Article
Give to Caesar
Understanding taxpayer perceptions in Somaliland
By Brenda Ogutu
As the saying goes — where there is a will, there is inheritance tax. Tax as the bane of existence has been a narrative that has been around since the first king asked “Wait, who allowed you to sell this on my land?” The truth is, taxes are a very real and necessary part of the economic ecosystem, vital to keeping everything in balance. When people can’t see it this way, they find ways to not pay. When taxes aren’t paid, governments have a hard time providing the services the people need — which would lead them to failing to see the value in paying taxes, creating a situation that can quickly spiral out of control.
Survey evidence across Africa indicates that citizens:
- Believe governments have a right to tax them, and
- Recognize it is their duty to pay taxes
Citizens, however, do not trust that paying taxes helps meet their demands for better public services. While effective enforcement leads to better compliance, so is addressing citizens concerns about fairness, equity and reciprocity.
The Somaliland Office of the Prime Minister and Prosperity from Revenue approached us to help them gain better understanding of their citizen’s needs and hence enhance revenue collection.
As the saying goes — where there is a will, there is inheritance tax.
We carried out our research project in two phases — in 2018 we did involving qualitative and quantitative research to understand the perceptions of taxpayers. We then went back in March 2019, for a second phase that involved qualitative research only. It aimed to capture changes in perception of the Somaliland tax system over the last year. The data in this blog mainly covers phase 2 of the exercise.
Our research sought to answer the following key research questions:
- How had perceptions of the tax system evolved among taxpayers and traders in Hargeisa during the 12 month period and why?
- What were the differences in perceptions between national and municipality level taxation and why?
- What were the preferred communication channels for receiving information relating to taxation?
Design
We conducted qualitative research that aimed to capture changes in the perception of the Somaliland tax system over a period of 12 months (2018–2019). A qualitative study was chosen as it would enable in-depth and detailed insights from taxpayers regarding their beliefs, attitudes and behaviors on paying taxes.
1.Review of qualitative tools — Based on feedback from the Prosperity From Revenue (PROFR) team and key government stakeholders, we reviewed the tools for both In-Depth Interviews (IDIs) and Focus Group Discussions (FGDs) to be in line with the updated research questions.
2.Conduct in-depth interviews (IDIs) and focus group discussions (FGDs) — We conducted 20 in-depth interviews and 2 focus group discussions between March 4th to March 14th 2019. They were all conducted with businesses in Hargeisa.
The number of female business owners interviewed for the Phase 2 research was 16 percentage points higher compared to the qualitative study conducted in 2018 (men: 87% vs. women 13%). In 2018, the qualitative study sampled 7 micro and 8 small/medium businesses; no large businesses were interviewed. This is as compared to 2019 where we sampled 15 micro, 9 small/medium and 3 large businesses.
3.Interpretation and recommendations — The analysis of the qualitative data brought out key findings that then informed the recommendations relevant for PROFR and the Somaliland government.
4.Analysis of findings — The audio files from the in depth interviews and focus group discussions were translated, transcribed and thereafter analyzed by Busara.
What did we find?
Taxes
Businesses felt a duty to pay tax, but there needed to be greater transparency in the tax collection process. There was a very strong demand on information about where taxes were going and what they were being used for. They also identified a need for more efficient national and municipal tax payment processes.
Communication
There needed to be more direct, frequent and timely communication about taxes between the government and the citizens. One respondent said, “Really no formal communication — just hear-say that tax has been increased. I’ve never seen any pamphlets that have been written.”
The best ways to communicate with the public regarding taxation (ranked) were:
- Radio
- Television
- Social Media
Economy and Politics
“The economy is declining and politics has influenced tax increases” was the general sentiment. Business owners were less optimistic about the economy during the 12 month period, indicating that the cost of operating a business had increased during the period, though very few indicated this was because of taxation. This did not appear to have affected the view that paying taxes is a duty.
Customs
- Customs procedures were more efficient as compared to taxes
- Customs duties increased during the 12 month period.
Taxpayers had seen improvements in customs procedures during the 12 month period, and wanted less face-to-face contact with collectors with taxpayers, especially small businesses, indicating the level of professionalism of collectors as an issue. Businesses also favored ideas that minimize contact with tax collectors. In addition, customs clearance times had improved — taking between 1–3 days.
Discussion and Exploration
How perceptions amongst taxpayers and traders in Hargeisa had evolved:
- Businesses felt that the customs department had improved during the 12 month period. The clearing process had become easier and faster. Reasons given for the improvement included:
-stricter processes;
-increased confidentiality;
-greater issuance of receipts.
- Customs duties increased every year, the perception, however, was that custom duties had been unnecessarily increased during the 12 month period.
- Another change in perception during the 12 month period was that the economy had been declining. It was perceived that this was because of inflation, which caused the local currency to lose value.
Why perceptions amongst taxpayers and traders in Hargeisa may have evolved:
- The introduction of a new government, including the most recent appointment of a new Minister of Finance and Ministry staff had businesses feeling optimistic and open-minded about the possibility of change.
- Implementation of more stringent working schedules for government staff at the Ministry of Finance which resulted in a perception that more was being done to improve the taxation system.
- Customs tax clearance procedures were revised to make them more efficient and this improved perceptions towards the customs system from businesses that import/export goods.
- Depreciation of the local currency (change in exchange rates) over the past 12 months was cited by many business owners to have been a key reason behind higher costs of operating a business.
Recommendations
Based on our findings, we recommended the following:
- Leverage the continuing optimism about the government;
- Clarify and publicize how taxes are being spent;
- Increase transparency through information and feedback;
- Improve tax collection processes.
So while you never really know how much you have to be grateful for until you are taxed for it — it turns out that business and taxpayers understand and value the need to give to Cesar. They just need him to explain how he is putting that money to use.
