Capital Income Taxation in Burundi

Abstract

This paper analyzes the taxation of capital income in Burundi by performing calculations of the marginal effective tax rates (METRs) on a wide variety of alternative investments under the current tax system. The calculations identify the individual and cumulative effects of (i) the business and individual income taxes, (ii) property taxes, (iii) transactions taxes, (iv) customs duties, (v) tax holidays, (vi) preferential business income tax rates, and (vii) the special treatment of partnership income. METRs are also calculated in the presence of income tax evasion. The analysis provides an indication of the extent to which the tax system in Burundi distorts investment allocation decisions across assets (and thus across business sectors) and among alternative methods of finance. It also provides estimates of the overall level of taxation of various forms of capital income, and demonstrates how the effects of the tax system on investment incentives vary with changes in the expected rate of inflation. In addition, the paper briefly describes the advantages and disadvantages of the METR approach; it argues that METR analysis provides a convenient and intuitively appealing way of summarizing the net effects on investment incentives of complicated tax systems, and thus can serve as a useful input in discussions of potential tax reforms.