Source: The Conversation – Africa – By Christopher Hoy, McKenzie Research Fellow, The University of Melbourne
Across sub-Saharan Africa, revenue authorities are increasingly changing how they engage with small businesses. The traditional approach involved audits, penalties and inspections. But more recently many are investing in taxpayer education, “door-to-door” visits, and focusing on ways to make it easier to comply.
The logic driving the change is that auditing every small trader is expensive and unpopular, while building trust appears cheaper and more durable.
Our new International Centre for Taxation and Development study in Tanzania suggests the story is more complicated. We worked closely with the revenue authority to carry out a large trial where we increased the presence of tax officials in some randomly selected wards and measured the impact on trust and compliance. This study drew on our experience running trials with revenue authorities in several other lower income countries.
Our research shows that even when tax officials are not there to “check up on you”, their visibility can change how small businesses see the state. And not always in the direction policymakers expect.
In wealthier, more economically integrated regions, our study showed that the presence of tax officials strengthened trust and was associated with higher compliance. In poorer and more marginalised regions, the same presence reduced trust and lowered tax payments.
The implication is uncomfortable but important: light-touch outreach doesn’t automatically build trust. The relationship between the national government and citizens varies, depending on the presence of public services, and this influences how people view tax officials.
What makes our study especially useful is that we connected survey responses to administrative tax records. This enabled us to test whether the shifts in attitudes showed up in what businesses actually did after the visit.
Here we found that trust and compliance moved together. Where exposure to tax officials increased trust, payment behaviour tended to improve. Where trust was reduced, tax payments fell.
This doesn’t mean authorities should abandon outreach. Educating and helping taxpayers, and being present, are important. But these efforts need to be designed to suit each context.
The design of our novel study
To test what happens when tax officials become more visible, we embedded a randomised control trial within an in-person survey of 1,210 small businesses across mainland Tanzania in December 2022. The work was carried out together with Redefine, a survey firm in the region. The 119 urban and peri-urban wards in the sample were randomly split into two groups.
In the treatment wards, a tax official from the Tanzania Revenue Authority’s Research and Policy Planning Department accompanied the enumerator and remained present as an observer throughout the interview.
In the control wards, the same survey was conducted without any tax official present.
The officials did not ask the survey questions. They did not inspect records or threaten penalties. Respondents were told that the tax officials were only there to observe. The only thing that differed between treatment and control was the visibility of the revenue authority.
We measured three dimensions of taxpayer attitudes:
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perceived enforcement (how likely businesses thought evasion was to be detected)
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perceived facilitation (how easy they thought it was to comply)
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trust (whether they saw tax system as fair and reciprocal).
We then compared these responses with administrative tax records for the same wards, covering roughly 40,000 firms, to see whether perceptions were mirrored in actual payment behaviour after the visit.
Capacity vs legitimacy
The headline result is striking. The simple presence of a tax official reduced trust in the tax system in the treatment group relative to the control group. Perceived enforcement and perceived ease of compliance did not differ between groups substantially on average.
Yet this average masks the most important part of the story. In places where the state is otherwise less visible in daily life, where schools, health facilities, and transport links are further away, the presence of a tax official acted as a signal of state capacity. In these areas, the treatment increased perceived enforcement and perceived ease of compliance relative to firms closer to public services.
For businesses used to a thin state presence, a visit by a government official carried new information about the state’s reach. But capacity is not the same as legitimacy. A visit may tell taxpayers that the state is present without convincing them that the state is fair, reciprocal or responsive.
The same visit had opposite effects
The clearest split appeared across richer and poorer regions.
In some of Tanzania’s wealthier regions – Dar es Salaam, Mwanza and Mbeya – treated firms reported trust levels higher than firms in the control group. In the poorest zones in the south and west of the country, including Mtwara, Lindi, Kigoma and Katavi, treated firms reported trust much lower.
The same intervention, the same observer role, and opposite responses.
Businesses were responding to what the tax official represented in each local context.
In regions where firms already have regular interactions with state institutions, a visit from a tax official can be read as part of a reciprocal relationship. In regions where the state is largely absent except when it wants something, the same visit reads very differently. The official’s presence puts pressure on cracks that are already there.
From perceptions to payments
On average, the intervention had little effect on whether firms paid taxes or on the amounts they paid. But when you look at each region, the same pattern reappears.
In the poorest zones, firms in treated wards were less likely to pay taxes in the first quarter after the intervention, and paid lower amounts overall.
In wealthier areas, compliance moved in the opposite direction, though these effects were weaker.
The broader message is that trust and compliance moved together. Where exposure to tax officials increased trust, payment behaviour tended to improve after the visit. Where trust was reduced, tax payments fell after the visit.
What this means for revenue authorities
Five practical directions follow from the Tanzanian evidence.
First, diagnose trust before scaling outreach. Indicators such as filing persistence, limited access to public services, and prior contact with the tax authority can help identify where trust is weakest and where a standard outreach visit is most likely to backfire.
Second, separate facilitation (helping taxpayers) from enforcement, visibly. If the purpose of a visit is taxpayer education, the script, materials and demeanour should make that clear. In low-trust settings, anything that resembles an audit may be interpreted as one, regardless of intent.
Third, in fragile-trust areas, lead with services, not assessments. A first interaction is more likely to strengthen trust if it helps businesses solve problems, such as obtaining a taxpayer identification number, correcting a registration error, or lodging a complaint.
Fourth, monitor trust and compliance together. Tracking taxpayers’ experience can help reveal when engagement strengthens (or undermines) their relationship with the state.
Finally, connect tax outreach to the broader visible state. Pairing outreach with credible information about public spending, taxpayer rights and complaint channels can show the taxpayer what they get in return for compliance.
The bottom line
Tax administration is rarely a purely technical exercise. For a small trader in a market in Mtwara or Kigoma, the appearance of a tax official is, before anything else, an encounter with the state. Whether that encounter makes them more likely to pay their taxes depends on what the state has been to that trader up to now.
Our experiment suggests that the current enthusiasm for softer tax outreach in Africa is broadly well placed, but its design matters.
Building the tax base is not only about making the state more visible. It is about making the state more credible.
– When tax officials visit: why softer tax outreach can build trust in some places and erode it in others
– https://theconversation.com/when-tax-officials-visit-why-softer-tax-outreach-can-build-trust-in-some-places-and-erode-it-in-others-292805