Citizens' Perceptions of Tax Authorities and Tax Efficiency in Africa

IMF Working Papers, November 8, 2024

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Study sample: 32 countries over 2014-2019.
There is a negative and significant association between negative perceptions of trust in the tax department (Afrobarometer survey) and tax efficiency for VAT and CIT.
A 1 percent increase in the share of citizens’ perception of little or no trust in the tax department leads to a 0.22 percent decrease in VAT tax efficiency, controlling for macroeconomic indicators.
For corporate income tax productivity (focusing on tax payments of corporates), a significant adverse effect of negative perceptions is found only in fragile states.
Perceptions about corruption in tax authorities have a similar effect on VAT and CIT tax efficiency; perceptions about trust and corruption capture the tendency to misappropriate revenues, but the two effects cannot be distinguished except for fragile states.
The magnitude of the negative effect of distrust is significantly greater in fragile compared to non-fragile states.

The paper links citizen-level survey measures (trust in the tax department; perceptions of corruption) to observed government performance in collecting VAT and CIT revenues.
Results are robust to controls for macroeconomic indicators.
The analysis highlights heterogeneity by state fragility, with policy-relevant differences between fragile and non-fragile contexts.

In fragile states, policies aimed at improving fiscal capacity should place a high importance on ensuring that citizens believe resources will be used properly.
Improving citizens’ trust in tax authorities and reducing perceptions of corruption should be prioritized as part of strategies to enhance VAT and CIT tax efficiency.
Fiscal reforms and revenue administration strengthening should incorporate measures to address public perceptions and trust, an aspect of tax policy not typically prioritized.

Subject: Corporate income tax, Corruption, Crime, Revenue administration, Revenue performance assessment, Tax efficiency, Taxes, Value-added tax
Keywords: Africa, CIT efficiency, Corporate income tax, Corruption, fragility, payments of corporate, tax authorities, tax department, tax efficiency, tax payment, Trust in authorities, Value-added tax

IMF Working Paper No. 2024/234 — Telma Yamou, Alun H. Thomas, Kailhao Cai; November 8, 2024.