Taxation is not just a technical topic.
It is the centre of good governance and
state-building, central to the development
challenge of creating effective states.
The perceived fairness of the tax system
is crucial to building an effective state
based on citizens’ consent. Willingness
to pay taxes is a good indicator of the
legitimacy of the state. The degree of ‘quasi-voluntary’
tax compliance expresses citizens’ trust
and confidence in the government and institutions
of the country to respond to the needs of
the population. Building that compliance
is a central incentive for the state to
engage with society.
DFID is working to implement these principles:
for example:
|
In partnership with the World Bank/FIAS,
we are encouraging business associations
to mobilise ‘voice’ over taxation, while
seeking to learn the lessons of successful
experience in developing countries of states
developing innovative ways to tax the informal
sector.
|
|
|
Through Tax Justice Network, we are encouraging
civil society in developing countries to
scrutinise tax policy and administration
as much as it has been successfully doing
in many countries on the public expenditure
side. And
|
|
|
The DFID-funded Future States Research programme
is planning with the World Bank to hold
a media outreach workshop in East Africa
on ‘tax as state-building’ to promote greater
information and transparency in fiscal issues.
|
|
|
The tax dimension of political settlements:
we recognise that establishing ‘quasi-voluntary’
tax compliance requires a ‘tax morale’ (intrinsic
willingness to pay tax) based on a ‘political
settlement’, a country’s broad consensus
about national purpose or social good, combined
with a sense of fairness that governments
deliver their promises. Chile perhaps provides
a model of how ‘tax morale’ may deliver
the increased public revenues to fund the
social spending that both fosters a more
stable social contract and creates tax compliance
across the whole of society. One of the
key elements of the Chilean return to democracy
in 1990 was the tax reform based around
persuading taxpayer-citizens that to make
democracy work, higher taxation was a small
price to pay for delivering an effective
social contract, the Concertación. We plan
more research to understand such processes
better.
|
Tax is also, of course, the art of the possible:
taxpayers not only need to be convinced
that tax is fair and represents some sort
of value for money; they also need to be
convinced that other taxpayers are also
complying. Free-riding (through evasion,
avoidance and exemptions) is only efficiently
counter-balanced if the taxpayer-citizens
are convinced that paying taxes is a productive
investment in their own and the country’s
long-term future.
So we need to understand much more about
how can ‘tax as state-building’ be implemented
in practice? What has worked in the past,
or is working now? Please send your thoughts
and ideas to
m-everest-phillips@dfid.gov.uk
For further reading, see
"Business tax as state-building
in developing countries: applying governance
principles in private sector development"
Feature Article
View Archive
