Document Library

Key Text Taxation, Coercion and Donors: Local Government Tax Enforcement in Tanzania

Author: Odd-Helge Fjelstad
Date: 2001
Size: 18 pages (195 KB)

Access full text: via document delivery

Summary

Why does tax collection vary between local authorities in Tanzania? How do donors affect revenue-raising performance and local governance? This study from the Chr. Michelsen Institute, Norway, compares revenue collection in two Tanzanian local authorities and analyses the linkages between taxation and donor aid. Revenue performance depends on the degree of coercion involved in tax enforcement. Donor aid shifts the balance of power from elected representatives to council administrators, weakening governance. Donors need to understand how local government institutions work to avoid undermining democratic development.

The prevailing view of the links between aid and taxation are that high levels of support diminish a government’s incentive to make full use of domestic resources for taxation. Aid-dependence is also claimed as anti-democratic, undermining the reciprocal agreements between state and citizens about service provision and representation in exchange for tax contributions. In response to this, revenue targets have become a major component of aid conditionality in many aid-dependent African countries. This study draws on research carried out in two Tanzanian District Councils (DC), Kibaha DC and Kilosa DC, which had substantial differences in per capita head tax revenue. Kilosa DC had a long history of donor support, with Kibaha experiencing limited assistance. The study found that:

Differences in revenue performance are due to the degree of coercion involved in tax enforcement. Physical intimidation was a key factor in Kilosa, where collection was most effective.
Taxpayers in both Districts saw few or no tangible benefits in return for taxes paid. Dissatisfaction was highest in Kilosa and there was widespread tax resistance in both areas.
Kilosa DC used coercion successfully because bargaining powers relating to tax collection rested with the Council staff and elected Councillors had no direct influence on collection.
Donors empower the managerial level at the expense of elected Councillors through matching funding policies, cushioning administrators against taxpayer opposition, and providing services which are then claimed as being Council initiatives.

The role of donors in relation to local government tax systems in aid-dependent countries is under-researched. There is no evidence of a reciprocal relationship between local government and taxpayers, as current theory proposes. However, the study finds that donor focus on revenue generation does undermine accountability and democratic consolidation. It is essential for policy makers to gain a better understanding of how local government institutions work as a prerequisite for sound policy decisions. In particular, more analysis is needed of:

The impacts of local taxation, which are often distortive and exacerbate horizontal and vertical inequity. Donor emphasis on revenue targets obscures these major impacts.
The impacts of development aid on revenue collection, especially in relation to aid supplied on conditions of matching funding.
The relationship between local taxation, accountability, and the process of democratisation. In particular many issues of accountability in poor countries are unexplored.
How compliance can be achieved without costly enforcement systems or coercion.

Access full text: via document delivery

Source: Fjeldstad, O-H., 2001, ‘Taxation, Coercion and Donors: Local Government Tax Enforcement in Tanzania’, The Journal of Modern African Studies, vol 39, issue 2, pp. 289-306
Author: Chr. Michelsen Institute (CMI), http://www.cmi.no