Bringing formal business laws to Cameroon's informal sector: lessons and cautions from the tax law example. (II. Formal Tax Law as the Laboratory for Formal Business Law's Implementation in the Informal Sector B. Tax Collection Is Deceptive Evidence of Formal Tax Law's Implementation in the Informal Sector through Conclusion, with footnotes, p. 293-320)

• Published date: 22 March 2014
• Author: Dickerson, Claire Moore
• Date: 22 March 2014

B. Tax Collection Is Deceptive Evidence of Formal Tax Law's Implementation in the Informal Sector

Based on responses we gleaned from interviewees, it appears at first that formal tax law has a direct impact even in the informal sector. Taxes mandated by formal law are actually imposed and paid--at least to some mandated "control" (audit), six complained of confusion, and another three said never to argue. Two of the vendors showed up in more than one category. degree. The question is whether the payment and collection of formal taxes is in fact due to formal law, and therefore, the extent to which formal tax law can be a template to ease other formal laws into the informal sector. If formal tax law is effective in the informal sector, the question is the extent to which formal business law, for example, can follow the same path.

1. Formal Tax Laws Are Violated Through the Tax Administration's Illegal Behavior, and Tax Workers ' Leakage

The interviewees did report paying formal taxes, but they also demonstrated confusion as to what they were paying for and to whom they were ultimately paying. Some interviewees even knowingly made payments in excess of those formally required, asserting that the tax authorities compelled them to do so. This is inconsistent with behavior that would normally result from full implementation of the formal laws. (110)

Although taxes are paid even by those at the bottom of the economic spectrum, the interviewees reported significant failure on the part of the government and its tax collecting agents to respect the formal law as contained in the Code. We have seen a taxpayer forced to pay both the license and the discharge tax, although these are mutually exclusive, (111) and other taxpayers were denied receipts mandated by the formal law. Even in these cases, the government's failure to respect the law was in the context of the formal law and due to many causes, including a refusal to recognize either that formal law exists, or the substance of that law. The only way to know that a taxpayer's payment was for the business license or for the discharge tax was by reference to formal law, even if they were mutually exclusive taxes. The only way that the tickets of 100 FCFA were generated was by reference to formal law, even if no receipts were delivered. Thus, formal tax law does have an impact even in the informal sector.

On the other hand, the impact of formal tax law in the informal sector is unpredictable because the law is not applied consistently, and thus is not the same as full implementation. Law can of course be flouted in a predictable way, but that does not seem to be the case here. Of the taxpayers who spoke about receipts, four said they received a receipt for each tax payment. However, one received a receipt only "sometimes," another taxpayer never received one, and a third claimed to have received a receipt for 10,500 FCFA against a 35,000 FCFA payment. (112)

Two other indications of unpredictability--in fact of arbitrariness--concern the actual amounts paid. Two interviewees described tax collectors who demanded a supplemental payment because they had to come to the taxpayer in person. I found no ground for such a payment in the formal law, and the amounts charged were inexplicably different. In one case, an interviewee was charged 200 FCFA per collector-visit to an enclosed store at the edge of a large, well-established market in Douala, the commercial capital; in the other, a different interviewee was charged 5000 FCFA per visit to a much less permanent outdoor stand from which items of apparel were sold in Douala's largest market. (113) Another instance of unpredictability concerns the one taxpayer out of the twenty, who described being subjected to a mutually exclusive, double tax burden. (114)

Thus, formal tax law is present to some degree: it informs the characterization and some of the amounts of tax. Nevertheless, the myriad ways in which the government and its representatives bend or frankly contravene the law, present a picture not consistent with fully implemented formal law. Similarly, we have seen that at least some taxpayers were sufficiently informed of the formal statute to use it as a shield by hiding some of the tools of the trade in order to be given a lower category of discharge tax. (115) However, even this behavior is practical opportunism rather than the confident application of formal law as protection against unauthorized demands for tax payments. Meanwhile, others knowledgeable in the law simply recognized that the government was compelling payments unauthorized by formal law. Taxes are collected in the informal sector, but this is not evidence that the tax authorities have implemented formal tax law in the informal sector.

