The presence of a tax official during a survey interview lowered trust in Tanzania’s tax system among small businesses on average, but the effect reversed sharply by location, a randomised control trial with the revenue authority found.
In wealthier regions including Dar es Salaam, Mwanza and Mbeya, firms visited by a tax official reported higher trust than those in a control group.
In the poorest zones in the south and west, including Mtwara, Lindi, Kigoma and Katavi, treated firms reported trust much lower. The same intervention produced opposite responses.
The study, published by the International Centre for Taxation and Development, 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 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, inspect records or threaten penalties.
Respondents were told the officials were only there to observe. The only difference between the two groups was the visibility of the revenue authority.
The design of our novel study
The researchers measured three dimensions of taxpayer attitudes: perceived enforcement, meaning how likely businesses thought evasion was to be detected; perceived facilitation, meaning how easy they thought it was to comply; and trust, meaning whether they saw the tax system as fair and reciprocal.
They 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
On average, the presence of a tax official reduced trust in the treatment group relative to the control group. Perceived enforcement and perceived ease of compliance did not differ substantially between groups on average.
That average masked a split. 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 the state is present without convincing them it is fair, reciprocal or responsive.
The same visit had opposite effects
Businesses were responding to what the tax official represented in each local context, the researchers found.
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.
From perceptions to payments
On average, the intervention had little effect on whether firms paid taxes or on the amounts they paid. But when the researchers looked at each region, the same pattern reappeared.
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.
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, according to the researchers.
First, diagnose trust before scaling outreach, using indicators such as filing persistence, limited access to public services and prior contact with the tax authority to identify where trust is weakest and where a standard outreach visit is most likely to backfire.
Second, separate facilitation from enforcement visibly, so that if the purpose of a visit is taxpayer education, the script, materials and demeanour make that clear.
Third, in fragile-trust areas, lead with services rather than assessments, such as helping businesses obtain a taxpayer identification number, correct a registration error or lodge a complaint. Fourth, monitor trust and compliance together.
Finally, connect tax outreach to the broader visible state by pairing it with credible information about public spending, taxpayer rights and complaint channels.
The bottom line
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, the researchers wrote.
Whether that encounter makes them more likely to pay their taxes depends on what the state has been to that trader up to now.
The experiment suggests that the current enthusiasm for softer tax outreach in Africa is broadly well placed, but its design matters.
Source: The Conversation
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