## cr1916-burkina-faso-si

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---

### Banking sector overview and introduction
- Paper examines Burkina Faso’s banking system and macro-financial linkages; prepared by Trevor Lessard and Felix Simione.
- Key institutional features:
  - Banking system comprised 14 banks at end-June 2018.
  - Top three banks accounted for 78 percent of total assets in 2015.
  - Pan-African bank groups dominate foreign ownership and have systemic importance.
  - Two new banks licensed in 2018, including a state-owned agricultural bank.
  - Mobile money agent outlets increased five-fold during 2014-2017.

### Balance sheet analysis and exposures
- Partial balance sheet matrix (end-July 2018) findings:
  - Banks’ exposure to non-residents reached 14.5 percent of GDP.
  - Banks’ net claims on the domestic public sector amounted to 3.5 percent of GDP.
  - Banks have net liabilities to the private sector amounting to 5.5 percent of GDP.
- Implications:
  - External-sector exposure largely in regional currency (CFAF), limiting exchange rate risk but creating vulnerability to regional fiscal shocks.

### Credit growth, credit gap, and financial deepening
- Private credit developments:
  - Ratio of private credit to GDP: 31.3 percent at end-2017 (up from 30.4 percent at end-2016).
  - Net domestic assets grew by 13 percent in 2017.
- Credit gap analysis:
  - The cyclical credit gap has consistently remained lower than the 2 percent of GDP threshold used to signal rising financial sector risks.
- Capital and prudential norms:
  - BCEAO new regulatory capital requirements phased in from January 2018 raise the minimum risk-weighted capital ratio to 8.6 by end-2018.

### Risks and vulnerabilities
- System-wide assessments:
  - Banking system characterized as solvent, liquid, and conservative in lending.
  - Profitability based on ROA or ROE is sufficient.
- Specific risks:
  - Credit risk: NPLs have remained low; asset concentration is substantial with top five borrowers accounting for nearly 10 percent of total credit.
  - Exchange rate risk: Limited because foreign-currency lending is not permissible in WAEMU and regional bonds are denominated in CFAF.
  - Liquidity risk: Ratio of liquid assets to total assets around 25 percent at end-2017.
  - Global financial conditions: Limited risk from tighter global conditions given limited international exposure outside regional debt markets and minimal use of complex derivatives.
  - Operational/security risk: Rising security incidents have increased operational risk in remote areas; some banks temporarily closed branches.

### Financial inclusion and allocation of credit
- Access and usage:
  - Less than 25 percent of the population has an account at a financial institution.
  - Less than 10 percent have been able to borrow from financial institutions.
  - Rapid increase in mobile money usage consistent with growing cell phone utilization.
- Distributional and sectoral allocation:
  - Agriculture employs 80 percent of the population and accounts for around 25 percent of GDP but receives approximately 5 percent of credit.
  - Commerce (12 percent of GDP) and construction (7 percent of GDP) receive around 29 percent and 16 percent of credit, respectively.
  - Top 5 creditors account for around 10 percent of total credit to the economy.
- Microfinance and mobile money:
  - Microfinance is vibrant but underdeveloped due to IT barriers, lack of economies-of-scale, and weaknesses in business operations.
  - Expansion of mobile money outlets offers opportunity to bring the unbanked into the financial system.

### Policy options and recommendations for financial inclusion
- Supply-side measures:
  - Expand microfinance and improve digital and mobile financial services.
  - Enhance risk analysis and promote financial institutions dedicated to the agricultural sector.
  - Fully operationalize the existing private credit bureau to narrow information gaps.
  - Monitor contingent liabilities from the state-owned agricultural bank created in March 2018.
- Demand-side measures:
  - Intensify financial literacy programs, especially in rural areas.
  - Explore reforms to modernize the legal framework on bank collateral tailored to local households and businesses.
- Strategic framing:
  - Frame financial inclusion policy actions within the broader context of the PNDES and align with the regional financial inclusion strategy adopted by BCEAO.

