By
Tom Odhiambo
Title – Taxation, Responsiveness and Accountability in Sub-Saharan Africa: The Dynamics of Tax Bargaining Authors – Wilson Prichard Publisher – Cambridge University Press Date – October 2015
The peskiest question about taxes is: how to get people to pay them? But probably the one question that should always precede all debates about taxes is: what happens to the collected monies? These two issues go hand in hand. Collecting taxes is a most basic need of all forms of government these days – whether local or national – for it is the source of their survival. How to use the money collected is increasingly a more difficult question to answer as evidence shows that many tax collectors pilfer a significant part of the taxes and government officials – bureaucrats and politicians – tend to steal some more.
These two subjects are extensively discussed by Wilson Prichard. The book is based on extensive research on ‘bargaining between citizens and governments over tax collection’ in three countries: Kenya, Ethiopia and Ghana. The research cuts across different historical times, looks at diverse tax structures and processes and examines the many ways in which citizens bargain with government over taxes.
The chapter on Kenya is titled ‘Direct and Indirect Tax Bargaining in Kenya, 1963-2008.’ It begins by looking at how politics and government policies affect taxes and taxation. Going back into history, Prichard cites Waris who shows how tax policies in colonial Kenya were affected by the government’s racial categorization, with ‘the White and Asians populations … subjected to income taxes, excise taxes, and import duties, whereas the African population was primarily subjected to a poll tax, which evolved into the Graduated Personal Tax (GPT) late in the colonial period.’
He further shows that with independence there were different forms of taxes introduced in the country including sales tax, which improved revenues but with political uncertainty due to the poor health of the then president, Jomo Kenyatta, in the 1970s there was a slowdown in government revenues. Matters tax improved in the 1980s due to the new government of President Daniel arap Moi. There was more money, especially from the coffee boom of the time, with the government not introducing new taxes in the 1980s. Prichard notes that the government only attempted new tax reforms, which sought to “administrative improvements, reducing income and corporate tax rates, and rationalizing import, excise and sales tax.”
Later, tax revenues fell as the economy declined, ‘politically connected individuals weren’t paying taxes, parastatals failed to remit sales tax revenue, etc’, according to Prichard. The government’s response was to implement value added tax (VAT) in the 1990s, which increased government revenue and was generally not opposed despite adding to the burden of the taxpayers. Fuel levies were later introduced in an attempt to improve revenues for the government. But with local economic troubles of the 1990s, the government attempted more tax reforms in the decade, seeking to increase its revenues, especially by creating the Kenya Revenue Authority (KRA), which brought together different tax bodies in the country.
How did Kenyans negotiate these tax structures and reforms? Because of the reintroduction of multiparty politics in the country in the 1990s, there was a decline in the amount of taxes collected. One explanation offered by Prichard is that there were members of the opposition or individuals who didn’t favour the government and tried to “undermine the fiscal position of the government.” However, the new government in 2002 found a broke state and immediately sought to streamline taxes and taxation. It enjoyed goodwill from the public and tried to responsibly spend the monies it collected by offering free education and allocating part of the national budget to a Constituency Development Fund (CDF).
In a sense, despite the claim to political robustness in Kenya, Prichard argues that there has been little public engagement with the government on taxation. He notes that in the period he studied, only the response to the introduction of Electronic Tax Registers (ETR) and the rejection by MPs and the elite of capital gains tax could be said to have been serious negotiation over taxation. The ETRs were eventually introduced. But for indirect bargaining, the citizens always find a way around paying taxes.
In the case of Ethiopia, Prichard again takes the reader through the history of the country. He shows how the Ethiopian experience is unique in Africa because the country was never colonized, save for a brief period of Italian occupation. Consequently, the tax tradition in Ethiopia has largely been indigenous and dependent on the relationship between the state, the church and the local populations. Prichard records that there is evidence of longstanding conflicts between the local populations and the Imperial state over taxation, with the Ethiopian Orthodox Church thrown in the mix. But it is the regime after the deposition of the Emperor Haile Selassie in 1974 that Prichard studies in this book.
Prichard argues that the case of Ethiopia is made interesting by the fact that in the period studied, the military state was ‘comparatively autocratic’, thus ‘limiting the taxpayer capacity for collective action and the scope of institutions that could facilitate tax bargaining.’ But he shows that although there was little space to negotiate taxes centrally, there was evidence that there were possibilities for direct tax negotiation regionally. The military regime could control the centre but because Ethiopia had a federal system of government, citizens could pressure local governments over taxes and taxation. Even when the government adopted socialist policies and nationalized the economy, it struggled to raise revenue.
The post-military regime of the 1990s allowed political decentralization as well as some form of economic liberalization. The central government, though, still had a larger role to play in the economy, especially in setting tax policies. But Prichard writes that despite the loosening of the political and economic environments, there has been little engagement with the government over taxation: “… overt political conflict over taxation at the national level has been virtually non-existent”. He further notes that there was “no evidence of direct tax bargaining; even civil society engagement with tax issues has been extremely rare, with even the major business associations playing a primarily informational, rather than advocacy, role” at the time he conducted his study. It seems that as Ethiopia recovered from military rule and civil war, the state was more or less left alone to decide on tax and taxation, with the citizens unable or unwilling to engage with the government.
The third case that Prichard looks at Ghana. Indeed, Ghana is the focus of the first section of the book. In this case, Prichard traces tax policies in Ghana between 1981 and 2008, from the military rule into democracy. The military regime, though, had consolidated tax collection systems and policies in the early 1980s, even managing to increase revenues from tax, largely based on the good prices of Ghana’s exports, especially cocoa. Also, later, the government set up Citizens’ Vetting Committees, which identified individuals who appeared to have too much money but whose source could not be legitimately identified. These people were then taxed.
However, exports of raw materials are always subject to global price fluctuation. Ghana would be faced with the decline in exports and, therefore, less tax collections. All this time, Prichard suggests, there was little overt opposition to government policies, but things changed when Ghana democratized in the 1990s. The expanded political space enabled citizens to challenge government economic policies, especially on taxation. Ghanaians would reject increases in petrol prices, object to the introduction of VAT, and generally had a public say on tax policies. Prichard notes that of the three cases, Ghana showed the most robust engagement by citizens on matters tax, questioning the government’s polices as well as accountability for monies collected.
Why would this study concern us today? The simple answer is that everyone pays tax in one form of the other and so they should be interested in any discussion on taxes. Yet evidence shows that few citizens bother about government tax policies, often only reacting to how the government spends the money collected. Voluntary compliance with paying tax tends to be more of a wish than a fact. However, individuals are more likely to pay taxes when they can clearly understand government policies on tax and ‘see’ the direct (and indirect) benefits of the taxes collected. Taxation, Responsiveness and Accountability in Sub-Saharan Africa: The Dynamics of Tax Bargaining should spur more enquiries into how African governments set their economic policies and how such plans affect their citizens’ response to taxation.
The writer teaches at the University of Nairobi. Tom.odhiambo@uonbi.ac.ke
