Motivation:There are three puzzling features of sub-Saharan African tax systems: tax administrations maintain records on vast numbers of small enterprises that actually provide no revenue; they continually invest resources into registering even more of these "unproductive taxpayers"; and discussions about taxing small enterprises are framed by the ambiguous, misleading concept of the "informal sector." Purpose:To make sense of these separate puzzling practices and narratives by exploring the synergies between them, and the broader organizational and political interests that they serve. Methods and approach:There is little statistical or sociological information on the functioning of national tax administrations in sub-Saharan Africa. The analysis is based on the results of recent research; along with a thorough search for useful data; my own extensive interactions with African tax administrators and relevant international organizations; and a sensitivity to the political dimensions of taxation. Findings:The three features of tax systems that are individually puzzling make sense when examined holistically. The continual drive to register more taxpayers provides an unduly favourable impression of the extent of policy and managerial efforts to collect more revenue. The informal sector narrative locates the apparent cause of revenue scarcity in the alleged undertaxation of small enterprises and poorer people, and thus helps divert attention from failures adequately to tax more privileged Africans and larger enterprises. Policy implications:Be very wary of claims that it would be a good idea to invest resources in registering large numbers of new taxpayers in sub-Saharan Africa. Try to avoid using the term "informal sector" when discussing issues of tax policy and administration-it is confusing and diversionary.

There is a widespread perception that taxing in sub-Saharan Africa has been and remains fraught with problems or government failure. This is not generally true. For more than a century, colonial administrations and independent states have steadily developed the capacity to routinely collect more substantial revenues than one might expect in a low-income region. The two main historical dimensions of this collection capacity were (a) powerful, centralized bureaucracies focused on achieving revenue collection targets and (b) large, taxable international trade sectors. In recent decades, those centralized bureaucracies have to some extent been reformed such that in structure and procedure they resemble more closely tax administrations in OECD countries. More strikingly, nearly all states have adopted VAT and found it to be a very powerful revenue collection instrument. However, the tax share of GDP has been broadly constant for several decades, and it will be hard to increase it. It is difficult for African governments to effectively tax transnational corporations, especially in the mining and energy sectors, which are of growing importance. Tax administrations continue to approach richer Africans with a light touch, and to exaggerate the potential for taxing small-scale (‘informal’) enterprises. The revenue operations of sub-national governments are often opaque. Ordinary people often pay large sums in ‘informal taxes’ that are generally regressive in impact. And the standard direction of travel in the reform of tax policy and administration is not appropriate to those large areas, especially in the Sahel, that are afflicted by internal and cross-border armed conflicts.

There is a widespread perception that taxing in sub-Saharan Africa has been and remains fraught with problems or government failure. This is not generally true. For more than a century, colonial administrations and independent states have steadily developed the capacity to routinely collect more substantial revenues than one might expect in a low-income region. The two main historical dimensions of this collection capacity were (a) powerful, centralized bureaucracies focused on achieving revenue collection targets and (b) large, taxable international trade sectors. In recent decades, those centralized bureaucracies have to some extent been reformed such that in structure and procedure they resemble more closely tax administrations in OECD countries. More strikingly, nearly all states have adopted VAT and found it to be a very powerful revenue collection instrument. However, the tax share of GDP has been broadly constant for several decades, and it will be hard to increase it. It is difficult for African governments to effectively tax transnational corporations, especially in the mining and energy sectors, which are of growing importance. Tax administrations continue to approach richer Africans with a light touch, and to exaggerate the potential for taxing small-scale (‘informal’) enterprises. The revenue operations of sub-national governments are often opaque. Ordinary people often pay large sums in ‘informal taxes’ that are generally regressive in impact. And the standard direction of travel in the reform of tax policy and administration is not appropriate to those large areas, especially in the Sahel, that are afflicted by internal and cross-border armed conflicts.