*Source: IMF staff report excerpts as provided in the content unit.*

### IMPROVING REVENUE MOBILIZATION IN BURKINA FASO: OPTIONS FOR REFORM — Background and recent developments
- Recent progress:
  - Tax revenue-to-GDP ratio averaged 16 percent of GDP over the last five years, below the WAEMU convergence criterion of 20 percent of GDP.
  - Potential revenue gap: benchmarking indicates Burkina Faso could potentially mobilize at least an additional 1.7 percent of GDP in revenue.
- Recent dynamics:
  - Total tax revenue declined during the 2014–2015 political transition, then increased by 15.7 percent in 2016 and by 15.1 percent in 2017.
  - Nominal GDP grew by around 8 to 9 percent per year in 2016–2017.
  - By 2017, total tax revenues reached around 17 percent of GDP (the same as in 2013).
- Main revenue sources (2017):
  - Taxes on goods and services: 9.6 percent of GDP.
  - VAT (net): around 5.6 percent of GDP (contributing more than 55 percent of goods and services tax revenue).
  - Consumption taxes and customs duties: each around 2 percent of GDP (about 20 percent of goods and services tax revenue each).
- Income tax composition and trends:
  - Corporate income tax share declined to 15 percent of total tax revenue (after a peak at 17.7 percent in 2011).
  - Personal income tax share declined from 10 percent to 8.2 percent of total tax revenue despite a steady increase in the wage bill; part of this weakness stems from non-application of the Income Tax Act (cap on employee tax exemption not observed, bonuses not taxed in the public sector).
- Revenue administration roles and shares:
  - Tax administration (Direction Generale des Impots – DGI), customs (Direction Generale des Douanes - DGD), and treasury (Direction Generale du Tresor et de la Comptabilite Publique - DGTCP) are the three agencies; DGI and DGD collected on average more than 85 percent of total revenue over the last 5 years.
  - After decline to less than 40 percent in 2013, the share of revenue collected by the tax administration stands around 44 percent; customs contribution is around 41 percent of total revenue.

### Benchmarking Burkina Faso’s revenue performance
- Aggregate performance:
  - Tax revenue-to-GDP rose from around 13 percent in 2010 to 17 percent in 2017; average 16 percent over 2013–2017.
  - Performance is above the WAEMU average and most WAEMU peers but remains below the WAEMU convergence criterion of 20 percent and below several SSA countries at similar development stages.
- Income tax (2013–17 average):
  - Burkina Faso: around 4.5 percent of GDP.
  - WAEMU average: 4 percent of GDP.
  - Sub-Saharan African (SSA) peers: 5.5 percent of GDP.
- Corporate income tax (CIT):
  - Statutory CIT rate: 27.5 percent (one of the lowest in WAEMU and below averages in LIC and SSA peers).
  - Tax productivity (revenue collected per percentage point of statutory rate) is one of the highest in WAEMU and higher than other SSA peers, reflecting collection measures.
- Trade taxes:
  - Trade tax revenue: around 2.5 percent of GDP in Burkina Faso, below SSA peers average of 3.2 percent of GDP and WAEMU average of 4.3 percent of GDP.
  - Factors reducing trade tax revenue may include full trade liberalization within WAEMU and inefficiencies in customs administration (e.g., weak control/enforcement, inability to verify declared import values, transit/import routing via neighboring countries).
  - Interconnection of customs IT systems with neighboring countries is under way as a measure to safeguard customs revenue.
- Goods and services taxes and VAT:
  - VAT rate: 18 percent (same as almost all WAEMU countries, higher than SSA average).
  - Goods and services tax revenue averaged 8.9 percent of GDP over 2013–17—one of the highest in WAEMU and well above SSA peers.
  - VAT productivity: Burkina Faso collects around 47.7 cents for each CFAF of theoretical VAT liability—7 cents higher than SSA peers and above the 34 cents average in WAEMU.

### Reforms and measures to date
- Measures undertaken to improve revenue collection include:
  - Higher excise taxes (tobacco, alcoholic beverages, gambling).
  - Higher property tax rates.
  - Standardized VAT invoicing.
  - Tax and customs administration reforms focused on IT improvements and fraud combat (e.g., linking tax, customs, and public procurement databases).
  - New General Tax Code of December 20, 2017 implementing principal recommendations on transfer pricing.
  - Recent measures: e-filing procedures, mining sector database development, team to collect tax arrears, dematerialization of customs clearance documents, reporting verification activities, and litigation management applications.
- Ongoing needs: transferring collection responsibility from the Treasury department, further automation and digitalization, full implementation of IT and administrative reforms.

