TY - JOUR
AU - Hillbom, Ellen
AB - Abstract Many Sub-Saharan African countries are unable to generate sufficient tax revenues for public purposes. While it is widely accepted that governments’ ability to tax is shaped by politics, the precise mechanisms through which this relationship takes place in practice remain elusive. Based on a historical analysis of four major tax reforms in Ghana from the 1850s to the late 1990s, this article captures the various ways in which taxpayers negotiate with the state in an attempt to limit the extent of taxation, especially in cases where state reciprocity falls short of what people expect. Our evidence suggests that, far from being a recent development, effective taxation in Ghana has long depended on the ability of the state to convince taxpayers that tax revenues will be used for the public benefit. A history of misappropriation of tax revenues, overt corruption, and profligacy diminished taxpayers’ support for governments’ tax efforts. More generally, the article points to the importance of understanding how tax bargaining works in practice and people’s perceptions of their governments over the long term to overcome resistance to tax reforms. Fiscal capacity is essential for state-building and economic development as it provides the financial means for states to invest in infrastructure, support systems of production, human capital, and strengthen institutions. Many Sub-Saharan African countries, however, tend to lack the capability to mobilize sufficient revenues to finance the provision of these public goods. In 2016, Sub-Saharan Africa’s average tax revenue as a percentage of gross domestic product (GDP) was 15.47 percent. For OECD countries, the figure stood at 26.15 percent.1 Traditionally, scholars identified administrative and technical challenges and Sub-Saharan Africa’s weak economic structure as the main causes of the region’s poor tax performance.2 Others argued that the root causes could be traced to the legacies of colonialism. The different forms of incorporation of indigenous populations into the colonial order left an institutional and infrastructural residue that continues to determine governments’ tax policies and tax capacity.3 In recent literature on taxation and tax reforms in developing countries, however, it is widely accepted that the state’s ability to tax citizens is equally shaped by politics.4 Political bargaining between actors over the development, implementation and enforcement of fiscal contracts, government responsiveness and accountability are decisive for the success of tax reforms and the state’s fiscal capacity.5 Although the impact of politics is uncontested, the precise mechanisms through which it affects fiscal capacity remain elusive. To explore how politics has played out in practice, we conduct a longitudinal study of tax reforms in Ghana extending from the 1850s until the 1990s and investigate the political determinants of the state’s fiscal capacity and the specific processes through which politics has influenced taxation. Since the British establishment of a state apparatus in the 1850s, Ghana has seen several recurrent instances when the state made explicit concessions to taxpayers in response to the reality or threat of opposition from interest groups.6 We examine how the interactions between the state and various actors historically shaped the state’s ability to tax and taxpayers’ willingness to comply. Our analysis focuses on four major state-led tax reforms. We start with the colonial government’s attempt to introduce direct taxation in the form of a poll tax in 1852 to compensate for inadequate indirect tax revenues. Second, we consider the income tax reform initiated in 1931 and completed in 1943, motivated by declining export revenues due to a fall in cocoa prices. Third, we analyse the processes of cocoa taxation and the levying of several taxes between 1951 and 1966 by the independent state to finance the industrialization efforts of Nkrumah’s developmental state. Finally, we consider the introduction of a value-added tax (VAT) between 1995 and 1998. The study is principally qualitative drawing on primary data from both contemporary and archival sources, such as colonial correspondences, Colonial Blue Books, Income Tax Department Reports, colonial and present parliamentary records, as well as additional secondary literature. We find that the Ghanaian state’s fiscal capacity has been consistently limited by its inability to secure political support for its revenue mobilization efforts. A history of misappropriation of tax revenues, overt corruption and profligacy diminished citizens’ support for governments’ tax efforts. Hence, tax reforms were often met with violent protests, strikes and demonstrations by various interest groups and social classes, weakening governments’ tax capacity. Our contribution to the existing literature is 3-fold. First, we place the importance of politics and fiscal contracts to tax reforms and the state’s fiscal capacity in a long-term historical perspective and show that the design, implementation and successful enforcement of tax policies have long depended on the ability of the state to demonstrate that tax revenues would be used for the public benefit. Whereas some recent studies show that bargaining between citizens and governments over taxation was particularly common in Ghana relative to other sub-Sahara African countries, we show that tax bargaining is entrenched in a much longer history.7 In this respect, Ghana is somewhat unique in comparison with its neighbouring countries. Second, while it is generally accepted that politics matters for tax reforms and that the extent of state reciprocity affect taxpayers’ willingness to comply with tax obligations, this article highlights the varied and complex ways in which that has played out in practice. We show how taxpayers negotiated with the state in an attempt to limit or shape the extent of taxation in instances where the state’s reciprocity fell short of what taxpayers anticipated. Third, we show that throughout history local processes shaped tax performance: the interactions between the state’s fiscal ambitions and the responses of interest groups. Hence, weak fiscal capacity is not solely the making of the ‘dead hand of the past’ or exclusively path-dependent, but rather shaped by actors who make history all the time. In the next section, we provide a brief summary of previous literature on the determinants of the state’s tax capacity and present our conceptual model. Subsequently, we introduce the Ghana case and describe tax performance over the long term. We then use the four historical cases of tax reforms to shed light on the nature of political contestation over taxation in Ghana. Overall, our article demonstrates that reciprocity and fiscal contracts between governments and society are the foundation of effective taxation. The determinants of fiscal capacity In the political economy literature on taxation, explanations of taxpayer compliance are usually based on a number of related political economy models.8 The classic economic deterrence model views taxpayers’ decision to pay or evade taxes as dependent on their calculations of the potential benefits of evasion as against the likely costs of non-compliance.9 Given the prospect that tax