Informality and Tax

Image credit: © United Nations Photo

While research has historically focused on formal systems of taxation and user fees, there is mounting evidence of the importance of “informal” taxation for average taxpayers in much of Africa. While lying outside of statutory laws, the “tax-like” payments – which include informal user fees, informal contributions to community development projects, and informal payments to both state and non-state officials – impose a significant burden on many taxpayers, while playing a critical role in financing local public goods and services and shaping broader local governance. Our research aims to map the extent, composition and experiences of these payments, and to understand their implications for livelihoods, fiscal decentralization, service delivery and broader local governance and reform.

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Publications:

March 2022
Co-financing community-driven development through informal taxation: Evidence from south-central Somalia
by Vanessa van den Boogaard & Fabrizio Santoro

Community contributions are often required as part of community-driven development programs, with contributions encouraged through matching grants. However, little remains known about the impact of matching grants or the implications of requiring community contributions—also known as informal taxation. We explore this research gap through a randomized control trial of a matching grant program in Gedo…

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February 2022
Taliban Taxation in Afghanistan: (2006-2021)
by Rahmatullah Amiri & Ashley Jackson

Before taking control of Afghanistan in August 2021, the Taliban had developed a remarkably state-like revenue collection system throughout the country. This ICTD research explores how that came to be, and what factors shaped the various forms of Taliban taxation. Drawing primarily on fieldwork from Helmand, Ghazni and Kunduz provinces, this paper explores in depth…

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December 2021
The Routledge Handbook of Smuggling
by Max Gallien & Florian Weigand

The Routledge Handbook of Smuggling offers a comprehensive survey of interdisciplinary research related to smuggling, reflecting on key themes, and charting current and future trends. Divided into six parts and spanning over 30 chapters, the volume covers themes such as mobility, borders, violent conflict, and state politics, as well as looks at the smuggling of…

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December 2021
Informal Workers and the State: The Politics of Connection and Disconnection During a Global Pandemic
by Max Gallien & Vanessa van den Boogaard

In low- and middle-income countries, informal workers are particularly vulnerable to the health and economic effects of the Covid-19 pandemic and often neglected by policy responses. At the same time, the crisis is rapidly changing the ways that states engage with informal workers. We argue that the relationships between informal workers and states – and…

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November 2021
Beyond Greed: Why Armed Groups Tax
by Tanya Bandula-Irwin, Max Gallien, Ashley Jackson, Vanessa van den Boogaard & Florian Weigand

Armed groups tax. Journalistic accounts often include a tone of surprise about this fact, while policy reports tend to strike a tone of alarm, highlighting the link between armed group taxation and ongoing conflict. Policymakers often focus on targeting the mechanisms of armed group taxation as part of their conflict strategy, often described as ‘following…

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October 2021
Co-Financing Community-Driven Development Through Informal Taxation: Experimental Evidence from South-Central Somalia
by Vanessa van den Boogaard & Fabrizio Santoro

Community-driven development (CDD) has long been embraced by international development partners as a means of delivering public goods and strengthening social capital and cohesion, particularly in fragile contexts. To receive external support, CDD projects often require co-financing from communities through informal taxes – non-market payments that are not required or defined by state law and…

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October 2021
Rethinking Formalisation: A Conceptual Critique and Research Agenda
by Max Gallien & Vanessa van den Boogaard

The concept of ‘formalisation’ has been ubiquitous in development discourse and policymaking in the early twenty-first century. It has underpinned policy interventions and proposals from tax registration to property titling, and a range of measures intended to connect informal entities with state institutions or formally structured markets. Despite the policy enthusiasm, however, the outcomes of…

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September 2021
Co-Financing Community-Driven Development Through Informal Taxation: Experimental Evidence from South-Central Somalia
by Vanessa van den Boogaard & Fabrizio Santoro

Community contributions are often required as part of community-driven development (CDD) programmes, with payment encouraged through matching grants. However, little remains known about the impact of matching grants, or the implications of requiring community contributions in order for communities to receive development funding. This paper describes research where we partner with two non-governmental organisations (NGOs)…

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April 2021
Taxing the Informal Economy is not a Silver Bullet for Financing Development – or the Covid-19 Recovery
by Max Gallien, Vanessa van den Boogaard & Mick Moore

This briefing explores the Covid-19 pandemic, which has raised twin challenges for public revenue around the world. Governments have undertaken huge expenses to finance medical responses and social protection programmes. At the same time, tax collection is decreasing as a consequence of both pandemic-related tax breaks and a dip in economic activity and trade. These…

