TAXATION

A COURSE FACILITATED
BY
IRUTINGABO BENI,MBA
RELATED QUOTE

“There are only two things that are certain in life, one must
pay tax and one must die!”
Benjamin Franklin
Scientist, Author and
American President
 RELATED DEFINITIONS

FISC administration : a tax regulator in a

country ( OBR for the case of Burundi)
Long term contract : a contract of
manufacturing , installation, construction or
related service delivery, which are not
accomplished in the fiscal period that they
were started.
Tax individual : any person entitled to pay tax
 RELATED DEFINITIONS, con’t

Employee : any person who receives a salary /

wage for work done under the authority of
another person, whether this work is
administrative , judiciary , religious or political

Employer – A person who employs or

remunerates an employee
 OVERVIEW
Gross income is the total amount of business income,
employment income, and property income derived
during the year by a person, other than income exempt
from tax.
Gross income of a resident person includes income
derived from all geographical sources.
Gross income of a non-resident person includes only
income derived from sources in Burundi.
 Overview :
AN INDIVIDUAL TAX RESIDENCE RULES
AN INDIVIDUAL WITH PERMANENT RESIDENCE IN
BURUNDI:
Leaving in Burundi, permanently or for at least
183 days for a period of 12 months which ends
during the fiscal year
is an employee or official of the Government of
Burundi posted abroad during the year of
income.
 CHAPTER I : NATURE AND SCOPE OF
TAXES (Classification of taxes )
progressive taxes
 Taxation is said to be progressive when the rate of tax
increases as the tax base increases.
 Progressive taxes are based on vertical equity
considerations where higher taxes are imposed on higher
incomes.
 Direct taxes, for example , income tax on individuals is
generally progressive in character. Progressive tax imposes
greater burden on the rich that on the poor.
 Advantages of progressive tax
 It leads to equality of sacrifice, whereas propotional
taxation does not. As the income of a person increases,
the marginal utility of income gradually decreases.

 It gradually helps in reducing the inequality in income by

levying higher taxes on the rich classes.

 It is economical because when the rate of tax increases

with the increase in income, the money spent on
administration and collection does not increase or if it
increases at all, it does not increase in the same ratio with
increase in income.
 Advantages of progressive tax
 It comforms to the canon of elasticity. The state can
easily increase its revenue by raising the tax rate.
 It helps the state in reducing inequalities of income
by trasferring wealth from the rich to the poor.
When the inequality in the distribution of wealth is
reduced, the propensity of the nation to consume
increases. The rise in aggregate demand for goods
and services stimulates investment and provides
greater opportunities for employment.
 Disadvantages of progressive tax
 It is very difficult to formulate a rational scheme of progression.

 Since the rates of taxes are fixed on purely personal valuation, they
may not lead to equal sacrifice.

 If the rate of progression is very high, i twill discourage saving,

impede the accumulation of capital and thus hamper the economic
development of the country.

 Steep progression encourages evasion of taxes.when people come

to know that with the rise in their incomes, they will be taxed at
steep rates, they may try to conceal their incomes by making false
statements. Hence , the state is deprived by much of its revenues.
 Proportional taxes
 These are taxes ( at a time referred to as flat tax rates) that
impose the same relative burden on all tax payers, that is ,
where a tax liability and income grow in equal proportion.
Proportional taxes maintain equal tax incidence regardless of
the ability-to- pay.

 The main advantages claimed for proportional system of

taxation are that it is the most equitable method of raising
revenue open to the state. When the individuals pay taxes to
the governement , their relative position remains the same
after and before tax.
 Regressive tax
 This is a tax imposed in such a manner that the tax rate
decreases as the amount subject to taxation increases.

 ‘Regressive’ describes a distribution effect on income or

expenditure, referring to the way the rate progresses from
high to low .

 a regressive tax imposes a greater burden ( relative to

ressources) on the poor than on the rich.

