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.
Early studies indicated that these informal taxes were potentially very important to understand local livelihoods and governance. However, for the most part they remained limited to particular subsets of such “taxes” and to particular geographic areas (primarily border regions), and had limited impact on broad policy debates about taxation, tax reform or the connections between taxation, statebuilding, and local governance.
In 2013 the ICTD identified these gaps, and set out to pursue two interrelated goals. First, to advance a more holistic approach to studying informal taxation, which would capture the full range and diversity of “informal taxes” – particularly in post-conflict states – and to understand more systematically how they are experienced and perceived by citizens. Second, to take that discussion more actively into the policy realm: seeking to make informal taxation a central element of broader discussion of local tax reform, and asking what implications this held for rethinking existing models of tax reform, and existing arguments about taxation, statebuilding, and local governance.
ICTD reseacher Vanessa van den Boogaard conducting a field study on informal taxation in Sierra Leone.
Over the past two years these effort have borne fruit, as ICTD research has chartered new territory, and revealed new insights, while being very successful in moving discussion of informal taxation closer to the center of debates about tax reform, and about post-conflict governance more broadly.
On the research front, the ICTD partnered with the similarly DFID- funded Secure Livelihoods Research Consortium (SLRC) to conduct closely linked surveys – the ICTD in Sierra Leone, the SLRC in Nepal – to map the full range of formal and informal taxes paid by citizens in local government areas previously affected by conflict. The Sierra Leone survey in particularly was deeply revealing: It suggested that informal taxes make-up as much as half of the tax payments that citizens make, that both formal and informal tax payments are highly regressive, and, most strikingly, that citizens expressed dramatically greater trust in those informal taxes than in payments to the formal government.
These striking findings have provided the foundation for expanding research, but have also had an important impact in putting informal taxation more actively on the policy agenda for the first time. In early 2015 researchers connected to the ICTD secured a contract – inspired directly by the work in Sierra Leone – to conduct similar, policy focused, research in the Democratic Republic of the Congo. That research program has elicited broad interest from the government and donors, with results expected in June 2016. Meanwhile, the ICTD research on informal taxation has been presented in a wide range of invited forums. In March 2016 it was presented at the World Bank annual conference on Fragility, Conflict and Violence, placing informal taxation squarely within the broader debate on post-conflict reconstruction. It has similarly elicited significant interest among policy makers at successive annual meetings of the ICTD, at a policy focused conference organized by the SLRC in Nairobi, at the inaugural African Tax Research Network Congress in Cape Town in September 2015, at the SLRC and Centre for Poverty Analysis Symposium on Post-war Development in Africa and Asia in Colombo in September 2014, and at a host of academic conferences.
And critically, this policy interest is not merely on the superficial kind, as the research raises very fundamental questions about, among others, (a) the barriers to local government tax reform – and potential for progress; (b) the basic design of local government tax reform in areas of weak governance, and the basic logic and feasibility of existing models of fiscal decentralization, and (c) the potential, and on-the- ground reality of arguments linking taxation to local statebuilding and improved governance. Policy makers, and policy researchers, are now beginning to ask these questions thanks to ICTD research.
This remains an area of work in progress, but the impact has been striking. The question of informal taxation was not on the ICTD research agenda at its inception in 2010, and certainly was not on the policy agenda. Only two years into our research program, by contrast, there is significant policy and academic appetite for new insights about informal taxation, which appears poised to be among our most important areas of ongoing work.
To learn more, read our research summary brief "What Have We Learned about Informal Taxation in Sub-Saharan Africa?"