2. From the Taxpayers' Perspective: The Money Engine, Not Formal Tax Laws, Drives Tax Collection

Of all twenty interviewees, only one suggested that paying taxes is a natural obligation in exchange for services from the government, citing trash pickup as an example of a government service. This interviewee, as a former civil servant, may have had a relatively good opinion of the government, especially as the vendor's spouse remained in government employ. These government posts are very much sought-after. (116)

In general, not only did the interviewees discuss the tax authorities' failure to act predictably, transparently, or even in compliance with formal law, but they also reported a significant awareness of government power. Two taxpayers mentioned that the collectors who came to their places of business to audit also requested to borrow money--a request the interviewees evidently felt unable to refuse. Other evidence of coercion included paying taxes without a receipt, although formal law required such receipts. (117) Three interviewees explained that they received no receipts, and another claimed to have been handed a receipt for less than a third of the actual payment. (118) The interviewees may be poor, but they have been in business a long time; given their long experience, acquiescence to the lack of receipt implies some degree of duress.

In another case an interviewee stated that the tax collectors who had come to the store had insisted that the sum they requested be paid or the store would be "sealed" (closed). (119) A visit to the assessor brought no relief, and the payment had to be made. This interviewee explained that the computation of the discharge tax was on capital, referring to the tools of the trade, and expressed a preference for revenue-based taxation. In fact, for that interviewee's profession, the formal tax law determined the category of discharge tax based on the number of employees, not the amount of capital, so neither the tax collectors nor the interviewee correctly understood the formal law. After the taxpayer unsuccessfully sought relief from the collector-demanded improper tax calculated using improper inputs, the taxpayer succumbed to the threat of closure and paid the requested amount. Unable to pay both the tax collector and the private landlord, the interviewee paid only the first.

Not all efforts to obtain accountability were unavailing, however. An interviewee reported that some years ago, the local Council demanded vendors selling particular goods in a market to pay a fee imposed on each unit of product rather than the daily fee of 100 FCFA. The Tax Code does not provide for imposition based on that unit of product: assuming that other criteria are met, a daily fee of between 100 FCFA and 500 FCFA is the appropriate measure of tax. (120) When all the similarly situated vendors refused to sell their goods in that market, the local tax authorities capitulated after a month. On balance, the cost to the vendors must have been deemed too high, as the interviewee indicated no desire to participate in such a job action ever again; this is a measure of the taxpayers' perception of government power.

Interviewees used other ways, too, of responding to government power. Two interviewees expressly stated that they bribed tax collectors to reduce payments. The group of six other interviewees who, as mentioned above, had sought relief from an illegal simultaneous imposition of both the business license and a discharge tax, resorted to self-help as well, and began to pay bribes after the authorities at the city hall refused their request for relief. (121)

There was even one reported successful attempt to obtain increased services from the local government. (122) A group of fifteen from the same market had gone to city hall to request a service, namely a weekly pick-up of trash for which they said they had paid through their taxes, (123) and obtained satisfaction. Arguably, the positive impact of receiving the public-goods benefit overcomes the negative of having to fight for what is rightfully theirs. On the whole, however, the tax-collection machine uses government power as the tool for obtaining tax payments.

This tax-based money-generating engine has a characteristic that encourages its deployment by a government that has an imperfect structure and a clear hunger for revenues: it collects its own fuel. Not only does the process have the power of the government behind it--a government that needs the tax revenues--but the tax collectors, too, as individual representatives of the government, operate in an environment where they share their employer's incentive to perform at a high level of efficiency. (124) Indeed, through bribery and failure to issue receipts, the tax collectors can divert more money to their own pockets by being arbitrary but effective in extracting payments--so long as the government does not catch them and punish them.

There are tax administrators who express a desire to see more rigor. (125) According to the interviewees, however, the individual tax-workers exercised governmental power to collect more than what formal...