### Is there room to raise tax revenue in Burkina Faso?
- Analytical approach:
  - Tax capacity and tax gap assessed using a peer-analysis panel regression on 38 SSA countries over 1995–2015.
  - Model: TTi,t = α + βXi,t + μi + εi,t, with three reference groups: WAEMU, all SSA countries, and Low-Income SSA countries; fixed effects estimator employed following Hausman test.
- Key determinants of tax revenue (empirical results):
  - Positive and significant: GDP per capita, gross fixed capital formation, broad money as ratio to GDP.
  - Negative and significant: value added of agriculture and inflation.
  - Trade openness positively associated with trade-related revenue-to-GDP ratio.
  - Demographic variables and natural resource rents were not statistically significant.
- Interpretation:
  - Higher per capita income, lower agricultural share, greater monetization, and higher capital investment increase tax potential.
  - High inflation reduces tax-to-GDP ratio by eroding purchasing and investing power.
  - Low tax effort signals room to raise revenue to finance higher public provision of goods and services.

### Given the current characteristics of the tax law in Burkina Faso, the results suggest — Key findings and revenue potential
- Burkina Faso has the potential to raise at least 1.7 percent of GDP in additional revenue considering Sub-Saharan African countries as peers.
- Using estimated coefficients in Appendix I and Burkina Faso characteristics over 2013-2015, Burkina Faso could have achieved a tax revenue ratio of 17.2 percent of GDP in this period compared to the realized performance of 15.5 percent of GDP.
- The 1.7 percent of GDP figure is a lower bound of potential tax revenue as it assumes tax laws and tax administration are improved to the level of SSA peers.
- Appendix II indicates that tax capacity has increased from year to year, reflecting steps by Burkina Faso and peer countries to improve capacity to raise taxes.
- Peer analysis indicates scope to further mobilize revenue by an additional 3.6 percent of GDP through goods and services taxes if Burkina Faso raised its goods and services tax effort to the level of the broader sample of sub-Saharan African peers.
- There is some, although limited, room to increase income tax revenue.
- The predicted trade tax capacity should be treated with caution: the explanatory power of the model is weak for trade tax revenue (R-square is less than 15 percent) compared to R-squares ranging from 25 to 75 percent for other tax categories.
- Attainment of the WAEMU’s 20 percent of GDP tax revenue criterion is an achievable objective for Burkina Faso, but will require continued efforts to protect and sustain revenue mobilization from all types of taxes.

### Tax policy recommendations (specific measures and rates)
- Apply the letter of the law on personal income tax (IRPP) and caps on tax exemptions for public employee benefits:
  - Law limits tax exemption for employee benefits to 20 percent of gross salary (up to CFAF 50,000 per month) for housing, transportation, and other employee expenses; these limits are not being applied in practice.
  - Bonuses paid in the public sector are de facto tax exempt in contradiction with the law; applying the law should lead to more revenue mobilization.
- VAT adjustments to reduce goods and services tax gap:
  - Introduce a VAT rate of 5 percent on currently exempted goods and services.
  - Apply the normal VAT tax rate of 18 percent to household consumption of water and electricity.
  - Rationale: exemptions (especially rice, water, electricity) introduce inefficiencies, disproportionately benefit wealthy individuals, and rationalize further exemptions (e.g., agricultural equipment and inputs), causing VAT revenue gaps.
  - Suggestion: collect VAT revenue while directly subsidizing the poor through income transfers to address regressivity.
- Excises and other specific taxes to increase revenue and internalize externalities:
  - Streamline the excise tax on drinks and eliminate overlap with the Contribution to the Beverage Sector (CBS).
  - Raise excise taxes on beverages by at least 5 percentage points and eliminate the CBS.
  - Set excise tax rates to 35 percent for beer, 45 percent for all other alcoholic drinks, and 15 percent for all non-alcoholic beverages (locally-produced or imported).
  - Increase tobacco tax to the minimum rate of 50 percent permitted by the WAEMU.
  - Apply the 5 percent tax rate on tourism vehicles in conformity with the Tax Code.
  - Raise a 5 percent tax on plastic bags.
  - Expected co-benefit: higher taxes on alcoholic drinks and tobacco help internalize health-related externalities.

