informal taxation: what have we learned?

Informal Taxation: What Have We Learned?

SamuelJibao,CentreforEconomicResearchandCapacityBuildingVanessavandenBoogaard,PhDstudent,UniversityofToronto

WilsonPrichard,ICTDandUniversityofToronto

Informal taxation

“Tax-like payments, made to both state andnon-state actors, that are not mandated bylaw.”

Significance

•  Livelihoodsandwelfareoftaxpayers•  FiscaldecentralizaJonandeffecJvenessoftaxreforms

•  Statebuildingandaccountability

Focus of ICTD research

•  EmpiricalunderstandingofinformaltaxaJon•  PolicyimplicaJonsofinformaltaxaJon

Findings from Sierra Leone

Classifying informal taxes

§  FormalState“Taxes”:Statutorytaxesunderthelaw§  InformalState“Taxes”:Paymentstostateofficialsnotmandatedbylaw

§  InformalTaxestoTradiBonalAuthoriBes:PaymentstotradiJonalauthoriJes,notmandatedbylaw

§  Informal Non-State Taxes: Payments to non-stategroups including armed groups and communitydevelopment associaJons, for services and/orprotecJon

(1) Informal taxes are extensive

Proportion of tax payments per household per annum, by tax type

Formal taxes to state actors

Informal taxes to state actors

Informal taxes to chiefs

Informal taxes to non-state actors

… and regressive

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

TotalTax Formal InformalState TrandiJonalAuthoriJes

Non-State

TaxpaymentsasaproporBonofincome

LowestQuinJle

TopQuinJle

(2) Higher trust in informal than formal

0%

20%

40%

60%

80%

100%

Centralgovernmenttaxes(N=140)

Localgovernment

taxes(N=1436)

Localgovernmentuserfees(N=556)

Informalstatetaxes(N=257)

Chiefdomtaxes(N=558)

Non-statetaxes(N=1618)

MeanproporBonoftaxpayersbelievingthatthetaxingactorusestaxrevenuestobenefitthecommunitymost,someornoneoftheBme

MostoftheJme

SomeoftheJme

NoneoftheJme

Findings from elsewhere

Implications

•  Informal taxaJon should be considered inassessmentsoflivelihoods/poverty

•  The“informal”iscriJcaltothinkingaboutreformoftheformal

•  Informal tax may meet ciJzen needs, implyingdesirability toexplore “secondbest”or “hybrid”structures

Remaining questions

•  PracJcalviabilityof“hybrid”models•  Meaning of relaJvely greater trust in informaltaxaJon

•  RelaJonship between informal taxaJon andstate-society relaJons, compliance with formaltaxsystems

Thankyou!

አመሰግናለሁ

sjibao@yahoo.cav.vandenboogaard@utoronto.cawilson.prichard@utoronto.ca