Tax Farming: A Radical Solution for Developing Country Tax Problems?

IMF Working Papers, September 1, 1992

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Systemic tax administration problems in many developing countries have led to a search for radical solutions.
Tax farming is a system wherein the right to collect taxes is auctioned off to the highest bidder.
An analysis of the historical experience with tax farming shows that its purported administrative efficiency is largely illusory.
While certain aspects of tax administration may be suitable for privatization, the classic form of tax farming would appear to have little attraction for a modern state concerned with justice and equity.

Tax farming’s administrative efficiency is characterized in the analysis as "largely illusory."
Historical experience forms the basis of the assessment that classic tax farming is unattractive for modern states focused on justice and equity.
The working paper frames tax farming as a "proposed solution" to systemic tax administration problems in developing countries, not as a concluded policy recommendation.

Privatization may be appropriate for certain aspects of tax administration (the paper suggests selective privatization rather than full tax farming).
The classic form of tax farming is implied to be unsuitable for states that prioritize justice and equity in taxation.
Policymakers should weigh administrative considerations against distributive and fairness objectives when evaluating privatization or outsourcing of tax functions.

Subjects: Agricultural tax, Financial institutions, Loans, Revenue administration, Tax administration core functions, Tax collection, Tax incentives, Tax law, Tax policy, Taxes
Keywords: Agricultural tax, credit problem, government collection, government relationship, government salary schedule, government's objective, Loans, North Africa, Tax administration core functions, Tax collection, tax collector, tax farming, Tax law, WP