The politics of taxation and citizenship

Author: Moses Khisa. PHOTO/FILE

What you need to know:

  • With more tax-squeeze, perhaps there will be a substantial critical mass of citizens directly feeling the pinch as to be compelled to demand for better government.

Kampala traders, who deal mostly in imported merchandise, are up in arms against a new move by the government to collect value-added taxes. Not for the first, but it had been a while since taxes occupied centre-stage in Uganda’s public square and political discourse.

The last time we had a major traders’ strike against taxation was in fact when the government first introduced value-added tax in 1996 to replace the Commercial Transaction levy. 

The capacity to assess, impose and effectively collect taxes is at the heart of modern statehood. It is a key measure of the quality of government and stateness because the average, rational citizen is inclined to avoid paying taxes, thus coercion of some form is necessary to force people and companies to pay taxes.

Depending on the social context and political circumstances, it is also true that citizens can willfully pay taxes, but all being equal, it is more likely that governments only successfully impose and collect taxes by dint of coercion or threat of force. 

Taxation and tax collection is a matter of state strength and bureaucratic decision-making, often at odds with short-term calculations of political actors. Politicians in a system of democratic government will avoid imposing taxes on voters to buy popularity, but they understand that it is crucial and necessary to impose and collect taxes, so they rather hide behind the technical and bureaucratic class to do the job.

Since the advent of the modern European state starting in medieval and early modern period, the ability and efficiency of taxation was the basis for judging both the quality and capacity of government. 

In Europe, especially during the long years of religious wars and all sorts of wars of conquest and state building, plus the two World Wars, war-making was deeply intertwined with taxation. Either governments extracted sufficient money in taxes from citizens to fund war activities and win or they were overrun and conquered. 

To mobilise resources for war and succeed on the battlefront, state-builders and specialists in violence had to mobilise society, marshal the infrastructure for collecting taxes and convince traders and merchants that it was in their best interest to pay taxes to, in turn, get personal security and property protection. This established a deep connection between security, taxation, merchant trade and state capacity. 

In Prussia, arguably the most bureaucratically competent and institutionally robust of the early modern states in Europe, tax collection was in fact under the ministry of war! Taxes funded war, and war brought security and protection for trade to thrive.

In Africa, as elsewhere, colonial authorities too had to devise coercive measures of extracting state revenue from taxes. While they did not muster the same institutions and systems for collecting taxes driven by imperatives of war as happened in Europe, colonial governments nevertheless had to employ force and other coercive measures to impose and collect taxes. 

An extremely coercive tax that stayed-on long into post-independence times, in fact until the mid-2000s in Uganda, was graduated personal tax whose enforcement required deployment of excessive physical force. 

In a sense then, tax collection and the imperatives of providing security gave the modern state its inimitable definition as an institution that successfully claims monopoly over the legitimate use of physical force. Only the state can claim to have a monopoly over use of force because only then can it collect taxes and use those taxes to provide national security.

I need to exit this somewhat abstruse excurse and face up to the issues, directly. The Ugandan government under Mr Museveni is now in urgent and desperate need of raising tax revenue than it has ever. 

For long, foreign donor-countries and international financial institutions substantially underwrote our national budget. Dynamics have changed; the government has to wean itself from external budgetary dependence. It is no longer tenable.

While foreign funds were flowing from Western powers and institutions, Museveni’s government did not have to work hard to collect taxes. Our tax-to-GDP ratio performance, a standard measure of how much and well a government collects taxes, for long trailed regional peers, in fact it remained far less than the African average.

Taxation is politics, just as economics is politics. The government wants to extract more from traders, meaning squeezing their revenue margins to collect its own revenue. That is not all. The government also wants to squeeze more from direct taxes on people’s incomes and property. 

With more tax-squeeze, perhaps there will be a substantial critical mass of citizens directly feeling the pinch as to be compelled to demand for better government, to be utterly outraged by, for example, the profligacy we see in parliament and the presidency. Will that make Ugandans pay closer attention to the wrongs and misdeeds of politicians? An old scholarly idea called ‘fiscal contrast’ predicts so, but it is not always the case!