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Corruption in tax and revenue collection

Tax and revenue collection is an area open to damaging corruption. This is because taxation offers opportunities for both state officials and private actors to undermine government functions. For state officials, tax and revenue collection opens opportunities to take bribes and embezzle funds. Private businesses and individual taxpayers may corruptly influence officials to evade tax obligations and save large sums of money. Collusion between tax collectors and taxpayers can be highly profitable for both parties. But no matter who gains more, corruption in taxation is always to the detriment of the state coffers and leads to reduced public services for the broader public.

The corruption pressures

Bureaucracy and administration

On the bureaucratic or administrative side, tax collectors’ main corruption driver is the possibility of a hugely profitable collusion with taxpayers. Opportunities can come from tax laws being highly complex, revenue administration being non-transparent and/or non-accountable, loopholes, tax officials having extensive discretionary powers, and lenient punishment for offenders. Tax collectors can solicit bribes and embezzle tax money using their discretionary powers, and they can create hurdles and loopholes to pressurise or incentivise taxpayers to pay bribes. They can also be willing to accede to the pressures from private and corporate taxpayers.

Political interests

On the political side, the main corruption problem in revenue collection and taxation is the possible politicisation of revenue collection. There can be a political pressure to extract more – unduly and illegally – for the benefit of particular interests or purposes such as beefing up the president’s discretionary accounts and ‘slush funds’ or boosting the ruling party’s election campaign. It can also be politically opportune to give tax exemptions and leniency to certain people and their businesses, like those of political allies or certain politicians’ private companies. Officials can also hand out favourable tax and customs collection as a ‘piece of the cake’ (as an extraction opportunity) to loyalists and important regime supporters. We call this patronage and cronyism.

Some governments have also used heavy – even violent – tax collection methods and stiff penalties for alleged tax evasion as a tool to stifle political rivals, the opposition, the press, and certain NGOs. One example is that the Rwandan government presidential candidate Diana Rwigara was arrested on tax evasion charges immediately after she announced her candidacy so as to bar her from standing for election (The Economist 2017).

Private interests

On the private side, the high cost of many taxes – eg corporate taxes and taxes on high-income earners – tempt some actors to reduce the tax burden through corrupt influence on tax collectors and lawmakers. Tax administrations can be under substantial corruption pressure to show ‘leniency’. They may do so by accepting dubious loopholes and undue tax deductions, and granting sweeping ‘exemptions’ and ‘tax breaks’. Likewise, the pressure on politicians to create the legal and policy basis for leniency and exemptions can be considerable, even to the extent of regulatory capture and state capture.

When trust in government is low

Tax compliance is particularly lax when people have low trust in government legitimacy, efficiency, and policies. Weak and transition governments are particularly inclined to hand out tax and customs collection breaks to strategically important supporters, and to take advantage of the opportunities for embezzlement. Illegitimate governments are prone to politicised tax collection, tax collectors who embezzle on the regime’s behalf, and taxpayers’ corrupt tax avoidance. If you believe the government is corrupt and illegitimate, you will not find it morally wrong to cheat on your tax bill.

A study from 2018 found that stronger constraints on the executive – through checks and balances – foster the impartiality of tax systems in developing countries. At the same time, it did not find any robust evidence that they also improve its effectiveness (Ricciuti et al. 2018: 1). This means that democratic countries will have a more impartial – and probably more legitimate – tax system, but a less democratic political system may be as effective in collecting taxes. It is probably the case that governments with limited constraints on the executive are more likely to invest in the effectiveness of the tax system in order to mobilise greater revenues for their own benefit (rather than for greater public goods provision).

The effects of fiscal corruption

The effects of fiscal corruption can be pervasive and destructive. Large amounts of a nation’s taxable revenues can remain untapped, significant government revenues can be siphoned off, and the legitimacy of tax collection and of the state itself can be undermined and/or perverted. Then, compliance with tax laws and regulations will suffer further and encourage more tax evasion in a downward spiral.

