What Is Wrong With the Fiscal Social Contract of Taxation in Developing Countries? A Dialogue With Self-Employed Business Owners in Nigeria

Abstract

Contemporary societies are bound in a fiscal social contract between citizens and their elected governments who administer the states in the interest of all members. The fiscal social contract implies that citizens should pay tax which is utilized by government to execute programs for the collective good. While the advanced countries have done a better job of mobilizing tax as a resource for societal development, developing countries have performed poorly. A large number of high-income earners in developing countries avoid the tax system thus hampering development efforts. Previous studies have alluded to a culture of tax evasion among citizens of developing countries as a key factor influencing noncompliance. However, this study argues that these studies did not reach the best conclusion as their methodology excluded the taxpayers’ narratives. We interviewed self-employed taxpayers in Nigeria’s capital city, Abuja. Results of the analysis revealed taxpayers’ frustration with an opaque tax system, deplorable socioeconomic condition, and nonfunctioning of the tax audit system. We argue that the massive tax noncompliance in developing countries may be better understood as “tax boycott” arising from taxpayers’ frustration with the fiscal social contract of governance. Policy implications of the findings were discussed in the concluding section.