Research shows that one of the most important factors influencing tax compliance is trust in the government, says the writer.
HEIKKI HIILAMO and ENRICO NICHELATTI
Taxes are important. They’re a primary way in which governments fund essential services like health care, education, infrastructure and social protection programmes. They are vital to the economic development of countries.
In sub-Saharan African countries, the need for public services is great and fiscal resources are often scarce.
Getting the public to pay their taxes is essential.
However, structural and governance challenges have made it difficult to effectively mobilise revenue.
Recent tax protests in Kenya illustrate the growing tension between taxpayers and the government. The protests underscore the importance of designing tax policies that not only raise revenue but also distribute the tax burden fairly across income groups. If governments don’t address the issues, they risk eroding public trust and increasing tax resistance.
The logistical difficulties of tax collection are another obstacle. Many sub-Saharan economies are characterised by small-scale enterprises and subsistence agriculture, which complicate tax administration.
The informal sector – estimated to account for up to 80% of employment in some countries – largely operates outside the formal tax net. It’s difficult for governments to capture this significant portion of economic activity within their revenue systems.
Tax collection in sub-Saharan Africa is also hindered by inefficient administrative systems. In many countries, tax authorities are under-resourced and understaffed, making it difficult to monitor compliance. Visits to taxpayers’ homes or businesses are often required to collect taxes. This drives up administrative costs and increases opportunities for corruption. In many cases, tax records are manually maintained – a system that’s prone to manipulation, inefficiencies and data losses.
Our research shows that one of the most important factors influencing tax compliance is trust in the government.
Citizens are more likely to comply with tax obligations when the government is perceived as fair and transparent in the use of tax revenues. A strong social contract – where citizens feel taxes are returned to them in the form of public goods and services –is critical.
Conversely, when public services are inadequate or corruption is perceived as widespread, tax morale diminishes. This leads to greater tax resistance.
Governance quality also plays a role in shaping tax compliance. Citizens who trust their government and perceive that tax revenues are used to reduce inequality are more likely to pay their taxes.
Despite the challenges of collecting revenues, many African countries have made progress over the past three decades.
From the mid-1990s to 2016, total revenue (excluding grants) in the median African economy rose from around 14% to more than 18% of gross domestic product. Tax revenue increased from 11% to 15% of GDP.
Countries also tend to rely on “regressive” taxes, like taxes on consumption. These affect poorer households the most, as they spend a larger share of their earnings on taxable goods and services. This weakens the redistributive effect of tax systems and can exacerbate poverty and inequality.
Technology could help address many of the challenges associated with tax collection. Digital tax systems, mobile money and online filing could help reduce inefficiencies and increase transparency. Some countries, such as Rwanda and Ghana, have embraced technology to simplify processes and enhance compliance.
To strengthen tax compliance, improving the social contract between governments and citizens is essential.
Research shows that when people believe their taxes are used for public goods and services that benefit them, they are more willing to comply.
Tax morale can be improved through transparency, reduced corruption and ensuring that tax revenues are visibly channelled into development projects.
The path to improving tax systems and compliance in sub-Saharan Africa is long. But with the right policy interventions, governments can unlock revenue potential, contribute to stronger economies, better public services and ultimately, more equitable and inclusive development across the region.
* Hiilamo is Professor of Social Policy at the University of Helsinki and Nichelatti is a PhD candidate at the university.
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