(DTIS) Update, Volume 1 – Main report - Enhanced Integrated ...

In spite of efforts to improve the enforcement of regulations, according to fragmentary informationgathered by the DTIS update team outside of formal interviews, several products seem to be imported ordistributed through channels characterized by rent-seeking or anti-competitive practices. These informalarrangements contribute to discourage regular operators and to high prices that penalize consumers.For instance, powder milk is bought by well-connected operators in Goma at the equivalent ofFBU6’950 per box, imported into Burundi using networks of informal traders—mostly women—whopay small lump-sum taxes at the border and then loaded onto minivans or pickups, to be sold at adomestic price around FBU12’000 per box. Volumes imported are estimated to top off 60’000 boxes peryear, generating a stream of profit that could be as high US$200’000 per year at the current exchangerate and costing almost as much in lost tax revenue, since neither tariff nor VAT are paid.Sugar is produced in the country by a State-owned company, Sosumo. Sosumo has a list of authorizedbuyers who can buy sugar at FBU1’250/kg, whereas the market price is said to have recently shot up toas high as FBU2’500/kg. Some of the sugar bought by big buyers is said to be profitably exported toneighboring markets, which contributes to keeping Burundi’s domestic price high, while arbitragethrough competitive imports from other EAC countries like Tanzania is made difficult by a web ofregulatory and anticompetitive arrangements.In the same vein, cement is said to have been imported in growing quantities through parallel, taxavoidingchannels with high-level connections, until what appears to be a recent crackdown by OBR. Allthree examples, if confirmed, would illustrate the interlinkages between anticompetitive practices, taxloopholes and rent-seeking, all of which contribute to distort competition, undermine OBR’s efforts tolevel the playing field, and deprive the State from sorely needed tax revenue.There is a “clash of cultures” between the new system embodied by OBR and some of thetraditional ways of doing business in the country. This can be illustrated by the following. Below agiven threshold of turnover, operators can claim lump-sum taxation at a rate which often makes thelump-sum choice attractive. However, the system is easily abused by slicing operations, under-reporting,and by the practice of cash-based transactions with no paper trace. The OBR is now reclassifyingbusinesses upon evidence of abuse. It also conducts spot checks of imported merchandise sold ondomestic markets. But this creates a problem for small-scale traders shopping for imports in Middle-Eastor Asian markets. When these traders share containers of retail merchandise bought, say, in Dubai, theymay end up being taxed twice—once upon customs clearance under one of the traders’ names, and asecond time when the others cannot prove that they bought from the first one at random checks onmarkets. Such a problem would not happen if all transactions, including those between traders, wererecorded and billed, but this is not in the habits of small-scale traders for a variety of reasons.This transition is accompanied by progress on several fronts in terms of trade facilitation.Anecdotal evidence suggests that customs clearance times at the Kobero border post have been reduced,that there is more flexibility in the choice of a clearance point, and that the customs-broker industry hasbeen restructured and professionalized. Many of these changes address issues raised in the 2004 DTIS.In addition, cooperation between Burundi’s OBR and the Rwanda Revenue Authority has led to thecreation of a régime de commerce simplifié whose objective is to facilitate small-scale cross-bordertrade. Both countries have established a common list of commodities eligible for the use of a simplifiedcertificate of origin to establish eligibility to intra-EAC tariff-free treatment. However, traders wronglyassumed that eligibility would also entail exemption from VAT, which is not the case, leading tomisunderstandings at the border. 8888 See http://www.obr.bi/publications/actualites/173-lobr-donne-des-eclaircissements-sur-le-regime-de-commercesimplifie.html.81 / 153