Exploring the role of trust in tax compliance

A long-standing collaboration between CMI, the Zanzibar Revenue Authority and the Norwegian Tax Administration lays the foundation for influencing tax policy and practices in Zanzibar. 

How can trust increase tax compliance? And how can research best feed into policy and practice? These questions were on top of the agenda when researchers and practitioners from CMI, the Zanzibar Revenue Authority (ZRA) and the Norwegian Tax Administration (NTA) came together in Bergen and Oslo last week to discuss how research can inform tax reforms and administrative practices.

The main objective of the study visit was to strengthen the existing cooperation between CMI, ZRA, and NTA, and to contribute to developing research and management skills in ZRA.

-We are here to share experiences and to identify areas of improvement, says Ahmed Haji Saadat, Director of Research and Planning at ZRA, who also hopes to bring home valuable inputs on how to engage taxpayers in an open dialogue.

Aiming to increase the level of trust
Trust plays a crucial role in tax compliance. The willingness to pay taxes is – not surprisingly - bigger if the individuals and businesses have trust in the process and know that they get something in return for taxes paid. The role of trust in the development of tax policies was the main focus during the stay in Bergen. As part of ongoing research projects on taxation, CMI – in cooperation with Zanzibar National Chamber of Commerce, ZRA, REPOA and NTA - has done a survey among businesspeople in Zanzibar measuring the level of trust. The results show that there is still a way to go.

-30 % of the respondents said that they have trust in the tax collection process. This number is not high enough. But the survey also showed that there is large potential. 37 % of the respondents said that they have some trust. This means that a level of 67 % is within reach and we are determined to reach that number, says Ahmed Haji Saadat.

Openness is key to getting there, according to Maryam A. Balozi, Tax Manager in West Unguja Region in Zanzibar. She emphasised the importance of making tax payment easier and ZRA more accessible for taxpayers.

-We have to educate the public about the potential tax has to fund public services and make it easier for them to ask questions, she says.

The research that comes out of the cooperation between CMI, ZRA and NTA, has direct influence on policy and practice. The discussions on the role of trust will feed into the development of ZRA’s new five-year strategy plan for tax compliance. 

It also feeds directly into the Government of Zanzibar’s policies.

-ZRA advises the Government and recommends changes in tax policies and practices, says Director Ahmed Haji Saadat.

Long-standing cooperation on tax
CMI’s research on tax and tax compliance in African countries stretches back decades. So do close partnerships with research institutes and tax authorities in many of these countries. Zanzibar is no exception, and ZRA has a cooperation agreement with CMI. They also have an institutional agreement with NTA, originating from the long-standing Norwegian ‘Tax for Development’ programme.

Mobilising domestic revenue is widely seen as key to development. It is also considered crucial for the authorities’ ability to provide public services. Exactly this train of thought is the foundation for the ‘Tax for Development’ programme, which is placed at Norad and where the NTA plays a key role as implementer.

But why is tax collection in Zanzibar of importance to the Norwegian Tax Administration?

-There is general agreement across political party divides that part of the Norwegian aid budget should go to developing and strengthening capacity and competencies in countries on the receiving end. Increased tax revenue can potentially play an important role in making developing countries less dependent on aid, says Øivind Strømme, International Director of the NTA.

He stresses that the cooperation with tax administrations like ZRA is a mutual learning process, and that the value of sharing experiences goes both ways. The close cooperation with researchers is also of great use to NTA. NTA has a sizeable unit working on analysis, and to them, dialogue with researchers is invaluable.

-The close collaboration with researchers and the unique opportunities that working so closely with tax administrations like the ZRA are among our key assets when it comes to work satisfaction. NTA practitioners who are involved in the ‘Tax for Development’ programme and in international cooperation list the perspectives they get from working in this field as highly motivating, says Trond Hjørungdal, Programme Manager for NTAs Capacity Building Programme