A Tanzania field experiment found a tax officer’s presence during survey interviews shifted small firms’ trust in the tax system in opposite directions by location, affecting later tax payments.
The study, run by researchers working with the International Centre for Tax and Development in Tanzania, embedded a randomised trial in a face-to-face survey of 1,210 small businesses in December 2022, conducted with the polling institute Redefine.
The 119 urban and peri-urban wards in the sample were randomly split into two groups.
In the intervention wards, an officer from the research and policy planning department of the Tanzania Revenue Authority accompanied the enumerator and remained present as an observer throughout the interview.
In the control wards, the same survey was carried out with no tax officer present. The officers did not intervene, did not inspect records and did not threaten penalties; respondents were told the officers were there only to observe.
The sole difference between the two groups was the visibility of the tax authority.
The researchers measured three dimensions of taxpayer attitude: perceived enforcement, meaning how likely firms thought tax evasion was to be detected; perceived facilitation, meaning how easy they thought compliance was; and trust, meaning whether they regarded the tax system as fair and reciprocal.
They then matched those responses against administrative tax records covering roughly 40,000 businesses in the same wards to see whether perceptions showed up in actual payment behaviour after the visit.
Opposite reactions to an identical visit
On average, the presence of a tax officer reduced trust in the tax system in the experimental group relative to the control group. Perceived enforcement and perceived ease of compliance did not differ substantially between the two groups on average.
That average concealed the sharpest result.
In areas where the state is less present in daily life, with schools, health facilities and transport networks further away, the officer’s presence appeared to act as a signal of state capacity: the intervention raised perceived enforcement and perceived facilitation relative to firms near public services.
But capacity did not translate into legitimacy. A visit could show taxpayers that the state was present without convincing them it was fair, reciprocal or responsive.
The clearest split ran between richer and poorer regions. In some of Tanzania’s wealthier regions, including Dar es Salaam, Mwanza and Mbeya, firms in the intervention group reported higher levels of trust than those in the control group.
In the poorest areas of the south and west, including Mtwara, Lindi, Kigoma and Katavi, intervention-group firms reported markedly lower trust.
The researchers attribute the divergence to what the tax officer represented in each local context. Where firms already interact regularly with state institutions, a visit could be read as part of a balanced relationship.
Where the state is largely absent except when it wants something, the same visit was interpreted very differently, exposing fragilities that already existed.
From perceptions to payments
On average, the intervention had little effect on whether firms paid taxes or on the amounts they paid. Broken down by region, the pattern repeated.
In the poorest areas, firms in the targeted 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, with weaker effects.
Across the sample, trust and tax compliance moved together: where contact with tax officers strengthened trust, payment behaviour tended to improve after the visit, and where trust fell, tax payments declined.
The authors draw five practical recommendations from the Tanzanian data.
They suggest assessing trust levels before deploying large-scale outreach, using indicators such as filing regularity, limited access to public services and prior contact with the tax authority to identify areas where trust is weakest and where a standard outreach visit is most likely to backfire.
They also recommend clearly separating assistance from enforcement, since in low-trust settings anything resembling an audit may be read as one whatever the intention.
In areas where trust is fragile, they argue, services should come before inspections, because a first interaction is more likely to build trust if it helps a business solve a problem such as obtaining a tax identification number, correcting a registration error or filing a complaint.
The remaining recommendations are to track trust and compliance together, and to link tax outreach to the wider image of the state by pairing it with credible information on public spending, taxpayer rights and avenues of appeal.
The researchers conclude that the current push in Africa toward less coercive tax outreach is broadly justified, but that how such programmes are designed is decisive.
Widening the tax base, they write, is not only about making the state more visible but about making it more credible.
Source: The Conversation
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