Fighting fiscal corruption: The case of the Tanzania Revenue Authority

Over the last decade several African countries have undertaken comprehensive reforms of their tax administrations, with the aims of increasing revenue and curbing corruption. This paper examines recent experiences in the fight against corruption in the Tanzania Revenue Authority. Two lessons of broader relevance are highlighted. Firstly, even with relatively high wages and good working conditions, corruption may continue to thrive. In a situation where there is high demand for corrupt services, it is unrealistic to provide tax officers with pay rates that can compensate for the amount gained through bribery. Without extensive and effective monitoring wage increases may produce a highly paid but also highly corrupt tax administration. Secondly, hiring and firing procedures may lead to more corruption. Corrupt tax officers often operate in networks, which also include external actors. The manner in which the administrative reform was implemented in Tanzania, where many of those fired were recruited to the private sector as 'tax experts', seems to have strengthened the corruption networks. This partly explains why the positive process experienced in the initial phase of the new revenue authority was later reversed.Corruption Tax evasion Tax administration Incentives

To pay or not to pay? Citizens' views on taxation in local authorities in Tanzania

Widespread tax evasion reflected in persistent public resistance to pay is seen as part of the problem of raising local government revenues in Tanzania. Dealing with the policy problem of revenue enhancement and tax evasion requires some understanding of the factors underlying the individual's decision whether to pay or evade taxes. However, the views of taxpayers are to a large extent ignored in this policy debate. What are the experiences, priorities, and recommendations of Tanzanian citizens with respect to payment of taxes and fees? What do people feel they get in return for taxes paid? And what do they consider to be the major challenges to improving the present system? Based on data from a recently conducted citizen survey, this paper presents the perceptions of ordinary people on local government taxation.Taxation Tax evasion Tax collection Local government Tanzania

What has trust got to do with it? Non-payment of service charges in local authorities in South Africa

A major financial problem in many municipalities in South Africa is the inadequate collection of service charges due to widespread non-payment. The prevailing view is that non-compliance is caused by poverty and the existence of an 'entitlement culture'. However, huge variations in compliance exist both within poor communities and between communities with similar socio-economic characteristics. How can these differences be explained? Moreover, what factors determine citizens' compliance? This paper argues that non-payment is not only related to inability to pay and 'a culture of entitlement', but also to whether citizens perceive the local government to act in their interest. In particular, three dimensions of trust may affect citizens' compliance: (1) trust in the local government to use revenues to provide expected services; (2) trust in the authorities to establish fair procedures for revenue collection and distribution of services; and (3) trust in other citizens to pay their share.Public finance Service charges Trust Local government South Africa

Local Revenue Mobilization in Urban Setttings in Africa

The growth of Africa's towns and cities has outpaced local authority capacity in terms of management, infrastructure, and financing. Many African towns and cities are now facing a governance crisis. Accordingly, the capability and capacity of urban local government to provide basic services to a growing population have entered the core of the development debate. In particular, fiscal decentralization - the devolution of revenue mobilization and spending powers to lower levels of government - has become a main theme of urban governance in recent years. This paper explores the opportunities and constraints facing local revenue mobilization in urban settings in Africa. The study examines various revenue instruments available, including property taxes, business licences, and user fees, and their effect on economic efficiency and income distribution. Moreover, political and administrative constraints facing various revenue instruments and factors impacting on citizens' compliance behaviour are discussed. The analysis is exemplified by cases from across Africa and other regions. Local governments need to be given access to adequate resources to do the job with which they are entrusted. However, a general conclusion emerging from this study is that local revenues mobilized in most urban authorities in Africa are necessary but not sufficient to develop and supply adequate services for the fast-growing urban population.Local government Decentralization Urbanization Taxes Business licenses User fees Africa

Taxation and development: a review of donor support to strengthen tax systems in developing countries