Les administrations fiscales en Afrique sub-saharienne ont connu des reformes considerables au cours des dernieres decennies. Elles sont en moyenne plus reformees et plus efficaces a plusieurs egards que les administrations fiscales des autres regions a faible revenu. Plusieurs d’entre elles ont opere des changements organisationnels importants, ce qui leur a permis de relever efficacement un certain nombre de defis majeurs. Parmi ces reformes figure l’introduction de la TVA, une taxe relativement complexe, dans presque tous les pays de la region. Le personnel de l’administration fiscale est de mieux en mieux forme et professionnellement qualifie. Meme si les femmes ne representent en moyenne qu’une minorite, leur effectif ne cesse d’augmenter. Il est a noter, par contre, que les recettes effectivement collectees n’augmentent pas relativement au PIB. Des evaluations comparatives effectuees par l’outil diagnostique d’evaluation de l’administration fiscale (TADAT) montrent que les performances de l’administration fiscale dans la region ne sont guere impressionnantes. Il y a eu moins de changements positifs dans le fonctionnement effectif de l’administration fiscale que ce que pourraient laisser croire certains indicateurs exterieurs. Ce document presente un grand nombre d’elements issus de recherches recentes menees sur deux problematiques interdependantes auxquelles les dirigeants doivent accorder plus d’attention et qui peuvent etre considerablement ameliorees. Il s’agit de l’utilisation limitee ou inadequate des technologies numeriques et de l’imposition des petites entreprises.

From the 1950s to the 1980s, Sri Lankan governments collected a high proportion of Gross Domestic Product (GDP) in taxes. They spent most of that money on mass provision of health and education services, and subsidised food. Sri Lanka was a model welfare state, with unusually high human development indicators. Contemporary Sri Lankan governments spend very little on their poor citizens. A major reason is that since 1990 the proportion of GDP collected in tax revenue has steadily declined, such that it is now at unusually low levels. Internal conflict, although almost endemic, does not explain declining tax collection. The decline results from a continuous series of policy decisions to exempt wealthier people, businesses, incomes and assets from taxes. This paper analyses the more identifiable political and institutional processes through which the political preferences of the wealthy and powerful were translated into low revenue collection. They are: the declining power of popular forces (notably programmatic political parties and trade unions); the emergence of foreign aid and loans as an alternative to domestic revenue mobilisation; the institutionalisation of pressure to exempt the private sector from taxes; powerful executive presidents who undermined or dispensed with the authority of ministers of finance; and a political and institutional lock-in to a high dependence on taxes levied on a declining sector of the economy – imports – and to the Customs Department that collects them.

Moore and Prichard provide two different kinds of answers to the question of how governments of developing countries can increase tax revenues. First, they discuss seven potential revenue sources that governments of developing countries tend to use less than they should. Mining, tobacco and alcohol, the incomes and wealth of rich people, and property are typically under-taxed. Tax exemptions for investors and the use of transfer mispricing in international economic transactions can both be curtailed. There is considerable scope to improve the effectiveness of and collections from value added tax (VAT). Second, they examine the potential for increasing the tax take through changing domestic and international tax policies—including a shift to taxing companies on the basis of business turnover rather than profit.

At the level of tax design, the answer to this question is clear and positive. It would be easy, for example, to draft the international treaty and the national legislation required to implement Thomas Piketty’s (2014) proposal for a global tax on wealth. The obstacles to acceptance and implementation of those proposals are merely political – but at the same time they are formidable. There has been a steady, worldwide movement away from wealth taxes of any kind in recent decades, and the many previous calls for international cooperation to establish some kind of global tax have failed (Bird, 2015). Political realism suggests that we start somewhere else.

The idea that states seek to maximise their revenue collection has occupied a significant place in contemporary political economy analysis of taxation, and has helped us understand the history of state formation. It is, however, very much at variance with the daily experience of tax policy and practice. Governments are frequently revenue-sacrificers: they fail to use the functioning, legitimate tax collection systems they have available to actually collect much revenue. This paper details the case of property tax collection in Pakistan, and concludes that governments tend to maximise rule before they maximise revenue.

