In terms of this unwritten social contract, citizens tacitly agree to surrender their absolute freedoms and subject themselves to law and order in exchange for the social security and prosperity that should naturally flow as a result of living in an organised and governed society.
Demographically, sub-Saharan Africa does not suffer the problem of an aging population. Quite the contrary, only 6.09% are over 65 years old. As such, a number of commentators have wondered whether it has made sense to plunge a region of largely young people and children into economic disaster and suffering in benefit of a very small elderly population.
The people expect the government to enhance growth and stability of the economy by providing the infrastructure and systems that facilitate economic activity while formulating regulations and controls to ensure order and fairness in businesses operations, other than directly chipping in to prop up the economy. They also expect the government to promote democracy and social justice, for it is only thus that individual rights can be enjoyed fully enabling people to realize their potential. In their informed understanding, it is the prime mandate of the government to keep the society intact and in peace.
The problematic nature of relations between the state and Africa’s plural societies has of course long been recognised; the difficulty of establishing institutional linkages between state and society; the absence of sociological legitimacy at the base of state authority. The social contract was fundamentally breached by African governments right at its inception, and the people are under no obligation to remain bound by the terms of the said contract. This is a basic principle of contracts.
Government policy reactions to COVID-19, and peoples’ compliance with such measures, reveal the strength of the social contract between states and their citizens.
The economic and social difficulties imposed by lockdowns, especially for the world’s poorest, have also become clear. With increases in domestic violence and police brutality, as well as lost access to education and other public services, we have seen unease spilling over into civil protests.
High levels of inequality have helped to create the global fragility that is being exposed and exploited by COVID-19.
The virus is shining a spotlight on inequalities of all kinds. It poses the highest risk to the health of the most vulnerable, and its social and economic impact is concentrated on those who are least able to cope.
Even before COVID-19, people everywhere were raising their voices against inequality. Between 1980 and 2016, the world’s richest 1 per cent captured 27 per cent of the total cumulative growth in income. But income is not the only measure of inequality. People’s chances in life depend on their gender, family and ethnic background, race, whether or not they have a disability, and other factors. Multiple inequalities intersect and reinforce each other across the generations, defining the lives and expectations of millions of people before they are even born.
In sub-Saharan Africa, informal traders often have a weak social contract with the state, and this has exacerbated their vulnerability during the COVID-19 pandemic. Governments’ COVID-19 responses affect traders in different ways, ranging from creating an enabling environment in some cases to implementing restrictive policies that worsened outcomes for traders.
Raising revenue in the developing world is not going to be easy, but, in the long term, it would enable countries to chart their own course for development. For it is only when governments are dependent on the economic activity of their own citizens, individual and corporate, that they will truly act in their interests.
It is now widely accepted that in many cases political resistance represents the most important barrier to more effective taxation in Africa particularly with respect to the taxation of elite groups. This, in turn, reflects two broad political challenges: the expansion of taxation frequently confronts resistance from influential political and economic elites, while it has historically been very difficult to build popular coalitions in favor of taxation in contexts of limited transparency and significant distrust of taxation and the state.
The second African Transformation Forum, held in 2018, convened ministers and senior revenue officials to discuss issues obstructing the region’s quest to ramp up much-needed revenues for domestic development. The challenges identified included: the inability of the governments to effectively capture the informal sector into the tax net; the lack of political commitment to tackle tax incentives, exemptions and rationalizing subsidies; challenges in deploying technology for tax administration in a region with low internet penetration; the need to tackle the issues of tax evasion, illicit financial flows (IFFs) and corruption; political and technical challenges in taxing land and real estate; the need to ensure consistency in tax systems from the national to sub-national levels; and training and capacity issues in tax administration, especially at decentralized levels.
These challenges notwithstanding, one of the fundamental issues with revenue mobilization efforts in the region has been the rather flawed social contract by which taxpayers are expected to fulfill their tax obligations. Within the context of revenue mobilization and taxation, the social contract is simple: citizens are expected to pay their taxes, and in return, they expect to share in the benefits of governance. In essence, in paying taxes, citizens expect their governments will in return provide public services such as education, hospitals and healthcare, police protection, highway building and maintenance, and welfare programs. Compromising this social contract has far-reaching implications for compliance with revenue mobilization efforts. A myriad of studies have proven that the more value citizens see in the taxes they pay, the more likely it is for them to voluntarily comply. This is a key building block of tax administration; most advanced economies perform fairly successfully in generating tax revenue on the strength of this. Indeed, the reverse is also true, given that tax revenue helps governments provide services that lead to economic, social and environmental development.