Recent years have seen a growing interest among donors on taxation in developing countries. This reflects a concern for domestic revenue mobilization to finance public goods and services, as well as recognition of the centrality of taxation for growth and redistribution. The global financial crisis has also led many donor countries to pay more attention to the extent and effectiveness of the aid they provide, and to ensuring that they support rather than discourage the developing countries’ own revenue-raising efforts. This paper reviews the state of knowledge on aid and tax reform in developing countries, with a particular focus on sub-Saharan Africa. Four main issues are addressed: (1) impacts of donor assistance to strengthen tax systems, including what has worked - or not - and why; (2) challenges in ‘scaling up’ donor efforts; (3) how to best provide assistance to reform tax systems; and (4) knowledge gaps to be filled in order to design better donor interventions. The paper argues that donors should complement the traditional ‘technical’ approach to tax reform with measures that encourage constructive engagement between governments and citizens over tax issues

Corruption in tax administration: Lessons from institutional reforms in Uganda

Over the past two decades many developing countries have implemented comprehensive reforms of their tax administrations in order to increase revenue and curb corruption. This paper examines recent experiences in the fight against corruption in the Uganda Revenue Authority (URA). It argues that the technocratic remedies supported by donors have underplayed the degree to which progress in tax administration depends upon a thorough ‘cultural change’ in the public service. The motives of individual actors are often inextricably tied to the interests of the social groups to which they belong. In the URA patronage runs through networks grounded on ties of kinship and community origin. As such, people recognize the benefits of large extended families and strong kinship ties, even as their social and economic aspirations may be indisputably modern. This implies that such social relations may undermine formal bureaucratic structures and positions. If these problems, which are rooted in social norms and patterns of behaviour rather than administrative features, are overlooked, the result may be to distort incentives. As a consequence, the government’s commitment to reforming the tax administration may also be undermined

Combating corruption: A transparency index for donors?

For decades the international donor community has turned a blind eye to corruption in developing countries. This attitude appears to have changed. There is now a remarkable consensus among aid organisations on the importance of fighting corruption in developing countries. Missing, however, in their approach is an examination of how aid contributes to corruption. Fjeldstad argues that the prescription of "good governance" through improved accountability and transparency should be introduced in the donor agencies as well. To address the question of corruption, donors ought to focus on their own role in creating the problem, which they now propose to cure. To establish credibility, more openness about weaknesses in the aid system is needed. The non-governmental organisation Transparency International regularly publishes a corruption index, ranking countries according to their levels of corruption. There seems to be a need for an index ranking donor agencies according to similar criteria, to make the public more informed and the agencies more accountable about this important issue

Revenue authorities: Experiences from sub-Saharan Africa

In most developing countries national tax collection is carried out by line departments within the Ministry of Finance. However, over the past two decades more than 30 developing countries, especially in Latin America and Africa, have created revenue authorities whereby the tax administration function has devolved from the Ministry of Finance to a semiautonomous entity. In Africa alone there are now more than 15 revenue authorities. The purpose of this paper is to compare the experiences with the revenue authority model in selected African countries. The paper analyses features of the model, examines reasons why revenue authorities were established, and discusses successes and failures. It also assesses whether and how the revenue authorities may have contributed to improved performance and compliance with the tax law. The paper concludes that the establishment of a semi-autonomous revenue authority offers no ‘quick-fix' to a country's revenue and tax administration quandaries. Creating a RA is expensive, may take a long time and require significant effort. Moreover, evidence is inconclusive whether the establishment of a revenue authority has led to better revenue administration performance compared to what would have been the case had the tax administration remained a department of government. However, a revenue authority can establish a platform from which change can be facilitated, but its initial impact and longer-term successful performance, depend on the strength and quality of the management of the revenue authority; political commitment; and sustained public and private sector support

Taxation and Tax Reforms in Tanzania: A Survey

This paper reviews the tax system in Tanzania, and gives particular attention to the tax reform proposals presented in the Report of the Presidential Commission on Taxation. In considering the effects of the "low-rate, broad-base" tax reform strategy that has been adopted, it is argued that there are major shortcomings in the implementation of the tax reform. This particularly relates to the continuous and widespread tax evasion, extensive tax exemptions and inefficient tax administration. The discussion in this paper reinforces the arguments for improving the quantitative analysis of revenue policy, and taking more specific and focused measures to improve tax administration