### Tax administration reforms and capacity development
- Identified weaknesses:
  - Lack of autonomy, particularly for tax collection (responsibility still under the Treasury department).
  - Inadequacy of IT systems to support basic tax administration functions.
  - Relatively weak control over the tax population, leading to high noncompliance and a limited number of effective taxpayers.
- Key recommended actions:
  - Implement follow-up procedures for non-filers.
  - Develop issue-oriented audits and balance them with comprehensive audits to increase audit coverage.
  - Conduct a comprehensive assessment of tax arrears and develop a strategy to collect non-disputed debt and to write off uncollectible ones.
  - Introduce a single self-assessment procedure for small businesses based on a single rate applied to turnover.
  - Use SINTAX to allow automatic extraction of reliable performance indicators.
- VAT refund system weaknesses and recommendations:
  - In 2016 and 2017, the average processing time for VAT refund claims was 251 days.
  - On December 31, 2017, the stock of validated but unpaid refunds amounted to CFAF 46.7 billion, i.e. 27 percent of the amounts validated.
  - Recommendations include elimination of administrative burdens, introduction of a risk-based approach to improve the refund system, and introduction of deferred payment of VAT on imports for selected taxpayers.

### Customs administration: immediate challenges and reform actions
- Immediate challenge:
  - Successfully exit the import verification program (expected to end in late August 2018) and put in place means to control the value of imported goods effectively and according to WTO standards (use of the transaction value).
- Multipronged strategy to increase and sustain customs revenue mobilization:
  - Establish a customs unit dedicated to monitoring application of the transaction value and providing technical support to field officers.
  - Enhance accountability of inspectors and auditors in customs valuation and ensure managers provide effective oversight of assigned tasks.
  - Better use existing IT tools.
  - Develop post-clearance audit as a safety net to reinforce compliance.
- Strengthen customs control through better risk management and human resource policies:
  - Develop risk analysis for control selectivity.
  - Assign and train specialist officers in areas critical for revenue mobilization (including monitoring duty exemptions and suspensions).
  - Better supervise staff to reach satisfactory performance and professional ethics.
  - Recommend focusing first on the clearance process, then on post-clearance audit and investigations.

*Source: IMF staff estimates and analysis as presented in the provided chapter.*

### References _____________________________________________________________________________ 11

### cr1916-burkina-faso-si - References _____________________________________________________________________________ 11

### Banking sector overview and introduction
- The paper examines Burkina Faso’s banking system and macro-financial linkages; prepared by Trevor Lessard and Felix Simione.
- Key institutional features:
  - Banking system comprised 14 banks at end-June 2018.
  - Top three banks accounted for 78 percent of total assets in 2015.
  - Pan-African bank groups dominate foreign ownership and have systemic importance.
  - Two new banks licensed in 2018, including a state-owned agricultural bank.
  - Mobile money agent outlets increased five-fold during 2014-2017.

### Balance sheet analysis and exposures
- Partial balance sheet matrix (end-July 2018) findings:
  - Banks’ exposure to non-residents reached 14.5 percent of GDP.
  - Banks’ net claims on the domestic public sector amounted to 3.5 percent of GDP.
  - Banks have net liabilities to the private sector amounting to 5.5 percent of GDP.
- Implications:
  - External-sector exposure largely in regional currency (CFAF), limiting exchange rate risk but creating vulnerability to regional fiscal shocks.

### Credit growth, credit gap, and financial deepening
- Private credit developments:
  - Ratio of private credit to GDP: 31.3 percent at end-2017 (up from 30.4 percent at end-2016).
  - Net domestic assets grew by 13 percent in 2017.
- Credit gap analysis:
  - The cyclical credit gap has consistently remained lower than the 2 percent of GDP threshold used to signal rising financial sector risks.
- Capital and prudential norms:
  - BCEAO new regulatory capital requirements phased in from January 2018 raise the minimum risk-weighted capital ratio to 8.6 by end-2018.

### Risks and vulnerabilities
- System-wide assessments:
  - Banking system characterized as solvent, liquid, and conservative in lending.
  - Profitability based on ROA or ROE is sufficient.
- Specific risks:
  - Credit risk: NPLs have remained low; asset concentration is substantial with top five borrowers accounting for nearly 10 percent of total credit.
  - Exchange rate risk: Limited because foreign-currency lending is not permissible in WAEMU and regional bonds are denominated in CFAF.
  - Liquidity risk: Ratio of liquid assets to total assets around 25 percent at end-2017.
  - Global financial conditions: Limited risk from tighter global conditions given limited international exposure outside regional debt markets and minimal use of complex derivatives.
  - Operational/security risk: Rising security incidents have increased operational risk in remote areas; some banks temporarily closed branches.

