Tax revenue mobilization remains essential to achieving the Sustainable Development Goals. Many citizens and companies are reluctant to comply with their tax obligations, however, and changing their views on taxes is not an easy task for governments. This column outlines the potential for promoting greater tax compliance through educating taxpayers, particularly the young, about how their taxes will be used to provide essential infrastructure and services, like education.
Tax revenues are the primary source of public financing for African countries, and play a central role in helping them attain the Sustainable Development Goals and support economic development. But governments are frequently confronted with citizens and companies that refuse to pay their taxes, and the consequences are fiscal, economic and social.
For example, between 2019 and 2020, Niger lost nearly 14.5 billion CFA francs to tax evasion and fraud. Economically, such losses distort the market because companies that do not pay taxes have more leeway to lower their prices (unfair competition). Socially, the refusal to pay tax constitutes an attack on the principle of tax justice.
It is therefore essential for the state that taxpayers participate in the functioning of the tax system and comply with the obligations arising from it. This intrinsic motivation to pay tax is defined by tax civic-mindedness.
The degree of ‘tax compliance’ depends on two elements: mechanisms to ensure compliance, and the propensity of citizens to accept the legitimacy of the state to collect taxes. In other words, transparency and social justice with a good promotional tool are the basis for improving tax compliance.
Taxpayer education is the best way to improve tax compliance
The 18th century thinker Jean Jacques Rousseau said: “Taxes can only be legitimately established with the consent of the people or their representatives”. To promote tax citizenship, taxpayer education remains the most widely used tool. This involves informing them about the different types of taxes, their collection and their rights.
According to the OECD, a better knowledge of taxation can play an essential role in shaping the tax culture of a country in which citizens understand the effects of paying (or not paying) their taxes on their daily lives. The objective is then to strengthen tax citizenship through an active communication policy.
In Madagascar, for example, after a vast awareness campaign launched in 2017, the collection rate has risen from 29% to 54% for most of the communes that have received technical and financial support. In France, which has a high level of tax civic-mindedness, the culture of control has been partly replaced by a culture of service in which the tax administration sees the taxpayer as a ‘client’, a user and a citizen.
The aim is therefore to strengthen tax citizenship through a calm but uncompromising relationship with taxpayers and their representatives. But the position of public service agents is marked by a duality: they provide a service to users, the population (rather than being at its service); and at the same time they are at the service of the state, conveying choices and constraints of a higher order to citizens.
Information and communication technology as a tool for simplifying tax obligations
Information and communication technologies have also been used by countries in Africa to promote tax compliance. The digital revolution is helping to reduce the obstacles to compliance with tax obligations. The aim is to enable online tax declarations and to implement telepayment. In Burundi, for example, the payment of administrative fees by telephone has been widely accepted (up to 94%).
But this development faces major obstacles such as the lack of communication and cumbersome procedures. According to the World Bank, out of the $1.3 trillion invested in digital taxation in 2018, $900 billion were spent in pure waste.
To alleviate this problem, some governments have launched awareness-raising campaigns to promote the advantages of tele-procedures and reassure hesitant users (security rules). In Mali, the tax/GDP ratio increased by 2.7 percentage points to 16.8% in 2019.
Teaching tax awareness to the younger generation
Teaching tax compliance to children is a tool that is only recently emerging. Age is one of the main determinants of tax compliance worldwide, as older people are less likely to justify fraud (OECD). Tax education is integrated into the school curriculum or through the use of art.
The program of integrating tax education into schools in Argentina has been successful. A high level of satisfaction and knowledge retention has been noted among participants and the demand for membership is growing.
In Morocco, theatre has been used as a springboard to explain the social and economic roles of taxes to children. Awareness-raising materials such as brochures, leaflets and audiovisuals are distributed as tools to raise the visibility and awareness of young people.
The creation of clubs such as the ‘Friends of the Taxman’ also aims to ‘sensitise young people to fiscal civic-mindedness from an early age in order to prepare a well-informed and aware population at all levels’. But reluctance remains. Educational authorities are sometimes less motivated to devote time and energy to the issue. In addition, the lack of human resources (tax officials) is an obstacle to training.
Conclusions and recommendations
Taxpayer education with a particular focus on youth combined with better communication remains the most appropriate tool for encouraging people to pay their taxes.
Information and Communication Technology can play a facilitative role in easing tax procedures. However, according to the World Bank, in more than a third of countries relying on development assistance – and in 70% of fragile and conflict states – tax collection currently contributes less than 15% of national wealth, an even smaller share.
Improving tax revenue therefore remains a considerable challenge, especially for developing countries. Promoting tax compliance alone will not solve it.
Two priority actions should be implemented. One is to build trust and demonstrate the effectiveness of public action and greater accountability. In Denmark, for example, the rate of compulsory taxation is 48.6%, but it is characterized by an extremely high level of civic-mindedness because taxpayers see the impact of tax revenues on the general interest in terms of infrastructure, free education, and more.
The second area for priority action is to tax the informal sectors, which accounts for over 70% of total employment in emerging and developing economies. The aim is to facilitate administrative procedures and establish a new contract between the state and the informal sector.
To ensure efficiency and equity in revenue mobilization, governments need to design better tax policies, modernize revenue administrations, and implement country-specific structural reforms.
