Written by Andrew Wainer, Director, Policy Research at Save the Children
The Addis Tax Initiative (ATI) was launched in 2015 in Ethiopia with developing nations as key signatories, but – like other global agreements – it faces challenges translating global dialogue in Berlin, New York and Paris to better tax policy in Nairobi, Monrovia and Tbilisi.
This challenge to operationalize the ATI is daunting, but national-level tax policy and administration is only part of the solution for transforming tax into an engine for financing well-being in developing countries.
Services including health and education are delivered to citizens at the local level and tax and spending at the sub-national level is where most citizens are impacted by fiscal policy that is either fair or regressive.
To ground its commitment of increased, transparent, and accountable DRM, the ATI is monitoring how developing country governments are increasing domestic revenue for inclusive development. But, so far, analysis of sub-national level domestic resource mobilization (DRM) is largely absent from this analysis.
The role of sub-national tax authorities is certainly difficult to track, but, to be relevant to the citizens’ ground truth, the should ATI integrate local tax policy and administration.
Bungoma County, Kenya
Even at the national level in Kenya, and other signatory counties, the ATI requires further understanding and integration – it’s not yet well-understood by many fiscal policymakers and implementers. There is a need for increased ownership at the national level.
But Save the Children, working with civil society, small business groups, and county assemblies on DRM in Bungoma County, Kenya, has found that citizens are best able to educate and influence policymakers – using the Addis Tax Initiative banner – at the local level.
Revenue generation capacity at the county level in Kenya remains low, with some reports that it is actually decreasing, even after the country’s 2010 devolution law. But in Bungoma County, motivated citizen groups are filling the gap, helping shape tax policy where local government capacity is low.
Civil society can be helpful intermediaries on local level DRM to both increase tax compliance and contribute to tax policy accountability, transparency, and inclusiveness.
Specifically, Save the Children is working with the Bungoma County Child Rights Network (BCCRN), small and micro-entrepreneurs (including women-owned businesses) and the local country assembly to improve local tax collection, making it more transparent, accountable, and pro-poor. It’s already paying dividends in increased tax compliance.
In Bungoma, the main sources of local revenue include business permits and market fees. The BCCRN started with these existing tax laws, working to increase revenue activities through analysis, advocacy, and stakeholder education, including on the Addis Tax Initiative.
The result is lower market fees, creating rates that are less onerous for small-business owners with slim profit margins, and, at the same time, expanding tax compliance among these groups as taxes are reduced to rates they are better able to pay. Because taxpayers are involved in the policy discussions they are also more bought-in to the policies and apt to comply with tax regulations they played a part in shaping.
This was accompanied with increasing rates on local supermarkets, who enjoyed large profit margins and were undertaxed, according to local citizen analysis. These civil society proposals were taken up by the local county assembly.
The ATI and Progress on DRM in Kenya
Civil society in Bungoma County is just getting started with tax policy advocacy, but Kenya, at all levels, is showing signs of progress. Further training could help civil society to partner with local government to enhance property taxes – another source of local revenue that is badly underutilized in Kenya.
And while civil society can support local tax authorities “from below” there is also a need for assistance from and alignment with national tax bodies “from above” such as the Kenya Revenue Authority. County level tax officials need national guidance on revenue generation strategies and medium- and long-term tax policy plans.
To maintain progress, the Kenya government and other ATI stakeholders should make advancements in two areas:
- Support local civil society. Civil society groups are crucial intermediaries between local government and citizens. Trusted local organizations can build trust and participation between local tax collection authorities and tax payers, improving tax compliance, fairness, and accountability.
- Support for sub-national DRM. Most citizens encounter the impacts of taxing and spending at the local level. Increasing domestic revenues at this level can enhance budgets for local public service delivery. ATI should include sub-national domestic resource mobilization into its mandate, analysis and goals.
Civil society is already making a difference for tax policy and administration. The ATI would be wise to tap into this local source of change to ensure that its global discussions make a difference at the community level.