 The taxes tend to reduce the tax burden of the well-to-do

( people with higher ability to pay), as they shift the
burden disproportionately to the needy ( those with lower
ability to pay).
 Regressive tax , con’t
 To measure the effect, the income elasticity of the
good being taxed as well as the income substitution
effect must be considered. The measure can be
applied to the individual taxes or to the tax system as
a whole ; a year , multi- year, or lifetime.
 The opposite of a regression tax is a progressive tax
and in between is a flat or proportional tax.
 A regressive tax may seems in reality to cause lower-
income groups to pay a greater proportion of their
income in taxes than the higher- income groups pays.
 Types of taxes : direct tax and indirect tax (Direct tax )

 A tax is said to be a direct tax when impact and incidence

of a tax fall on one and the same person, that is , when a
person on whom the tax is levied is the same who finally
bears the burden of tax. For instance, income tax is a
direct tax beacuse impact and incidence of the tax falls on
the same person.

 It the impact of tax falls on one person and the

incendence on another, the tax is called inderect tax . for
example, taxa on saleable articles like VAT is usually an
indirect tax because it can be shifted onto the consumers.
 Advantages of direct taxes
 Equitable : direct taxes afford a greater degree of
progression. They are, therefore, more equitable. As the
income of the person increases, the rate of income tax
also increases.
 They entail less collection costs and as such are
economical especially when collected at source like PAYE.
 They satisfy canons of certainity, elasticity, productivity
and simplicity.The simplicity of direct taxes is based on
the fact that the base on which they are determined is
known.
 They create civic consciousness in people. When a person
has to bear the burden of tax, the person takes active
interest in affairs of state.
 Advantages of direct taxes
 Direct taxes tend to be more predictable than
indirect taxes. Taxpayers pay at rate commensurate
with their earnigs, and so both the taxpayer and the
government can estimate what the bill will be. This
makes it easier for both to budget.
 Theoritically, they serve as mechanism to reduce
income inequality by easing the tax burden on
poorer households.
 They do not cause inflationary pressures since they
do not affect prices of commodities.
 Disadvantages of direct taxes
 They are easy to evade that indirect taxes. A taxpayer is
seldom happy to tax as one feels the pinch when the hard
earned money is being taken by the government.
Taxpayers sometimes submit false statements of their
income in a bid to evade tax.
 A direct tax is in fact a tax of honesty and the tax collector
relies much on what the taxpayer is willing to disclose.
 Direct taxes are very inconvenient because the taxpayer
has to prepare lenghty statements of income and
expenditure. This requires keeping a record of income and
expenditure up-to-date throughout the year. It is very
laborious for a taxpayer to prepare and keep these
records.
 Disadvantages of direct taxes
 Direct taxes may discourage productivity as they have a
tendancy to discourage people from working hard. Due to
their progressive nature, people who earn more pay more
in tax, which discourages some people from working hard
to make above certain levels of income since higher
incomes attract higher taxes.

 Direct taxes cause distortions in resource allocation. Since

they are imposed of factors of production like capital, they
may negatively impact productivity, capital accumulation
and investment. When company taxes are high,
companies or firms end up paying huge chunk of their
profits as tax leaving them with very little money for re-
investing.
 Disadvantages of direct taxes
 Direct taxes are the most times not paid due to the
unwilligness of taxpayers because they are well
aware of the fact that they are being taxed which is
not the case with indirect taxes where taxpayers
may even not be aware that they are paying taxes.
 Direct taxes are paid in lump sum or specified
installments every year while income which a
person earns is received in small amounts on a
monthly or daily basis. It often becomes difficult for
taxpayers to pay large amounts in the required
number of installments.
 Advantages of indirect taxes
 It is not possible to evade indirect tax. The only way to avoid
this tax is not to buy commodities on which indirect taxes are
imposed. They are more convenient because they are
wrapped in prices. A consumer often does not know that he/
she is paying tax.
 Another advantage of an indirect tax is that every member of
society contributes something towards revenue of the state.
They, thefore, tend to be broad based hence widening the tax
base. Indirect taxes are also elastic to a certain extent. The
state wishes to discourage consumption of certain items like
intoxicants and harmful drugs, it can raise their prices by
taxing them highly. This is a great sociam advantage which a
community can achieve from tax.
 Disadvantages of indirect taxes
 They are regressive in character and, thus, inequitqble. The burden of
indirect taxes falls more on the poor people than on the rich.

 Indirect taxes are also uneconomical. The state has to spend large amounts
of money on collection of indirect taxees.

