On Tax Efforts and Colonial Heritage in Africa

Abstract

One commonly observed phenomena about taxation in Africa are regional differences and the fact that southern African countries have higher levels of shares of taxation in GDP. This article argues that the major source of differences in ‘tax effort’ is the colonial histories of various countries. Using standard measures of ‘tax effort in a panel data framework and dividing colonial Africa along forms of incorporation into the colonial system, it shows that African countries and others with similar colonial histories have higher levels of ‘tax effort’. However, the difference disappears when we control for the colonial factor. These results hold under different model specifications.

Acknowledgements

The author would like to thank the late Professor Guy Mhone for sustaining my interest in the ideas behind the paper, Elene Gaia, and Naren Prasad and other colleagues at UNRISD for discussions of some of these ideas and the three referees and editors for helpful comments on earlier draft of the paper. The author takes full responsibility for opinions and errors in the paper.

Notes

An Online Appendix is available for this article which can be accessed via the online version of this journal available at www.informaworld.com/fjds

1. The idea of ‘tax handles’ comes from the work by Richard Musgrave (1969) who emphasised the structural features of an economy that facilitates tax collection.

2. Stotsky and Wolde-Mariam (1997: 35) seem to subscribe to geographical determinism of tax effort, as they observe in passing that that ‘tropical African countries … tend to have low indices of tax effort’.

3. ‘Here, ecological conditions had to some extent protected the peoples who took refuge from the ravages of the slave trade by fleeing into zones unlikely to be penetrated from the coast. The low population density and the lack of sufficient hierarchisation made the colonial trade model non-viable. Discouraged, the colonial authorities gave the country to any adventurers who would agree to try to ‘get something out of it’ without resources – since adventure does not attract capital.’ (Amin, 1972: 117). The brutality of this order was first captured by Joseph Conrad in Heart of Darkness and in more recent years has been chronicled in King Leopold's Ghost (Adam, 1998).

4. The violence of these regimes showed up in the large numbers of Ruandi-Urundis that escaped to neighbouring countries to avoid forced labour (Rodney, 1990).

5. There is a vast literature on the functional role of apartheid in the accumulation process and its acceptance by business precisely because of its role as a system of labour regimentation (see especially Wolpe, 1972).

6. In the words of Kenneth Good, ‘Colonial development of this kind implied the existence of a particularly active and interventionist state. If its basis was in the control of land and labour, its elaboration was influenced by the settlers’ demands for goods and services similar to those in Britain, or the most advanced settler colonies outside of Africa. Because they were settlers, not just administrators, they took the long-term view of people preparing for the growth of established societies.’ (Good, 1976: 605).

7. As a Rhodesian Minister of Agriculture stated the matter in March 1920: ‘[one] cannot quite get over the fact of the huge profits the Trusts make out of the tobacco which we are trying to grow out here by the sweat of our brows, or perhaps I should say the natives … The fact of Directors of the Trusts dying multi-millionaires … makes one wonder if they ever think of where all their money comes from and how it is that a few crumbs from their groaning tables are not let fall to enable the growers in Rhodesia, or in other parts of the world for that matter, to make a bare living’ (cited in Phimister, 1984: 279).

8. Perhaps the most important distinction between the African settler economies and countries like Brazil and other African economies is that the former were able to minimise ‘leakages’ of tax revenue toward expenditures on the indigenous population.

9. Colonial rule in the labour reserves was generally of the ‘direct rule’ type as opposed to ‘indirect rule’ in which the colonial powers extensively used traditional authorities for the implementation of some of their policies. Thus using the data in Matthew Lange's (2004) study on the effect of indirect rule on various indicators of governance in ex-British colonies, we see that with the exception of Malawi, all our labour reserve economies score low on his index of extent of ‘indirect rule’.

10. On the construction and trajectories of nationalist agenda see Mkandawire (1999, 2009).

11. For a while the nationalist movements in South Africa had to contend with their own creation of resistance to taxation in attempts to make the townships ungovernanable as township dwellers continued with boycott of taxes on services.

12. The test yielded a value 19.18 and Prob > chi2 = 0.0237 suggesting the random effects model is the more appropriate one.

13. We would like to thank an anonymous referee for this suggestion.

14. Thus Brautigam and Knack (2004: 263) argue that ‘political elites have little incentive to change a situation in which large amounts of aid provide exceptional resources for patronage and many fringe benefits’.

15. World Bank economists (Devarajan et al., 1999) suggest, for instance, that if the marginal cost of taxation is exceptionally high – which it might be in African countries – using aid for tax relief may be the best use of foreign resources. An alternative argument is that ‘in some countries, the dampening effect of aid on revenues could be part of a strategy to return resources to the private sector to accelerate economic growth’ (Gupta et al., 2003: 20). In contrast, Clist and Morrissey (2010) find no robust evidence that aid encourages lower tax/GDP ratios; indeed, since the mid 1980s, they find that aid is if anything associated with higher tax/GDP ratios.

16. Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Congo, Congo (Democratic Republic of), Cote d Ivoire, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Malawi, Mali, Mauritania, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Togo, Uganda, Zambia, Zimbabwe.

17. These countries are: Angola, Benin, Botswana, Burkina Faso, Cameroon, Cameroon, Central African Republic, Congo, Congo (Democratic Republic of), Cote d Ivoire, Kenya, Lesotho, Malawi, Mali, Mauritania, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Togo, Uganda, Zambia.

18. We use the xtpcse command in STATA.

19. Using regressions methods in the form used in this paper, Thies concludes ‘The existence of an interstate rivalry results in higher levels of extraction from society in African states. Internal ethnic rivals engaged in conflict with the state also result in the capture of a larger percentage of the national income through taxation. These findings generally conform to predatory theory that expects states would expand their extraction in order to face these types of challenges’ (Thies, 2007: 728).

20. This is strongly implied by Bowden et al. (2008) in a paper comparing poverty in ‘settler economies’ and ‘peasant economies’.