### Financial inclusion and allocation of credit
- Access and usage:
  - Less than 25 percent of the population has an account at a financial institution.
  - Less than 10 percent have been able to borrow from financial institutions.
  - Rapid increase in mobile money usage consistent with growing cell phone utilization.
- Distributional and sectoral allocation:
  - Agriculture employs 80 percent of the population and accounts for around 25 percent of GDP but receives approximately 5 percent of credit.
  - Commerce (12 percent of GDP) and construction (7 percent of GDP) receive around 29 percent and 16 percent of credit, respectively.
  - Top 5 creditors account for around 10 percent of total credit to the economy.
- Microfinance and mobile money:
  - Microfinance is vibrant but underdeveloped due to IT barriers, lack of economies-of-scale, and weaknesses in business operations.
  - Expansion of mobile money outlets offers opportunity to bring the unbanked into the financial system.

### Policy options and recommendations for financial inclusion
- Supply-side measures:
  - Expand microfinance and improve digital and mobile financial services.
  - Enhance risk analysis and promote financial institutions dedicated to the agricultural sector.
  - Fully operationalize the existing private credit bureau to narrow information gaps.
  - Monitor contingent liabilities from the state-owned agricultural bank created in March 2018.
- Demand-side measures:
  - Intensify financial literacy programs, especially in rural areas.
  - Explore reforms to modernize the legal framework on bank collateral tailored to local households and businesses.
- Strategic framing:
  - Frame financial inclusion policy actions within the broader context of the PNDES and align with the regional financial inclusion strategy adopted by BCEAO.

*Source: IMF staff report excerpts as provided in the content unit.*

### References

### IMPROVING REVENUE MOBILIZATION IN BURKINA FASO: OPTIONS FOR REFORM

### Background and recent developments
- Recent progress: tax revenue-to-GDP ratio averaged 16 percent of GDP over the last five years, below the WAEMU convergence criterion of 20 percent of GDP.
- Potential revenue gap: benchmarking indicates Burkina Faso could potentially mobilize at least an additional 1.7 percent of GDP in revenue.
- Recent dynamics:
  - Total tax revenue declined during the 2014–2015 political transition, then increased by 15.7 percent in 2016 and by 15.1 percent in 2017.
  - Nominal GDP grew by around 8 to 9 percent per year in 2016–2017.
  - By 2017, total tax revenues reached around 17 percent of GDP (the same as in 2013).
- Main revenue sources (2017):
  - Taxes on goods and services: 9.6 percent of GDP.
  - VAT (net): around 5.6 percent of GDP (contributing more than 55 percent of goods and services tax revenue).
  - Consumption taxes and customs duties: each around 2 percent of GDP (about 20 percent of goods and services tax revenue each).
- Income tax composition and trends:
  - Corporate income tax share declined to 15 percent of total tax revenue (after a peak at 17.7 percent in 2011).
  - Personal income tax share declined from 10 percent to 8.2 percent of total tax revenue despite a steady increase in the wage bill; part of this weakness stems from non-application of the Income Tax Act (cap on employee tax exemption not observed, bonuses not taxed in the public sector).
- Revenue administration roles and shares:
  - Tax administration (Direction Generale des Impots – DGI), customs (Direction Generale des Douanes - DGD), and treasury (Direction Generale du Tresor et de la Comptabilite Publique - DGTCP) are the three agencies; DGI and DGD collected on average more than 85 percent of total revenue over the last 5 years.
  - After decline to less than 40 percent in 2013, the share of revenue collected by the tax administration stands around 44 percent; customs contribution is around 41 percent of total revenue.