 Revenue from indirect taxes is uncertain. The state cannot correctly estimate
as to how much revenue i twill receive from this category of taxes.

 Since indirect taxes are wrapped up in prices, they do not create civic
consciousness.

 If goods produced by manufacturers are taxed at higher rates , prices

increase which hampers trade and industry and causes widespread
unemployment in the country. They are, therefore,not suitable in a period of
recession, where there is need to increase aggregate demand in order to
come out the recession.
 Taxable capacity
 This refers to the optimum tax ability of a nation, the
maximum amount of taxation that can be raised and spent
on the economic welfare in that community . it is that
maximum amount which a nation can contribute towards
the support of the government without inflicting damage
on the power and will to produce.

 The amount of tax burden which the citizens of a country

are ready to bear is not rigidly fixed. It can increase or
decrease with a change in the distribution of wealth, the
size of population, method of taxation, and other factors.
 Absolute and relative taxable capacity
 Taxable capacity has two interpretations :

 Absolute taxable capacity

 Relative taxable capacity

 Absolute and relative taxable capacity
The absolute taxable capacity refers to the
maximum tax paying capacity of the economy or
country as a whole, or a region, or an industry, or
a group of individuals, while relative taxable refers
to the comparison between the absolute taxable
capacity of different taxpayers, or industries or
groups of taxpayers.
 Factors affecting taxable capacity

Size of population
The distribution of national income
Character of taxation
Purpose of taxation
Psychological factor
Standard of living of people
Effect of inflation
 Size of population

Taxable capacity is affected by the increase in

national income and by the rate pf growth in
population. If the increase in national income is
greater than the growth in population, the per
capita income goes up and taxable capacity of
the individuals rises and vise versa.
 The distribution of national income

Distribution of national income affects taxable

capacity in a way that where there is unequal
distribution of wealth, the taxable capacity of
the nation will be high and vise-versa.
 Character of taxation

If taxes are divised wisely, then they give less

resentment from people and bring forth a
large yield.
 Purpose of taxation
 Where the citizens of a country are satisfied with purpose
of taxation , for instance, where taxes are used to increase
welfare of people ( education, health, sanitation), they
show greater willingness to pay taxes to the government
than when used for unproductive purposes like war.
 Psychological factor

If people are satisfied that government is

doing its utmost to raise standard of living of
masses and in maintaining prestige of country,
then they support the government by paying
taxes- patriotism ensures increased taxable
capacity.
 Standard of living of people

If standard of living of people is high, they work

more efficiently so that they may continue to
enjoy a better standard of living. When they work
enthusiastically , they for instance receive higher
wages from their employers, thus taxable
capacity.
Effect of inflation

Where a country is facing inflationary

pressures, purchasing power of people is
reduced and taxable capacity shrinks
considerably.
 Tax compliance, tax evasion and avoidance
(Meaning of tax compliance )
 It is defeined as seeking to pay the right amount of tax ( but no more) in
the right place at the right time ; where right means that the economic
substance of the transactions undertaken coincides with the place and
form in which they are reported for taxation purposes.

 It is the degree to which the taxpayers meet or fail to meet their tax
obligations as set out in the appropriate legal and regulatory
provisions .

 compliant taxpayers among other things ; make timely, proper and

accurate declarations to the tax authority and voluntarily settle all the
due tax liabilty

 The significance difference between tax avoidance and tax compliance

is the intent of the taxpayer. A tax avoider seeks to pay less than the tax
due as required by the spirit of the law. A tax compliant taxpayer seeks
to pay the tax due ( but no more)
 Factors influencing tax compliance
(Benefits and cost of evasion)

If detection of non- payment of taxes is likely

and there are also high penalties prescribed by
the law for non-compliance, there will be less
tax evasion. On the other hand, where there
are low probabilities of non- compliance being
detected and low penalties, the rates of evasion
will be high.
 The level of provision of services by the
government
 The visibility of government projects may motivate tax
compliance.
 Government can therefore increase compliance by
providing goods and services that citizens demand , in an
efficient and accessible manner ; in other words, the
existence of positive benefits may increase the probability
that taxpayers will comply voluntarily without direct
coercion.
 Social influences
This relates to the culture and norms of the
society. If members of a society view their
associates or neighbors as compliant, they will
also generally be compliant.
Political legitimacy Tax compliance is affected by
the extent to which citizens trust their
government.
 Tax evasion and tax avoidance

Tax evasion :
Tax evasion is the legal non-repayment or
under- payment of taxes, usually resulting
from the making of false declaration or no
declaration at all,of taxes due to the relevant
tax authorities. It may result in legal penalties
( which may be civil or criminal) if the
perpetrator of tax evasion is caught.
 Tax avoidance
 Tax avoidance is seeking to minimise a tax bill without
deliberate deception ( which would be tax evasion) but
contrary to the spirit of the law.

