Taxation has attracted massive international interest over the past decade. Its potential benefits, especially in developing countries, cannot be over-emphasised.
The ICTD, since its establishment in 2010, has not only contributed to the existing body of knowledge, thereby expanding research and discussions on tax and its importance for governance and development, but has also helped push evidence into policy, as illustrated by some of our key success stories below.
The staff of the Uganda Revenue Authority (URA) have long been concerned that they do not have in place the procedures to ensure that the growing ranks of wealthy Ugandans pay their share of taxes. An approach to the ICTD enabled the URA to conduct a rigorous research study. The research revealed the scale of the problem and led to the creation of a special High Net Worth Individuals Unit. This unit has already brought in over £4 million in additional revenue in its first year of operation.
Helping to build research capacity in Africa has always been a key ICTD objective. We have contributed to this through several channels, including our cooperation with the African Tax Administration Forum (ATAF), in nurturing the African Tax Research Network. A series of research projects with Dr Samuel Jibao has led to the creation of the Centre for Economic Research and Capacity Building in Sierra Leone.
The most reliable way for revenue authorities to find out how to improve tax compliance is to conduct large scale research experiments. To do this, they need the services of experienced researchers. The first such research experiment on the African continent was initiated in Rwanda in 2014. It is a joint enterprise by the Rwanda Revenue Authority (RRA), the ICTD and the African Tax Administration Forum (ATAF). The Commissioner General of the RRA was very impressed by this first experience of working with the ICTD, and he offered a Memorandum of Understanding to encourage further research and capacity building activities.
Economic growth and industrial development are high priorities for the Government of Ethiopia. The recent growth record is good, but manufacturing has progressed slowly. It is correspondingly important to know whether the tax burden is a significant constraint on enterprise and investment. Does the tax system bear down unfairly and inefficiently on some firms rather than others?
In most of Africa, local government is in poor condition. Local governments provide few reliable services. The people that they fail to serve generally have a low opinion of them. One important reason is that local governments have little money. An important reason is the weakness of local revenue, which starves governments of funds and weakens the social contract between governments and local citizens.
Over the past two decades, research has periodically noted the importance of so-called “informal taxation” in low-income countries; that is, tax-like payments collected by both state and non-state actors, that are not authorised by formal legislation. These might include, among others, bribes and payments to state officials, informal user fees to state or non-state actors, payments to traditional authorities, payments to non-state community development projects, and levies by armed groups.
Over the past decade, development actors have become much more interested in taxation. This interest has been spurred in large part by a provocative argument: that the process of raising taxes can can stimulate broad improvements in governance. It is argued that the need for governments to tax their citizens can be the leading edge of efforts to strengthen the capacity of governments. Taxation can also provide the basis for a stronger ‘social contract’ between governments and citizens. Governments needing tax revenues have incentives to respond to the needs of citizen-taxpayers, while, in return, taxpayers are able to demand accountability from governments. The ICTD has been at the vanguard in expanding research and discussion of these issues.
Evidence-based policy requires good research. And good research requires good data. When the ICTD was created in 2010, there was no one reliable, comprehensive and detailed source of statistics on how governments globally raise their revenues.
Training opportunities on taxation and development are surprisingly rare, given the increasing attention that taxation is attracting internationally. Several new donors are entering this field, though many officials still have limited experience in the area. With greater demand for evidence on what works to improve taxation in Africa, there is an increasing need for qualified professionals and researchers.