To pay or not to pay

Taxpayer compliance in Sub-Saharan Africa is closely linked to peoples' views of the government's ability to deliver on important services, the fairness of the system, and consequences of tax evasion shows findings from the recent Afrobarometer survey.

Reluctance to pay tax is a global problem. Studies suggest that developing countries are hardest hit. Merima Ali, senior researcher at CMI, Odd-Helge Fjeldstad, senior researcher at CMI and research director at the International Centre for Tax and Development (ICTD), and Ingrid Hoem Sjursen, Ph. D candidate at the Norwegian School of Economics, have used data from the recent Afrobarometer survey to study peoples’ willingness to pay taxes in four African countries, a region where tax payers are renowned for their reluctance to pay.

-It is not surprising that willingness to pay tax is closely linked to the government’s capacity to provide public services. The results provide policymakers and authorities with important advice on how to behave in order to increase the citizens’ willingness to pay tax, says Fjeldstad.

Strenghten legitimacy
Paying tax represents the most basic social contract between citizens and the government. If you pay tax, you expect to get something back. The results from the Afrobarometer survey clearly illustrate this exchange-theory of tax compliance. People who are satisfied with their country’s public service delivery, have a more positive attitude towards tax.

-When the government fails to deliver public services, people´s willingness to pay tax decreases accordingly. If people have to pay non-state actors to provide the services that you would expect from the state, tax compliance drops dramatically. This is particularly clear in countries where people frequently have to pay non-state actors for protection and security services, says Fjeldstad.

Tax is not only about tax administration. It is inextricably linked to the public agencies delivering services. Lacking competence or capacity in any of these sectors makes it hard to maintain legitimacy for tax collection.

Openness and transparency around the administrative process, as well as public spending, are crucial for the legitimacy of the tax system in general. Although many African countries have implemented major tax reforms and international donors have spent considerable amounts on technical assistance, efforts to improve state-citizen relations around taxation, including better links between tax and spending, should be a main priority.

Show and tell
Many countries have a long way to go in terms of openness and transparency. Clarifying the connections between tax and public expenditure, explaining what sectors taxpayers’ money goes into, is a simple measure that can contribute to strengthen tax legitimacy. In South Africa, signs telling the public that tax money has paid for the highway they are driving on are a common sight.

-Tax payer education campaigns can be efficient. They create a better understanding of the necessity of tax collection. However, understanding and legitimacy of course depends on the government’s ability to practice what it preaches, says Fjeldstad.

Reluctance to pay tax can also be a result of lacking knowledge and confusing regulations. If you do not know what you are supposed to pay, where and why, you are less inclined to pay.

Get what you give
Theories on tax compliance argue that fairness is a central term. How citizens perceive they are treated compared to others affects their willingness to pay tax. One of the findings in the CMI-researchers’ study is that the majority of respondents feel that there is differential treatment on the basis of ethnical background, and that they suffer from it.

-This clearly illustrates the need for openness and transparency in tax administration, and the need to ensure equal treatment of taxpayers, as well as clear and unambiguous tax laws with few exemptions. It is not sufficient to claim that the laws are equal for all. The authorities need to prove that they are, through actions and measures against tax exemptions and tax evasion, says Fjeldstad.

Measures against tax exemptions and tax evasion necessarily imply a coercive element. To succeed, the authorities need to develop enforcement strategies that are perceived as acceptable, and to ensure that cheating has consequences. To make sure that the process does not backfire, transparency and fairness have to be a main priority.

-In the process of strengthening the tax system, governments as well as tax authorities need to consider how they communicate; how they present themselves and their message to the public. Although there is an element of coercion, aggressive rhetoric and enforcement practices will likely cause resistance. You get what you give, says Fjeldstad.