 It therefore involves the exploitation of loopholes and

gaps in tax and other legislation in ways not anticipated
by the law. The taxpayer takes chances that either :

 They may not be discovered to be tax avoiding or,

 That if they are, the interpretation placed on the law that

they seek to exploit is favourable to them. The risk of
penalities arising as result of their actions depends upon
what the outcome of these risky situations might be.
 Tax avoidance cont’

 Tax avoidance is at times referred to as tax planning.

 tax planning is the process involving exploiting any
tax loopholes in the tax laws and pratice to the
adavntage of the taxpayer.
 It is a deliberate effort that involves logical analysis
of a financial transactions and operations from a tax
perspective.
 It involves arranging the tax affairs of the company
to ensure reduced tax outflows, increasing
deductions and other benefits.
 Methods of tax accounting
 These are two primary methods of accounting that
differ regarding when income and expenses are
recognised :

 Cash receipts and disbursements ( cash basis)

method.

 Accrual method
 Cash basis method of accounting
 Under the cash basis method ,cash, property or
services are included in the taxpayers’s gross income
in the year of actual receipt.
 Hence, the cash method of accounting is the easiest
to implement and is most commonly used by sole
proprietorships and small businesses .
 however, to prevent the acceleration of deductions to
the current year, such as than twelve months beyond
the current tax year must be capitalised to an asset
account, where the amount must be recovered
through amortisation, depreciation or depletion.
EMPLOYMENT INCOME
 EMPLOYMENT INCOME SOURCE

Are considered as employment incomes , in the

following situations:
 Salaries, allowances of all kind and commissions
received.
 Any fees paid to the employee for a facility
other than work related activities
 Any payment to an employee for a work done
with special arrangement between the
employee and the employer
 EMPLOYMENT INCOME SOURCE, con’t

Allowances received by the employee for

work /contract termination , resigning or
being fired
Any amount received by the social securities
of the government
Payment received from any other person
legally or illegally
 The fiscal period

The year of Income is similar to the calendar

year, i.e. : from 1st January to 31st December
 Exemptions

 Any amount paid to the employee related to the

payment made on behalf of the employer for
activities of the employer.
 Amount of NSSF ( INSS ) contributed by the
employer for the employee.
 Amount of medical allowances contributed by the
employer for the employee.
 Reimbursement to the employee of the amount
spent by the employee as medical charges , for the
employee, his/her partner and children.
 Exemptions ,con’t
Transport allowances provided by the
employer to the employee , not
exceeding 15% of the basic salary, unless
the employee get a transport means in
kind.
Rent allowances or rent reimbursement ,
not exceeding 60% of the basic salary.
 Other sources of incomes
 Any income from employment in Burundi or a
work done in Burundi.
 Income from a service rendered to a resident of
Burundi or a company working in Burundi by a
foreigner.
 Income from renting properties ( buildings ) in
Burundi.
 Any operational income got from Burundi,
including farming , agricultural stocks and forests
activities in Burundi.
 Other sources of incomes,
con’t
 Any income got as license fee, or from renting
contract by a resident of Burundi for a non-
resident.
 Dividends distributed by a company working in
Burundi.
 Interest paid by a resident of Burundi or by a
person with a company based in Burundi owned
by a non – resident.
 Gains from lottery and any other games of luck ,
which are played in Burundi.
 Allowable Deductions

Amount paid by the employer on behalf of

the employee as contribution to the NSSF (
INSS) from his salary.
Amount paid by the employer on behalf of
the employee as contribution of medical
allowances paid to NSSF ( INSS)
Any additional amount contributed by the
employee to NSSF ( INSS ) only up to 20% of
the gross salary of the employee.
 Employment income individual tax
exempt
Foreign consulate representatives
Individuals working in embassy officials , or
on duty for a foreign country , with
citizenship of that country and holds a
diplomatic passport
Individual with no citizenship of Burundi ,
working for a foreign government for
assisting the government of Burundi
 Monthly PAYE rates