The social contract in sub-Saharan around the payment of taxes is flawed for two reasons:
1. The taxes mobilized do not sufficiently translate into improvements in the delivery of public services, and the benefits from governance seem to benefit only a few. Findings from Pew Research (2015) indicated that although an average of 78 percent of respondents from sub-Saharan countries sampled were very or somewhat confident their government would help tackle major problems facing their country (i.e., healthcare and education), 59 percent were of the view that government was run for the benefit of the few, rather than the benefit of all.
2. In sub-Saharan improvements in public services tend to be overshadowed by high levels of corruption, opaque public expenditures, embezzlement, and procurement scandals. Vertical accountability has been a major challenge of governance in many sub-Saharan countries. The region has consistently ranked the lowest globally in the Corruption Perceptions Index (CPI), giving a bleak picture of inaction against corruption. The region’s average score was a lowly 32 (out of 100) in the 2019 edition of the CPI. Corruption is a major barrier to economic growth and basic freedoms in sub-Saharan.
More importantly, it distorts the views of citizens about governance and fairness in the tax system. The latest round of the Afrobarometer (2019) revealed that corruption is on the rise on the continent, as expressed by 55 percent of citizens interviewed across 35 sampled countries on the continent. The report further revealed that African governments are not doing enough to tackle corruption, so much that more than 28 percent of respondents (across countries) who accessed public services, such as health care and education, had to pay bribes to get the service.
It is no surprise that citizens in sub-Saharan are skeptical about their social duty to contribute to a revenue system. They wonder who actually benefits from taxes paid, and whether all citizens are giving their fair share of contributions to the “national cake.” In the face of poor public service delivery, massive corruption, misappropriation of funds, and unfair enforcement of tax laws, the masses are unclear about the benefits of paying taxes. Some studies assert that massive tax noncompliance in sub-Saharan African countries may be better characterized as a “tax boycott” arising from taxpayers’ frustration with the fiscal social contract of governance.
Moreover, the work of revenue authorities in sub-Saharan becomes more challenging when they are expected to mobilize revenues despite having limited information on how those collected in the past have been utilized. Specifically, it is a challenge to communicate with taxpayers about their tax obligations without being able to show visible evidence of the benefits they derive from their taxes (infrastructure, services, etc.)
The social contract is not just top-down, however. The national political structures of a country are not its only sources of social binding and decision-making. Other levels of government, state or province, district, municipal, village-level all have roles to play. And those who hold political or administrative posts can act not only in their official capacity but as influential individuals.
Governments, for their part, must be much more transparent about how they raise revenue and where they spend it, so that their decisions are open to scrutiny. This is particularly important when it comes to decisions about the generous tax incentives given to companies in an effort to attract investment. In reality, many of these incentives do little for the country’s economy and are open to abuse.
Transparency is particularly important for companies extracting oil, gold and other minerals. This is a priority area for the international network, Publish What You Pay. For instance, poorly negotiated and secretive mining stability contracts left African governments unable to benefit from the commodity price boom in 2008 and restricted the ability of governments to change domestic tax legislation.
Multilateral organisations and donors have a role to play in helping developing countries raise revenues. Sharing of expertise between revenue authorities is essential, while the use of aid to build more efficient, transparent and stable tax regimes would be a long-term strategic investment.
Governments also need access to information on individuals and companies holding assets in secretive tax havens so they can target those unfairly dodging tax. Significant progress has been made, but civil society organisations are demanding a swift expansion of agreements to include developing countries in a truly multilateral agreement.
Preserving peace and stability, and building the foundations for economic transformation, require resources that have to be mobilized primarily from internal sources. But without repairing the rather scarred fiscal social contract in most sub-Saharan countries, compliance on tax revenue efforts will forever remain elusive. While compliance could be improved by introducing and enforcing sanctions for non-payment of taxes, simplifying tax processes to minimize administrative burden, and adopting digital technologies in tax collection, the impact of all these well-intended recommendations from experts could be amplified if the social contract issue were addressed at the national level.
There is no better way to boost the social contract between taxpayers and government than by providing visible evidence of public services rendered thanks to revenues mobilized. Addressing this challenge will require concerted efforts by sub-Saharan African countries to strengthen policies and institutions that monitor, evaluate, and disseminate information about the impact of government spending.
To end this, governments have to crack the whip on corruption by introducing stricter punishment, particularly for members of the ruling class who are implicated in such activities. This will build the confidence of citizens in the government and the public administration system. A recent IMF study concluded that countries with the lowest levels of corruption collect four percent of GDP more in tax revenues than countries with the highest levels of corruption at similar income levels.