In addition to eroding trust between government and citizens, corruption in tax administration remains a fundamental barrier to effective and fair taxation, to redistribution and fairness, and to provision of government services. Surveys on citizen experiences and how their perceive corruption within tax administration paint a worrying picture. For instance, more than 50% of respondents in several African countries say they have experienced corruption when dealing with tax administrations and custom officials (Martini 2014).

Corruption in tax administration might also help finance and reinforce illiberal regimes. It can be the raison d’être of authoritarian leaders as well as their lifeline. Without it, the regime might fall. When this is the case, there will be no political will to curb corruption in tax administrations – quite the contrary: there will be strong resistance.

Bangladesh is an example of an illiberal regime using tax-related corruption for political purposes: We describe a tax system that is highly informal, largely manual and characterised by high levels of discretion and corruption. However, despite appearing highly dysfunctional on the surface, this system serves the core interests of powerful political, economic, and administrative actors. Underpinned by robust informal institutions, the current system delivers low and predictable tax rates to businesses, provides extensive discretion and opportunities for corruption to the tax administration, and acts as an important vehicle for political elites to raise funds and distribute patronage and economic rents (Hassan & Prichard 2013).

The money saved and siphoned off in countries with weak tax regimes are often sent to tax havens and global financial centres. Bribery and theft by corrupt government officials and commercial tax evasion constitute two of the most important sources of illicit financial flows (IFFs). These flows drain much needed funds from developing countries and pose a major obstacle to development.

Taxes, rents, and the ‘social contract’

Taxation is usually seen as an element of the classic Lockean social contract between individuals and government. According to the social contract theory, people assent to pay taxes because they value what they gain from it. This is seen as a contract between government and taxpayers, between taxpaying citizens who demand service for their taxes and the tax-collecting government.

However, because paying taxes implies giving up a part of your personal income for the benefit of your co-citizens, taxation represents a classic collective action dilemma. As a result, not only is one’s relationship with the state an important determinant of tax compliance, but so is the relationship that exists between citizens.

Increasing tax revenue is an important aspect of development policy, as it is necessary for sustainable economic development. This requires tax compliance, and in order to increase tax compliance, it is vital to understand its determinants. A basic factor that affects tax morale is people’s understanding that they pay taxes in return for receiving public services.

In some cases, the traditional social contract does not function well at all. ‘Rentier states’ – states where most revenues accrue from external sources such as natural resources extraction and exports – tend to have much weaker tax systems than ‘fiscal states’ – those that collect a majority of their revenues from domestic private and corporate citizens. This is because the social contract does not function properly. Rentier states are not dependent on a tax-paying population, they can rely on taxing the few companies that do the resource extraction and export.

The link between taxpayers’ compliance and public social services is obvious. In 2021, the chairman of Nigeria’s Charted Institute of Taxation blamed the low compliance culture among taxable adults and businesses on lacking accountability and transparency around how the government spends its tax revenues.

The enablers

Citizens’ income and property tax

In developing countries, most problems with tax-related corruption are not linked to direct taxation of individual citizens’ income and property. The October 2021 Pandora Papers leak has exposed yet again how the world’s rich and powerful hide their wealth and avoid paying taxes. But individual taxpayers – apart from the few who are very rich – do not have the means to corrupt tax collectors, even in poor countries.

Besides, tax on private citizens’ income and property is very limited in most developing countries. In Africa, property taxes amount to only 0.38% of GDP on average, while in developed countries it amounts to 2.2% – according to the African Property Tax Initiative. Although the tax rate is typically around 30% in Africa, the tax receipts come almost entirely from wage withholding from the staff of larger enterprises and public sector employees. In most low-income countries the existing taxes on the wealthy are ineffectively administered, and revenue authorities often lack even the most basic information about the tax base for a potential wealth tax. The informal economy remains largely untaxed.