Income taxable
Tax payable
From To

0 150,000 Bif 0%

150,001 Bif 300,000 Bif 20% of the amount

exceeding 150,00 Bif

300,001 Bif And more 30% of the amount

exceeding 300,000 Bif
 Annual PAYE rates
Income taxable
Tax payable
From To

0 Bif 0%
1,800,000 Bif

1,800,001 Bif 3,600,000 Bif 20% of the amount

exceeding 1,800,000
Bif

3,600,000 Bif And more 30% of the amount

exceeding 3,600,000
Bif
 PART II

BUSINESS INCOME TAX

 Determinants of Business
individual tax

An entity working from Burundi

during the fiscal year , and has its
headquarters in Burundi during the
fiscal year.
 Determining a fixed
establishement
 It is a set of business activities, in which an
individual works full –time or part –time activities
 It is comprised of headquarters of the business
( or management office), a branch , a simple
office , a minning ground, an oil or gaz pit, an
agricultural land or for forest activities , or any
other natural resources extraction ground ,
adding on a fishing ship .
 Determining a fixed
establishement
 We have to add also a construction site, or a
site for surveillance activities with a lifetime of at
least 6 months .
 Consultancy services delivery , provided by an
enterprise , with its employees or any other
person working for the same activity, when the
activity is done in Burundi for a period more than
6 months in a fiscal year.
 Determining a fixed
establishement,cont’.
An enterprise is not considered a fixed
establishment when:
 Its installations are just for storage purposes or for
display of merchandises of the company.
 The installations are, for storage of raw materials
for manufacturing in any other activity.
 Installations are for preparation of any other
work to be done.
 Determining a fixed
establishement,cont’.
Installations are for business activities ,
when only this is for preparation of the
business activities.
 Other fixed establishments
 If an individual is working for another person
who holds a fixed establishment , that individual
is considered to hold a fixed establishment
 If the individual has the power/ the right to sign
a contract on behalf of a person holding a fixed
establishment.
 If it a stock of products that an individual is
selling on behalf of another person holding a
fixed establishment
 Exceptions

A person is not considered having a

stable establishment, when the work that
he is supposed to accomplish is done by
an agent, who works independently from
the business itself
 Foreign business income
taxable
 If an income is received from a foreign country,
the business income taxable should be reduced
of the amount paid in the foreign country.
 The amount to be deducted from the income
taxed abroad, should not be more than the
income tax calculated in Burundi, for a foreign
income
 There should be a certificate proving that the
foreign country taxed the income incurred by
the individual tax.
 Business revenues
 Any revenue from commercial activities,
industrial activities , art works; all of these after
deducting expenses.
 Revenues from selling assets and all gains from
liquidation of a company.
 All revenues from renting machines,
equipments; considering also agricultural
equipments.
 Any uncertain revenue is assumed to be a
business revenue , unless the individual proves
otherwise ; for exemption purpose.
 Business income tax exemptions from
agricultural, farming or fishing activities cont’

 Are considered agricultural , farming , or fishing

activities , all activities made by an individual tax
and all biological activities , vegetable or animal;
which are constituted by different steps of
evolution ( i.e. production or any other work for
transformation)
 Revenue activity from agricultural or farming is
exempted from tax.
 Business income tax exemptions from
agricultural, farming or fishing activities

 Fishing activities revenues are exempted ,

only if they do not exceed 20,000,000 Bif in
the fiscal period.
 Gains and losses on exchange
rates
 At the end of a fiscal year , the foreign currencies
are evaluated into Burundian francs, considering
the rate to the currency at the last day of the
fiscal year.
 Any gain or loss from foreign currencies
exchanges should be considered while
computing for tax in the fiscal year in which they
were incurred .
 The exchange rate to be used should be the
one provided by the central Bank.
 Gains and losses on exchange
rates cont’
 When the rate of a given currency is not
available, the dollar rate, compared to the
foreign currency is considered.
 Expenses deductions allowed