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March 2021
Explaining Informal Taxation and Revenue Generation: Evidence from south-central Somalia
by Vanessa van den Boogaard & Fabrizio Santoro

Most people in low-income countries contribute substantially to the financing of local public goods through informal revenue generation (IRG). However, very little is known about how IRG works in practice. We produce novel evidence on the magnitude and regressivity of IRG and its relationship with the state in a fragile context, Somalia. We rely on…

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Blogs:

March 2022
by Ashley Jackson, Florian Weigand, Max Gallien, Tanya Bandula-Irwin & Vanessa van den Boogaard

“The Taliban tax everything. They get money from the vehicles that cross the district or are going from one district to another. They collect tax on the crops of the farmers,”  – a resident of rural Faryab Province, Afghanistan in February 2019. While we commonly associate taxes with the state, in many parts of the…

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November 2021
by Max Gallien, Mike Rogan & Vanessa van den Boogaard

Many low and middle-income countries face a myriad of challenges. But policies that can address them are few and far between. The challenges include high and rising inequality, budget crises and the ongoing pandemic. In a set of recent outputs, the World Bank and the International Monetary Fund (IMF) presented an approach that they argue can tackle all three…

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October 2021
by Vanessa van den Boogaard

Two billion people live in countries where development outcomes are affected by fragility, conflict, and violence. By 2030, up to two thirds of the world’s extreme poor could live in fragile contexts. Because of the security risks and the weakness of state institutions, providing essential services is particularly challenging in these areas. In such contexts,…

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Research Projects:

Current Project
Taliban Taxation System in Afghanistan
Project Researchers: Rahmatullah Amiri & Ashley Jackson

This project is an exploratory and interpretative piece of research looking at patterns of Taliban taxation to piece together an explanation of their practices. This research is guided by two main, inter-related questions: 1. How and why do the Taliban collect taxes, and how does this vary across areas under Taliban influence? 2. What does…

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Past Project
What is the incidence of informal taxation on inequality in access to school?
Project Researchers: Bienvenu Matungulu, Tom De Herdt & Christian Kamala Kaghoma

This study will look at whether abolishing school fees would eventually result in less or more inequality in access to high quality education and, ultimately, have a positive or negative incidence on the reproduction of inequality more generally.

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Past Project
Tax and Gender in the Democratic Republic of the Congo
Project Researchers: Yannick Lokaya Bokasola, Eddy Junior Ngwakoyo & Jean Claude Ipungu Ikossa

A study to establish a solid understanding of one of the components of Tax and Gender in the DRC. The main objective is to understand the tax collectors’ attitude and behaviour as well as that of the vendors (women and men) while collecting tax (taxe d’étalage) in the formal and informal markets in Kinshasa City…

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Current Project
Zakat, tax and the state: Obligation and charity in times of Covid-19
Project Researchers: Max Gallien, Vanessa van den Boogaard, Umair Javed & Soukayna Remmal

This research project supports data collection on shifting informal tax obligations and perceptions of tax obligations in the aftermath of the COVID-19 crisis. It is exploring zakat contributions and perceptions of zakat and tax obligations in three case studies across South Asia and North Africa—Pakistan, Morocco, and Egypt. The research project focuses on the period…

Project Outputs

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Past Project
Not-so-freeway-informal taxation and the everyday cost of conflict in Northeast India
Project Researchers: Shalaka Thakur

This research project explores informal taxation along the Dimapur-Imphal highway in conflict affected Northeast India. It seeks to map and explain the type of taxation (progressive, regressive etc), the manner of this collection (ad-hoc or regularised), the levels of perceived coercion, and the variations in these across armed groups, focusing on the taxes taken from…

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Past Project
Disentangling the Effects of Ethnicity and Social Intermediaries on Informal Sector Tax in Lagos, Nigeria
Project Researchers: Adrienne LeBas, Jessica Gottlieb & Janica Magat

In this project, we aim to investigate the role ethnicity plays in shaping attitudes toward taxation and the state. In particular, does ethnicity or other vendor-specific attributes attenuate (or reinforce) the effect of improved information on formal tax compliance and pro-tax attitudes? The proposed qualitative research builds upon and is informed by novel findings that…

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Past Project
Formalization, Tax Appeals, and Social Intermediaries in Lagos, Nigeria
Project Researchers: Jessica Gottlieb, Adrienne LeBas, Janica Magat & Nonso Obikili

One of the foremost challenges to state-building in weak states is the collection of sufficient revenue for the government to supply public goods. If weak states seek to expand the size of their tax base and the overall revenue collected, can improved information or other appeals boost pro-tax attitudes and formal tax compliance? This project…

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