Enforcement, facilitation and trust: why pay taxes?

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The government of Kaduna State, Nigeria, has been working to increase tax collection by broadening the tax base, investing in technology and modernization, and implementing large-scale policy and administrative reform. These efforts have substantially improved the business environment and increased revenue collection. Yet, there is still significant room to boost voluntary tax compliance. 

At the request of the State government, the World Bank used an innovative approach to identify the binding constraints on tax compliance—specifically, what causes people to pay their property taxes, and what causes non-compliance? The approach, which was laid out in a working paper last month, provides important insights for policymakers in Kaduna and elsewhere. It also shows that Kaduna is on the right track in its property-tax reform efforts, although it’s essential for the state to build on momentum to  strengthen trust and enforcement.

Traditional approaches yield mixed results

Trust is typically not part of traditional approaches to tax reform, which tend to focus on strengthening compliance through investments in enforcement and facilitation, in ways that are heavily informed by international good practices. This suggests a relatively straightforward logic: (1) identify contexts in which there appears to be political support for reform; (2) invest in strengthening tax enforcement and facilitation based on international good practice; and (3) expect that higher revenue collection will, ultimately, be translated into broader public benefits. But the results of these approaches around the world have been decidedly mixed.

Trust matters

Strengthening enforcement and facilitation are critical to any reform program. Yet emerging evidence points to the value of an expanded focus on trust-building. Research demonstrates that expanded trust can increase tax morale and voluntary tax compliance. For example, a recent World Bank global survey experiment finds sizable improvements in tax morale when democratic accountability is strengthened. Other research shows that attitudes towards tax compliance are correlated with service provision across Africa, and that participatory budgeting can increase tax revenue in Brazil.  Building trust is also likely to be essential to mobilizing political support for reform, as skeptical citizens gain confidence that they will benefit from the expansion of public revenues, and that everyone is paying their fair share.

Linking enforcement, facilitation and trust

How can governments incorporate the trust dimension into the design of reform programs aimed at improving tax compliance? Together with the International Centre for Tax and Development and with support from the Bill and Melinda Gates Foundation, the World Bank published a new paper last month, Innovations in Tax Compliance. The paper develops the Enforcement, Facilitation, and Trust (EFT) framework to address this question. It lays out a holistic approach to tax reform that emphasizes three key analytical questions to guide reform in particular contexts: 

1.    Analyzing local drivers of trust: what are the key barriers to expanded trust and thus to improved voluntary compliance and political support for reform? Overcoming the barriers involves addressing perceptions of fairness, equity, reciprocity and accountability.
2.    Practical political economy: what are the most important political barriers to reform, and how can reformers navigate these barriers—or seek to mobilize political support to confront them?
3.    Binding constraints: what are the most important and binding constraints to reform, and how can they be strategically targeted in order to spark gains in trust and political support?

The end goal is investments in enforcement, facilitation and trust that are mutually reinforcing. Expanded trust can underpin a push for stronger enforcement, while fairer and more equitable enforcement is critical to expanding trust. 


The EFT approach remains a work in progress, but the assessment of Kaduna’s property tax system shows that the approach provides useful insights for reform. Boosting the staffing and capacity of key tax offices can help strengthen enforcement. So can improving the flow of information between the taxpayer and government offices, and between government institutions. 

Expanding enforcement can be a double-edged sword. More universal, consistent, rules-based enforcement can improve attitudes toward compliance, by improving perceived fairness. But effective enforcement depends on eliminating perceptions of unfairness and providing strong dispute-resolution mechanisms such as tax tribunals. Simply adopting more aggressive penalties can be counterproductive.

The EFT approach in Kaduna buttressed the case that effective tax collection depends significantly on trust. The key test will be whether the approach translates into better tax reform advice and design in additional pilot programs. The World Bank’s EFT program is trying to find out how to kickstart positive feedback loops between trust and tax compliance in countries across the developing world.


Wilson Prichard

Associate Professor of Global Affairs and Political Science, University of Toronto

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