When determining deductions allowed, the

following are considered :
 Any deduction expense related to the business
activities
 Expenses related to business activities justified by
proving documents .
 Expenses affecting the assets value reductions.
 All the allowable expenses above, when
incurred during the fiscal year.
 Expenses deduction non-
allowable
 Any dividend or other benefits paid to
shareholders.
 Any amount determined as reserves to the
company.
 Any fine or other similar penalties.
 Gifts or donations to NGOs, if the amount of the
donation exceeds 1% of Business profit.
 Personal expenses.
 Depreciation or other assets related to assets
valuation.
 Expenses deduction non-
allowable cont’
 Rent , telephone fee, electricity fee , insurance
fee, fuel or any other operational cost.
 Business gifts ;concert tickets payments,
private trips, food & drinks payments for
business issue, all these when exceeding 1% of
the business profit, when the business profit
does not exceed 5,000,000 Bif.
 Interests payable on loans and advances
received are not allowable to deductions,
when they exceed 30% of the profit taxable.
 Treatment of depreciation of
assets
 When determining the business income taxable,
depreciation 0f assets should be deducted
from the profit taxable.
 Lands, art works, antic objects , jewelries, and
other assets that do not deteriorate or get
obsolete are not subject to depreciation .
 Buildings constructions , renewal or acquisition
are subject to depreciation at a 5% rate from its
value.
 Treatment of depreciation of
assets cont’
 Machinery construction, renewal or acquisition
are subject to depreciation computation at 10
% rate from its original value .
 IT equipments accessories and information
systems or communication systems are
computed for depreciation at 50%
 Treatment of depreciation of
assets cont’
 IT equipments accessories and information
systems or communication systems are
computed for depreciation at 50%
 Other assets, other than the above are
calculated at 25% for depreciation.
 When depreciation of assets does not exceed
500,000 Bif , the amount is allowed to deduction
 Treatment of depreciation of
assets cont’
 When depreciation amount is negative, the
value is added to the profit and depreciation
value becomes nil.
 In case of a loss , the amount of the loss is
deducted to next 5 fiscal years
Value
Added
Tax
 INTRODUCTION

 The idea behind the VAT is to apply , to goods

and services , an amount of Tax on
consumption the proportion on the Price goods
and services; distribution; also considering
importations
 At each transaction, VAT is calculated on the
Price of goods / services at a rate applicable
to the goods and services
 VAT is applicable, up to the last consumer of
the product
 TRANSACTIONS TAXABLE
The following transactions are taxable :
Delivery of goods / services, done by tax
individuals , who are liable to pay VAT.
Added on that, are electricity , water,
gaz, heat and similar services.
All the importations
All right on buildings, which gives the
owner the right to utilize them, other than
the property right.
 INDIVIDUALS LIABLE TO TAX
 An individual is liable to pay VAT,whether being
an individual or a legal entity and has been liable
to pay other taxes as well.
 All individuals mentioning VAT on their invoices or
any other documents must pay VAT for the only
reason that it is mentionned or the invoice or the
document.
 Whether the invoice or document does not
correspond to the order of marchandise or
service delivery, VAT should be paid by the
supplier.
 TAX TERRITORY
 a transaction is consdered to have been made
in Burundi if its sale or transaction of goods, when
the sale or transaction is realised in Burundi.
 Every other transaction of good or service, when
this last is hired and utilised , or exploited in
Burundi.
 Delivery of electricity,water, gaz , heat , and
similar services done in Burundi when received by
consumers.
 EXEMPTIONS

NGO’s , embassies, and consulates

Individuals and legal entities exempted
by the law and regulations of the country.
 EXEMPTIONS TO VAT ( INDIVIDUALS )
 Financial transactions
 Delivery of a buidling, part of a building , land for
housing purpose, when these last where not VAT
deductable at their acquisition.
 Delivery of building not constructed
 Hotels, lodges and living appartments.
 Medical services , adding importations and
delivery of medecines, pharmaceutical products
, materials and special medical products.
 EXEMPTIONS TO VAT
( INDIVIDUALS ) con’t
Educational institutions ( secondary and
universities)
Delivery of agricultural products , adding
farming and fishing.
Flight ticket prices, based on international
tarrifs.
END