Building a taxpayer culture

How do you convince people who do their business in informal markets to register in the tax base? How do you convince the ruling elite that they have to pay their fair share? These are some of the basic questions that interest everyone doing research on tax in developing countries. These questions are also of crucial importance to governments and administrations. The government’s ability to collect taxes depends on people’s and businesses’ willingness to pay them.

In one of our recent CMI reports, we examine the issue of building a taxpayer culture drawing on experiences from Mozambique, Tanzania and Zambia. One of the main challenges is to tax a larger number of people and businesses. Today, tax collectors have stronger incentives to extract more revenue from people in the existing, registered base than to broaden the base. This is also problematic in the sense that it keeps tax off the public political agenda, as most people are not affected by tax. Strengthening civil society organizations dealing with tax issues and broadening the public debate should be of concern to international donors as well as a domestic priority.

However, building a taxpayer culture is not only a question of willingness. It is also a question of trust. The link between tax payment and public service delivery is weak in many developing countries, and many government officials and politicians have a reputation for being notoriously corrupt. Can they be trusted to spend tax revenue wisely?

The need for more transparency and local capacity building is urgent. One of our recommendations is to build local research capacity to inform policy reforms. International donors should also provide training to improve the technical capacity and skills of tax administrators as well as politicians and policy makers in general.

 We also need to address international dimensions of the tax systems. Resistance to reforms is to some degree rooted in politics. Developing countries are currently in “a race to the bottom” as they offer generous tax incentives and exemptions to attract multinational investors. In this case, developing countries depend on international efforts to overcome these political barriers.

But most importantly, measures to enhance tax compliance and build a taxpaying culture need to be tailored for the different segments of taxpayers and the specific constraints they face.

There is no doubt that tax represents a substantial domestic resource for most developing countries. Broadening the tax base and building a taxpayer culture could relieve them from aid dependency and maintain economic growth. But the road ahead is long and winding. Next week, professors Margaret Levi and Deborah Bräutigam, leading experts on the political economy of tax and development, will visit Bergen. This gives us a unique opportunity to put tax on the agenda and to debate how we can actually contribute to build a taxpayer culture in developing countries. I will not miss this opportunity.