SHOWCASE: African Countries CAN reduce Dependency on Aid
Kieran Homes’ early career in the Irish revenue service had not fully prepared him to take over as chief tax collector in Burundi, one of central Africa’s poorest countries. One of his first tasks was learning to use a pistol: getting companies to file returns in a country more accustomed to conflict and corruption can be dangerous. But it is not impossible. In 2010, the year before he took charge of the Office Burundais des Recettes (OBR), a new, autonomous tax agency, Burundi’s tax take was 300 billion Burundian francs (US$ 240m). It has almost doubled since, to 560 billion francs.
Mr Holmes’s first step was to recruit new staff to replace those who had worked in the old revenue division of the finance ministry. Entrance exams were marked by a hand-picked team in the basement of the new boss’s house to avoid any possibility of cheating. Only a handful of former tax collectors made the grade. The old revenue service had been a warren of closed doors and private rooms; it was replaced with an open-plan office.
Graft has not disappeared along with the walls: the authority still fires a dozen or so employees each year. But gradually, says Mr Holmes, it is persuading businesses to “swap corruption for tax”. In the past, the presentation of a frighteningly high tax bill was the cue for lengthy negotiations over the sum to be paid, with tax inspectors taking a big cut of any reduction in the official payment in the form of bribes.
The government has tried to make bills less burdensome, by lowering corporate income tax from 35% to 30% and introducing a value-added tax (VAT) to broaden the tax base. At the same time, OBR has divided companies by size (few individuals owe any tax) to help focus its audits where they will yield the most benefit.
The increase in revenue between 2010 and 2013 saw Burundi move from paying for 62% of its recurrent expenditure from domestic revenue to nearly 80% (aid makes up most of the shortfall, as well as paying for most investment). If revenues continue to increase at the present rate, domestic taxes will cover all recurrent expenses by 2017. The trend is all the more impressive considering that Burundi is still recovering from a 12-year civil war; the last rebel group emerged from the bush only in 2009. Donors including the European Union and the World Bank, which financed the creation of the OBR and pushed for an expatriate to lead it, are thrilled.
Development types have long argued that getting locals to pay taxes helps to keep governments honest, since taxpayers will want to see their money put to good use. An aspiration for all governments to raise 20% of GDP in tax was included in the United Nations’ main anti-poverty drive, the Millennium Development Goals.
Africa is still falling short of that target—but the shortfall is decreasing. New research compiled by the International Centre for Tax and Development shows the average tax take in sub-Saharan Africa has risen from 12% of GDP in 1990 to 15% in 2010. The impetus has been a mix of reforms similar to Burundi’s, including the imposition of VAT and the creation of autonomous tax agencies like the OBR, especially in the anglophone countries.
Mick Moore, a tax expert with the Institute of Development Studies, a British think-tank, sees these figures as evidence that African governments are becoming more effective. But not everyone is convinced: Nikhil Hira of Deloitte, an accounting firm, says that the extra tax has disappeared into ever more bloated bureaucracies. In Kenya more than half of total revenue is consumed by an exploding bill for civil servants’ wages. As a result, he says, “We’re not getting the services for the taxes we pay.” It is time, perhaps, for African governments to begin doling out Mr Holmes’s medicine to other parts of the civil service.