as by the types of activity from which it is received, namely (i) rental income, (ii) investment income, and (iii) business income [10]. The business income itself was divided into four subcategories: (a) income from employment, (b) income from commercial and industrial activities, (c) income from self-employment and freelance activities (also called non-profit income), and (d) income from any other business (general subcategory). The subcategory of income from employment also differs between income earned from full-time and part-time employment. In the case of part-time employment, the income thus obtained is further divided between income received from the education and health sectors and income from all other sectors of the economy.
For an individual, each of the aforementioned income categories represented a separate schedule for which separate and different rules were applied in setting the taxable amount, rates, and tax collection regime, without any possibility of aggregating income from different sources. Even concerning corporate tax, capital gains were taxed separately and implied a significantly reduced tax rate (20%, while the corporate tax was set at 35%). This system was a typical planned or analytical income tax system.
The new law on income taxation, adopted on January 24, 2013, introduced significant changes to the system of semi-synthetic income tax.
Income is classified into four categories, namely employment income, business income (or profit), investment income (including capital gains), and rental income.
For individuals (personal income tax as opposed to corporate tax), the annual income tax is combined into two different schedules, one of which includes income from employment and business income, and the other includes income from investments (including capital gains).
The progressive structure of income tax rates applies to the first scale (0%, 20%, or 30%), while the second scale is subject to the proportional income tax rate (15%). Rental income is still taxed separately, and its income is distributed between decentralized territorial entities (called communes in the countryside) or the authorities of the capital city of Bujumbura.
Concerning corporate tax, all of its profits are summed up from various sources of income or income and are taxed as business profits. Thus, the new law introduced a semi-global income tax system.
As a method of collecting tax revenue, income from employment is taxed through monthly pay-as-you-go (PAYE), investment income (such as dividends, interest, or capital gains) is collected through withholding tax and some elements of business income. collected on a withholding basis (these items relate to income paid by a resident person to a non-resident who does not have a permanent establishment in Burundi). Withholding taxes apply to both individuals and companies.