### Benchmarking Burkina Faso’s revenue performance
- Aggregate performance:
  - Tax revenue-to-GDP rose from around 13 percent in 2010 to 17 percent in 2017; average 16 percent over 2013–2017.
  - Performance is above the WAEMU average and most WAEMU peers but remains below the WAEMU convergence criterion of 20 percent and below several SSA countries at similar development stages.
- Income tax (2013–17 average):
  - Burkina Faso: around 4.5 percent of GDP.
  - WAEMU average: 4 percent of GDP.
  - Sub-Saharan African (SSA) peers: 5.5 percent of GDP.
- Corporate income tax (CIT):
  - Statutory CIT rate: 27.5 percent (one of the lowest in WAEMU and below averages in LIC and SSA peers).
  - Tax productivity (revenue collected per percentage point of statutory rate) is one of the highest in WAEMU and higher than other SSA peers, reflecting collection measures.
- Trade taxes:
  - Trade tax revenue: around 2.5 percent of GDP in Burkina Faso, below SSA peers average of 3.2 percent of GDP and WAEMU average of 4.3 percent of GDP.
  - Factors reducing trade tax revenue may include full trade liberalization within WAEMU and inefficiencies in customs administration (e.g., weak control/enforcement, inability to verify declared import values, transit/import routing via neighboring countries).
  - Interconnection of customs IT systems with neighboring countries is under way as a measure to safeguard customs revenue.
- Goods and services taxes and VAT:
  - VAT rate: 18 percent (same as almost all WAEMU countries, higher than SSA average).
  - Goods and services tax revenue averaged 8.9 percent of GDP over 2013–17—one of the highest in WAEMU and well above SSA peers.
  - VAT productivity: Burkina Faso collects around 47.7 cents for each CFAF of theoretical VAT liability—7 cents higher than SSA peers and above the 34 cents average in WAEMU.

### Reforms and measures to date
- Measures undertaken to improve revenue collection include:
  - Higher excise taxes (tobacco, alcoholic beverages, gambling).
  - Higher property tax rates.
  - Standardized VAT invoicing.
  - Tax and customs administration reforms focused on IT improvements and fraud combat (e.g., linking tax, customs, and public procurement databases).
  - New General Tax Code of December 20, 2017 implementing principal recommendations on transfer pricing.
  - Recent measures: e-filing procedures, mining sector database development, team to collect tax arrears, dematerialization of customs clearance documents, reporting verification activities, and litigation management applications.
- Ongoing needs: transferring collection responsibility from the Treasury department, further automation and digitalization, full implementation of IT and administrative reforms.

### Is there room to raise tax revenue in Burkina Faso?
- Analytical approach:
  - The paper assesses tax capacity and the tax gap (difference between tax potential and actual revenue) using a peer-analysis panel regression on 38 SSA countries over 1995–2015.
  - Model specification: TTi,t = α + βXi,t + μi + εi,t where TTi,t is tax revenue-to-GDP, Xi,t are determinants, μi is country fixed effect.
  - Three reference groups used: WAEMU, all SSA countries, and Low-Income SSA countries. Fixed effects estimator employed following Hausman test.
- Key determinants of tax revenue (empirical results):
  - Positive and significant: GDP per capita (proxy for development level), gross fixed capital formation (capital investment), broad money as ratio to GDP (economy monetization).
  - Negative and significant: value added of agriculture (proxy for ease of tax collection) and inflation (proxy for macroeconomic management quality).
  - Trade openness positively associated with trade-related revenue-to-GDP ratio.
  - Demographic variables and natural resource rents were not statistically significant in this analysis.
- Interpretation:
  - Higher per capita income, lower agricultural share, greater monetization, and higher capital investment increase tax potential.
  - High inflation reduces tax-to-GDP ratio by eroding purchasing and investing power.
  - In Burkina Faso’s context, a low tax effort signals room to raise revenue to finance higher public provision of goods and services.

*Source: IMF staff compilation from the provided content unit.*

### 13. Given the current characteristics of the tax law in Burkina Faso, the results suggest

### Given the current characteristics of the tax law in Burkina Faso, the results suggest

### Key findings and revenue potential
- Burkina Faso has the potential to raise at least 1.7 percent of GDP in additional revenue considering Sub-Saharan African countries as peers.
- Using estimated coefficients in Appendix I and Burkina Faso characteristics over 2013-2015, Burkina Faso could have achieved a tax revenue ratio of 17.2 percent of GDP in this period compared to the realized performance of 15.5 percent of GDP.
- The 1.7 percent of GDP figure is a lower bound of potential tax revenue as it assumes tax laws and tax administration are improved to the level of SSA peers.
- Appendix II indicates that tax capacity has increased from year to year, reflecting steps by Burkina Faso and peer countries to improve capacity to raise taxes.
- The peer analysis indicates scope to further mobilize revenue by an additional 3.6 percent of GDP through goods and services taxes if Burkina Faso raised its goods and services tax effort to the level of the broader sample of sub-Saharan African peers.
- There is some, although limited, room to increase income tax revenue.
- The predicted trade tax capacity should be treated with caution: the explanatory power of the model is weak for trade tax revenue (R-square is less than 15 percent) compared to R-squares ranging from 25 to 75 percent for other tax categories.
- Attainment of the WAEMU’s 20 percent of GDP tax revenue criterion is an achievable objective for Burkina Faso, but will require continued efforts to protect and sustain revenue mobilization from all types of taxes.

