Tax specialists have a great deal to say about how African tax collectors could work better but rarely seem to ask the tax collectors themselves – and certainly not through a large-scale effort and in an open-minded approach. That is what Nyanyiwe Sulu did in 2023. She sent a questionnaire to 83 of her fellow staff members of the domestic taxes division of the Malawi Revenue Authority. They were asked to reply to 11 relatively open questions around the issue of how the Authority could raise more revenue (the questionnaire is available in the appendix of the paper).
Was it worthwhile? Undoubtedly yes.
Would we recommend that other researchers do the same in other countries? Broadly yes, but with the qualification that we could probably learn much more if surveys were followed by focus group interviews, providing the opportunity to delve into answers in more detail. The answers we received certainly suggest that we were right to expect contrasting views between senior and junior staff, relative to their respective experiences and job roles – but that each has useful things to say.
What did we learn from the survey? Focus on informal economies
The most directly useful responses concerned that knotty problem of ‘taxing the informal sector’, on which the ICTD has published quite a number of recent papers (available here, here and here). The essence of the problem is that:
- A large proportion of business enterprises in low income countries are perhaps better described as livelihood enterprises. They are small, often impermanent or mobile, provide a living for an individual or a family, generate little profit, and in many cases should not pay any tax beyond perhaps a local business licence.
- How is a tax agency to know whether they are dealing with a small livelihood enterprise or a substantially profitable business that should be paying income taxes or VAT?
- Tax registers are often somewhat of a hit-and-miss when it comes to smaller businesses. They register some that should not be registered because they are not close to being tax-liable but fail to register many that are tax liable.
- This failure is in part linked to the tax agencies’ heavy reliance on visual information to identify businesses for registration: a stallholder in a municipal market and the operator of a public transport minibus are almost certain to be registered and taxed because they are very visible – while more profitable enterprises remain outside the tax net.
Many of our respondents were aware of these problems and sympathetic to people making a modest living who seem to be harassed unnecessarily by tax collectors. More important, they had constructive suggestions about how to deal with the issue. As summarised by one respondent: there is a plethora of businesses in Malawi that are making profit, are in principle liable for tax, but are simply not on the radar of the Revenue Authority because they have no identifiable premises. These include event planning and catering businesses, used car dealing, private car hire, foreign exchange trading, and moneylending. They are however very visible on social media which is where they engage in advertising and marketing activities. The solution here seems obvious: the Revenue Authority needs to develop the capacity to use social media as a tool to identify the people and businesses who should be paying tax.
Why is the Malawi Revenue Authority not exploiting social media for revenue collection?
One of our most experienced, senior and articulate respondents gave us a hint that we were not at all expecting: the Authority was not really interested in a range of apparently obvious revenue collection innovations because the staff were satisfied with the status quo. Already, they were in almost all cases meeting the revenue collection targets that are agreed in aggregate with the Ministry of Finance and then allocated among internal units. Meeting those targets triggers the payment of substantial bonuses, that are an important component of staff remuneration packages, so why go the extra mile?
Interestingly, our research confirmed one thing we had expected: junior staff evaluate the operations of the Revenue Authority from their own limited perspectives. They do not typically have the experience, nor the information needed to take a strategic outlook. For example, they are especially keen to register more and more taxpayers without taking into account the fact that large proportions of already-registered taxpayers are paying no tax either because they do not submit tax returns at all or submit inaccurate ones. And the fact that many returns are submitted late seems to concern them more than their accuracy. It does not mean however that we should not take seriously their views on other issues. In fact, more research that does that should enable us to better understand African tax systems.
Where to go from here? Unlocking new research avenues
Our lack of incentive hypothesis raises major questions about why tax agencies seem so often to fail to increase revenue collection. Measured as a proportion of GDP, revenue collection in Africa has broadly been static for close to a decade. If we want to throw more light on this rather startling suggestion, carefully organised interviews with tax agency staff would be one obvious way to go.