AbstractThis article explores the impact of taxation on politics and development, especially in developing countries. It begins by explaining the revenues and regimes paradigm, which is based on the notion that state revenue (sources, levels or needs) has a profound influence on politics and governance institutions. In particular, it examines whether and in what ways government revenues shape political institutions and patterns of governance. The article considers a number of critiques and concerns regarding the revenues and regimes paradigm and outlines alternative perspectives. It then asks why governments tax, how they collect taxes, and what determines levels of tax collection. The article concludes by analyzing whether tax-collection performance indicates “state capacity.”

The developmental benefits of governments taxing citizens, even for modest sums, are often disregarded. African governments have long depended on revenue from natural resources or foreign aid to fund budgets. While the potential contribution that better domestic resource mobilisation could make to national finances has received greater attention since the 2008 global financial crisis, international donors often fail to recall the central role that bargaining over taxation has played in building effective, accountable, and responsive states across the developed world. Although never popular, taxation is an essential component of consensual and representative government.

This paper is based on a detailed analysis of how field staff in the Excise and Taxation Department of the Punjab Provincial Government collect the (very low-yielding) property tax. In general, informal practices and relationships play a major role. More specifically, field staff enjoy considerable discretion in making key decisions about property tax assessment; the additional earnings that they are able to get from colluding with taxpayers are used in part to employ support staff and cover routine operating costs; and field-level staff are deeply rooted in the locality where they work, typically serving in one office for their entire career, and both monopolise and manipulate the information on the tax base and on collection performance that senior management would need to establish effective control of the system. In contrast more senior staff are transferred frequently between postings and have short time horizons in any particular posting, and senior staff have little capacity either to monitor and assess the performance of junior staff or to discipline them. It would, however, be misleading to attribute the poor performance of the property tax system principally to the behaviour of tax collection staff. There is considerable evidence that the low-level equilibrium that we observe stems in large part from the relative lack of interest of various levels of government in property tax revenue, and the priority they give to keeping the levels of government below them dependent or disempowered. There is potential to improve the property tax system, especially through wider use of information technology. Should there be adequate political support for reform outside the Excise and Taxation Department, implementation would be very difficult without taking account of the capacity of field staff to block change, and of the need to negotiate change with them.

It is now widely believed that taxation contributes to the quality of governance. There are a number of variants of the broad argument. The most general proposition is that, if governments are dependent on broad general taxation for their incomes, they will, for reasons of self-interest, be more responsive to the needs of their citizens and more likely to allow citizen representatives to share in governance. From a broad historical perspective, that argument is probably valid. The political interactions between states and citizens over tax revenues are however considerably more complicated than this. Governments can proactively use their control over the revenue collection process to divide their citizens into different, competing groups, and thereby increase governments’ own bargaining power relative to their taxpayers. This dimension of the politics of taxation systems has received relatively little attention in the substantial literature on the topic. This paper summarises and illustrates the ways in which governments can use patterns of public spending and tax exemptions to protect themselves from the potential political influence of organised taxpayers.

This paper was originally published in Anne Mette Kjaer, Lars Buur and Lars Engberg-Pedersen (eds) - Perspectives on Politics, Production and Public Administration in Africa - Danish Institute of International Studies, 2015. taxation; politics; public spending; tax exemptions.

Although increasingly justified in terms of statebuilding, recent tax reforms in anglophone Africa contributed only modestly to that goal. They have produced impressive tax agencies, but no detectable increases in revenue collections. They have not addressed some major deficiencies in tax policy and administration. The reforms have however helped improve the career prospects for senior African tax administrators and generated more movements of senior staff between tax agencies, the private sector, and international advisory work. These personnel changes have ambiguous implications for the development of revenue capacity in the long term.