The Task Force set up by the Ugandan Government to lead the battle in combating the Covid-19 crisis recently sent out a public plea that working corporate citizens donate at least 10,000 shillings to the force. The projections were that this would raise the 30 billion shillings plus needed to smoothly run task force operations. Following the plea, the cash strapped committee immediately received a harsh backlash from the the public. ‘You have no shame,’ remarked one tweep as social media went hot with fury. For the general citizenry, the mood is one of disgust and anger at the government and the whole system and it is easily understandable.
Controversy after another have themed the last one month. At the onset, a more willing public and corporations lined up to support the government with whatever they could. No sooner had the generosity peaked than the controversies kicked in. Parliament awarded themselves 20 million shillings each and a lot mysteriously received a further 40 million later among other issues including a general lack of accountability. These incidents, coupled with the hardships of the ordinary citizen have really made the mood sour.
While the public bitterness might seem a result of recent scandal, it is actually the day to day mindset in times of normalcy. To understand this, we need to look away from donations and analyze tax, which is the way government requests for citizens help in normal times.
Unlike donations, taxes are compulsory, yet still people have a distaste for paying taxes and seek to avoid it in anyway. In response to non-compliance, the government through the revenue authority invests heavily in enforcement and even invents new taxes such as OTT to cover up deficits. To mode of operation is straightforward: higher penalty tax rates and more control, along with a higher probability of detection of illegal behavior, should help to combat fraud, and, as a result, tax revenue should rise. The current reaction to the request for donation has demonstrated a major flaw in this style of play. Something is clearly missing in the government recipe for a good tax system.
The theory that pay their taxes because they expect to be punished otherwise should be abandoned if government is to see overall tax increase and general public good will towards government initiatives. While it seems reasonable, it’s too simplistic and counterproductive. Clearly, the probability of detection and the penalty tax rate do not seem to exert a significantly deterrent effect on income concealing. Otherwise, the rates of tax evasion would be decreasing with the increasing investment and experience in tax enforcement.
When shop keeper in Kikuubo or a bar owner in Gulu evade tax, they simply apply the central tenets of economic theory: the relative price effect. If the price of a commodity rises or it is more expensive to carry out a particular activity, it is expected that this good or activity is less attractive, in this case public service or goods. Our government being a democracy has a promise to deliver public goods and therefore needs revenue. However if a person has doubts that a free and functional hospital shall be availed to them, they shall naturally prefer to take matters in their own hands and this is the basis of tax evasion.
However, the government ignores this and evasion is analyzed as a “game against nature,” considering neither how government revenues are raised nor how revenues are spent. In other words you’re a tax evader you’re just a bad citizen that must be caught and punished and that’s it, no one else to blame. That this is the guiding theory of tax collection exposes why nothing has been done to rectify the underlying issues. Otherwise where are the good citizens to donate freely and unforced to the government in its current time of need? Solving this puzzle will increase both taxes and donations to the government as well as overall citizen participation.
The extent of citizens’ (dis)satisfaction with the supply of public goods and, consequently, their (un)willingness to contribute toward the financing of government have to be examined. This can be done, e.g., by focusing on the different institutional arrangements of collective decision making and also drawing comparatives. The extension of tax model to include qualitative additives has seen great citizen compliance, an example is in the Nordic countries where high taxes, good public services and citizen compliance all coincide. An example of a qualitative dimension is the extent of political participation of citizens/taxpayers which has a clear and stable effect, thus indicating the substantial influence of policy acceptance on taxpayers’ adherence of tax laws. When governments deliver, their citizens are willing to entrust them with more of their money and to intervene more widely.
All governments engage in redistribution as seen with the covid task force. Such redistribution is supposed to take place in a transparent and rule-driven way, and spending must uphold common interests. A good example is mass healthcare funding and social security which redistribute resources over the life cycle to the benefit of most citizens. Funding these programs with broad based, progressive taxation, such as a VAT or income tax, rather than using selective and arbitrary forms of revenue generation, has become an accepted principle of a good and constrained government.
Without strong constraints, governments redistribute resources to support narrow interests in economically damaging ways as seen in the covid times. They might grant monopolies to political cronies, expropriate the successful, and use protection and regulations to create rents for the ruling elite. These have adverse consequences for innovation and growth. Governments who try to weaken constraints must know that their citizens will protest.
In the covid 19 scenario, the public gave the government a slight benefit of doubt by showing support and compliance to the government and many even donating. But due to the lack of constraints in the government and the corridors of power, this was quickly abused by the selfishness and greed. The on going protest has therefore come as a show of non willingness to support such a government system. Only when the interaction between citizens and government is fully accounted for will the citizenry fully support the government with tax, donations and general compliance.