### Tax policy recommendations (specific measures and rates)
- Apply the letter of the law on personal income tax (IRPP) and caps on tax exemptions for public employee benefits:
  - The law limits tax exemption for employee benefits to 20 percent of gross salary (up to CFAF 50,000 per month) for housing, transportation, and other employee expenses; these limits are not being applied in practice.
  - Bonuses paid in the public sector are de facto tax exempt in contradiction with the law; applying the law should lead to more revenue mobilization.
- VAT adjustments to reduce goods and services tax gap:
  - Introduce a VAT rate of 5 percent on currently exempted goods and services.
  - Apply the normal VAT tax rate of 18 percent to household consumption of water and electricity.
  - Rationale: exemptions (especially rice, water, electricity) introduce inefficiencies, disproportionately benefit wealthy individuals, and rationalize further exemptions (e.g., agricultural equipment and inputs), causing VAT revenue gaps.
  - Suggestion: collect VAT revenue while directly subsidizing the poor through income transfers to address regressivity.
- Excises and other specific taxes to increase revenue and internalize externalities:
  - Streamline the excise tax on drinks and eliminate overlap with the Contribution to the Beverage Sector (CBS).
  - Raise excise taxes on beverages by at least 5 percentage points and eliminate the CBS.
  - Set excise tax rates to 35 percent for beer, 45 percent for all other alcoholic drinks, and 15 percent for all non-alcoholic beverages (locally-produced or imported).
  - Increase tobacco tax to the minimum rate of 50 percent permitted by the WAEMU.
  - Apply the 5 percent tax rate on tourism vehicles in conformity with the Tax Code.
  - Raise a 5 percent tax on plastic bags.
  - Expected co-benefit: higher taxes on alcoholic drinks and tobacco help internalize health-related externalities.

### Tax administration reforms and capacity development
- Further reforms and capacity development could support increasing revenue up to the WAEMU convergence criterion of 20 percent of GDP.
- Previously identified tax administration weaknesses:
  - Lack of autonomy, particularly for tax collection (responsibility still under the Treasury department).
  - Inadequacy of IT systems to support basic tax administration functions.
  - Relatively weak control over the tax population, leading to high noncompliance and a limited number of effective taxpayers.
- Key recommended actions:
  - Implement follow-up procedures for non-filers.
  - Develop issue-oriented audits and balance them with comprehensive audits to increase audit coverage.
  - Conduct a comprehensive assessment of tax arrears and develop a strategy to collect non-disputed debt and to write off uncollectible ones.
  - Introduce a single self-assessment procedure for small businesses based on a single rate applied to turnover.
  - Use SINTAX to allow automatic extraction of reliable performance indicators.
- VAT refund system weaknesses and recommendations:
  - In 2016 and 2017, the average processing time for VAT refund claims was 251 days.
  - On December 31, 2017, the stock of validated but unpaid refunds amounted to CFAF 46.7 billion, i.e. 27 percent of the amounts validated.
  - Recommendations include elimination of administrative burdens, introduction of a risk-based approach to improve the refund system, and introduction of deferred payment of VAT on imports for selected taxpayers.

### Customs administration: immediate challenges and reform actions
- Immediate challenge: successfully exit the import verification program (expected to end in late August 2018) and put in place means to control the value of imported goods effectively and according to WTO standards (use of the transaction value).
- Multipronged strategy to increase and sustain customs revenue mobilization:
  - Establish a customs unit dedicated to monitoring application of the transaction value and providing technical support to field officers.
  - Enhance accountability of inspectors and auditors in customs valuation and ensure managers provide effective oversight of assigned tasks.
  - Better use existing IT tools.
  - Develop post-clearance audit as a safety net to reinforce compliance.
- Strengthen customs control through better risk management and human resource policies:
  - Develop risk analysis for control selectivity.
  - Assign and train specialist officers in areas critical for revenue mobilization (including monitoring duty exemptions and suspensions).
  - Better supervise staff to reach satisfactory performance and professional ethics.
  - Recommend focusing first on the clearance process, then on post-clearance audit and investigations.

*Source: IMF staff estimates and analysis as presented in the provided chapter.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2019/cr1916-burkina-faso-si.pdf_