Private tax collection—remnant of the past or a way forward? Evidence from rural Uganda

Abstract

This article examines the growing role and impacts of private tax collection under fiscal decentralisation in Uganda. Based on evidence from six rural councils, three aspects of privatised tax collection are examined: (i) the impact on the nature of fiscal corruption; (ii) the problem of overzealous collection; and (iii) the challenge of assessing revenue potentials. While possibly meeting short-term demands for local revenue growth and stability, the present form of private tax collection appears to transform the nature of fiscal corruption by reducing corruption at collection point and transferring the problem into the district administration. Moreover, while the charge of overzealousness permeates historical and theoretical work on privatised tax collection, the Ugandan experience casts doubt on its general validity. Instead, perverse distributional effects are the most likely cause of deteriorating state-citizen relations in rural Uganda. Finally, the article considers the merit of the prediction of private collection as a preferred contractual choice for certain indirect taxes, suggesting that problems of asymmetric information in assessing the revenue yields of most rural markets are exaggerated.

Taxing the Informal Economy: Challenges, Possibilities and Remaining Questions

“…While technically these associations remained outside of the formal economy, they received government assistance in the form of training, preferential tax treatment and subsidised credit, to encourage growth and eventual formalisation (Howell, 2002). of bribes and harassment, alongside taxation and regulation, is likewise emphasised in survey evidence from Tanzania (Fjeldstad et al 2006). …”

“…The most extensive studies are those of Iversen et al (2006) in Uganda and Fjeldstad et al (2009) in Tanzania, both of which document relatively prominent examples of privatised tax collection at the local government level. Both studies conclude that in some cases privatisation has led to greater and more predictable revenue collection.…”

“…While the historical literature focuses on the risk of overzealous and arbitrary tax collection, these studies suggest that the largest problems have occurred at the contracting stage, as the price paid for tax collection rights by private collectors is often far below actual revenue potential, leading to limited government revenue and high profits for tax collectors. While this might, in principle, reflect problems of asymmetric information, Iversen et al (2006) in particular argue that such information problems are quite limited, and that contracting problems generally reflect politicisation and corruption. The overarching conclusion is that privatisation can yield some revenue gains when well managed, but in practice corruption has often outweighed these potential gains.…”

Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research

“…Iversen, Fjeldstad, Bahiigwa, Ellis, and James (2006) in Uganda, and Fjeldstad, Katera, and Ngalewa (2009) in Tanzania document relatively prominent examples of privatised tax collection at the local government level, and both conclude that privatisation has sometimes led to greater and more predictable revenue collection. However, they also show problems with contracting, as the price paid for tax collection rights by private collectors is often far below actual revenue potential, leading to limited government revenue and high profits for tax collectors.…”

Taxing the Informal Economy: Challenges, Possibilities and Remaining Questions*

“…This approach seems most appropriate to the subsistence end of the informal 14 This draws on unpublished research conducted by Joshi, as well as Kamunyori (2007). This emphasis on the importance of bribes and harassment, alongside taxation and regulation, is likewise emphasised in survey evidence from Tanzania (Fjeldstad et al 2006). …”