Corporate tax

Tax evasion by big corporations (local and international) and their many forms of sophisticated fraud, state capture, cronyism, and money laundering schemes have a much larger negative effect on government revenues. These crimes are often hidden behind complex legal structures and financial transactions facilitated by lawyers, notaries, accountants, financial institutions, and other professional enablers (see also France 2021). An accurate example of the devastating collusion between government officials at the highest level, private companies, and international enablers is the Luanda-leaks scandal. Here, journalists revealed how Isabel dos Santos, the daughter of Angola’s former autocrat, created a shell empire to move tainted billions, and how lawyers, accountants, and consultants made it possible.

Professional enablers

Professional enablers often play a critical role in the concealment of the commission of tax and other financial crimes perpetrated by their clients. Those who facilitate the concealment of such crimes undermine the rule of law and public confidence in the legal and financial system, as well as the level playing field between compliant and non-compliant taxpayers. Highly publicised recent tax scandals have highlighted the cross-border nature of these practices, further undermining public trust in the integrity of the tax system (OECD 2021).

Curbing corruption in tax collection

Corruption in tax and revenue collection is usually dealt with as a technical and bureaucratic problem. A multitude of public financial management reforms have been tried, over and over again. Many of these reforms have had little or no impact on corruption whatsoever, as they have only addressed the technical and fiscal levels and left the political incentives and drivers of corruption untouched. Political necessities – eg ‘accommodating’ strategic constituencies and friends for help to stay in power – tend to trump most technical and bureaucratic barriers aimed at preventing abuse. Without the political will to curb corruption in the tax administration, there are few chances that reforms and safeguards will succeed.

If political will to curb corruption in taxation is lacking – for instance when a government depends on it to survive – anti-corruption measures in tax-administration should only be a small part of a much broader approach to anti-corruption and democratisation. For example, in de-democratising countries – where democracy is backsliding because elected populists threaten democratic institutions and norms – traditional governance-focused anti-corruption reforms can be rolled back and even weaponised to cripple the opposition and oversight and control institutions.


If there is a political will to curb corruption, possible approaches include measures to:

  • Enhance the autonomy and capacity of tax agencies:
    – Establishing semi-autonomous tax agencies
    – Higher salaries for tax collectors
    – Training and better facilities
  • Reduce taxpayers’ interactions with tax officials:
    – Investing in technology and online solutions
    – Educate tax-payers
  • Improve internal control, audits, and oversight of tax administrations.
  • Encourage informants to report corruption.
  • Use credible penalties for noncompliance of tax subjects.

However, as with any anti-corruption efforts, these will have to be aligned with other necessary reforms to have the desired impact. One will have to identify:

  1. The underlying corruption drivers in the given context.
  2. The main forms of corruption taking place
  3. The main deficiencies in the current legislative framework and policies.
  4. Weaknesses in the current system of institutional coordination, oversight, and control.

Based on this analysis, targeted measures to mitigate the most severe corruption risks can be developed. (Recommendations based on Resimić 2021).


France, G. 2021. Professional enablers of illicit financial flows and high-risk service and jurisdictions. U4 Helpdesk Answer 2021:16, 15 August 2021

Hassan, M. and Prichard. W. 2013. The political economy of tax reform in Bangladesh: Political settlements, informal institutions and the negotiation of reform. ICTD Working Paper 14, November 2013.

Martini, M. 2014 Approaches to curbing corruption in tax administration in Africa. U4 Expert Answer. 2014:11.

OECD. 2021. OECD calls on countries to crack down on the professionals enabling tax and white collar crimes. Newsroom, 25 February.

Ricciuti, R., Savoia, A. and Sen, K. 2018. How do political institutions affect fiscal capacity? Explaining taxation in developing economies. Forthcoming in Journal of Institutional Economics.

Resimić, M. 2021. Corruption risks in tax administration. Liberia case study. U4 Helpdesk Answer 2021:17.

The Economist. 2017. Beware the taxman. Tax authorities are the latest tools of repression in Africa. 30 September 2017.


    All views in this text are the author(s)’, and may differ from the U4 partner agencies’ policies.

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