Chek Derashid

What Is Wrong With the Fiscal Social Contract of Taxation in Developing Countries? A Dialogue With Self-Employed Business Owners in Nigeria:

Contemporary societies are bound in a fiscal social contract between citizens and their elected governments who administer the states in the interest of all members. The fiscal social contract implies that citizens should pay tax which is utilized by government to execute programs for the collective good. While the advanced countries have done a better job of mobilizing tax as a resource for societal development, developing countries have performed poorly. A large number of high-income earners in developing countries avoid the tax system thus hampering development efforts. Previous studies have alluded to a culture of tax evasion among citizens of developing countries as a key factor influencing noncompliance. However, this study argues that these studies did not reach the best conclusion as their methodology excluded the taxpayers’ narratives. We interviewed self-employed taxpayers in Nigeria’s capital city, Abuja. Results of the analysis revealed taxpayers’ frustration with an opaque tax system, deplorable socioeconomic condition, and nonfunctioning of the tax audit system. We argue that the massive tax noncompliance in developing countries may be better understood as “tax boycott” arising from taxpayers’ frustration with the fiscal social contract of governance. Policy implications of the findings were discussed in the concluding section.

Challenges of tax revenue generation in developing countries: Adopting the carrot and stick approach

The study reiterates the challenges of tax revenue generation in developing countries.While the advanced countries have traditionally performed well in tax revenue generation, developing countries continue to perform poorly. This accounts for the economic development challenges faced by these countries.The study identifies tax noncompliance as a key factor for the current under performance of tax revenue in developing countries.However, there are over sixty variables associated with tax noncompliance in existing literature and this could lead to confusion in the effort to tackle noncompliance.There is need to streamline existing variables by identifying the key ones in the context of developing countries. This study advocates for the carrot and stick model in tackling the challenges of tax compliance in developing countries.The study further identifies socioeconomic condition, citizen engagement and tax service quality as constituting the carrot factors while audit and sanction constitute the stick factors. It argues that an optimal mix of the carrot and stick factors will go a long way in tackling the tax revenue challenges of developing countries.