evaders are rarely caught and penalized, this model, however, is unable to precisely explain why people pay taxes and may predict a higher rate of non-compliance than is actually observed.10 Further, social influence theory suggests that a taxpayer’s behavior is determined by the conduct and social norms of their reference group.11 However, our understanding of why social relationships influence taxpayer behavior is limited.12 Additionally, the comparative treatment or equity theory posits that individuals who perceive that they and their group (defined by age, education, wealth, religion, and ethnicity) are fairly treated by the government are more likely to pay taxes.13 In our study, we focus on the fiscal exchange theory that views taxation as a bargained exchange between governments and taxpayers, that is, the payment of taxes in return for both tangible public goods such as education, health care, and infrastructure and intangible public goods such as political representation, and law and order.14 Tax compliance is likely to increase when taxpayers perceive that they receive corresponding benefits from the state. The conceptual model we apply in our analysis of the success and failure of fiscal contracts (summarized in Figure 1) is based on Margaret Levi’s seminal work on the development of states’ fiscal capacity, legitimacy, and tax compliance.15 The model shapes our analysis of the development, implementation, and enforcement of tax reforms and the extended success and failure of fiscal contracts over time. Figure 1 Open in new tabDownload slide Conceptual model: Development of fiscal contact Figure 1 Open in new tabDownload slide Conceptual model: Development of fiscal contact Levi hypothesized that governments seek to maximize revenues and their ability to do so is constrained by their relative bargaining power, transaction costs, and discount rates.16 Of the three, we focus on ‘bargaining power’ that in Levi’s model refers to the extent to which ‘interest groups’, the government as well as other actors, control economic, political, and coercive resources on which others depend. Each interest group’s bargaining power changes over time depending on the extent to which they independently control key resources. For example, governments are most often economically dependent on the skills, knowledge, and labour of individuals and so their fiscal choices are often influenced by the probability of strikes, protests, and other work disruptions. The government’s bargaining power may also decrease when there are contenders to the allegiance of members of the society, and in democracies, governments tend to become more vulnerable and dependent on society in times of elections.17 Successful tax negotiations require that each interest group be consulted in a manner that corresponds to its bargaining power. Tax negotiating and bargaining processes result in a ‘fiscal contract’ or a ‘productive contract’ between taxpayers and the government.18 In this ‘contract of reciprocity’ taxpayers are expected to pay taxes to finance the activities of government.19 However, the free-rider problem arises when a fiscal contract is established.20 Parties to the contract may want to receive benefits without paying their taxes and enforcement of the contract therefore becomes problematic. The government can ensure compliance in three ways: by the use of coercion, by the creation of quasi-voluntary compliance, and by establishing and maintaining norms of compliance (ideological compliance).21 When it is illegal to evade taxes and where people who do so face severe sanctions, compliance is likely to increase. However, it is costly to use coercion to ensure compliance.22 Technologies for monitoring, auditing, and identifying the non-compliant are not always cost-effective and efficient. Governments can reduce the costs of enforcement by creating conditions that encourage taxpayers to engage in ‘quasi-voluntary compliance’. According to Levi it is ‘voluntary’ because ‘taxpayers choose to pay’ and it is ‘quasi-voluntary’ because ‘the non-compliant are subject to coercion- if they are caught’.23 Quasi-voluntary compliance depends on the ‘legitimacy’ of the state and of the bargaining processes, and ‘government efficiency’. Taxpayers are more likely to pay taxes when they perceive the government to be legitimate. Legitimacy as used here connotes citizens’ beliefs in the ‘normative appropriateness of government structures, officials and processes’.24 Where legitimating beliefs exist, citizens would accept that the state has the right to impose taxes and tax compliance is likely to become more habitual.25 Conversely, the less citizens consider the government to be legitimate, the less they will accept their obligation to give it the taxes it needs to govern.26 To create and produce legitimacy, government must be efficient in the subjective opinion of their citizens, that is, fulfill its part of the fiscal contract and provide valued benefits in return for tax payment.27 Where state officials use public funds for private gain or the costs of public goods are unduly inflated, it undermines citizens’ perceptions of government’s legitimacy and their willingness to comply.28 As our analysis shows, this has been a recurrent issue in Ghana. In addition, quasi-voluntary compliance is likely to occur when the state demonstrates that the tax system is fair. Norms of fairness are undermined when the state favours special interest groups, when the return for taxpayers’ taxes declines, and when some parties to the fiscal contract fail to keep their bargains.29 The state may use coercion to enforce compliance when taxpayers become dissatisfied with the fiscal contract as a result of the state’s inefficiency and unfairness of the tax system. But as more people consider non-compliance, it becomes more costly to use coercion.30 Finally, the combination of who produces what in the domestic economy, and how production is organized conditions what kinds of taxes governments can collect and affect the state’s fiscal capacity. Price fluctuations in international trade and global political economy factors also affect the revenue options of the state. However, these factors are exogenous to the model and thereby described when relevant, but they are not analysed per se. In our study of Ghana’s four tax reforms, the regime changes over time from a colonial state, to Nkrumah’s one-party system and the multiparty democratic system established in 1992. These regimes differ significantly in their ideological and institutional set-up, and while the type of state has an impact on fiscal capacity,31 our analysis does not focus on the type of regime by definition. Instead, we focus on the common denominators of the various regimes: their desire to optimize tax revenues and how they interact with various interest groups to establish and enforce fiscal contracts. Fiscal capacity over time in Ghana In theory, economic growth drives an increase in tax revenues as it widens the tax net and expands the tax base. A growing economy thereby translates into a rise in the absolute amounts flowing in to the government coffers, but it does not automatically ensure improvements in tax capacity, as measured by tax revenues to GDP.32 The significantly higher tax revenues found in the developed Global North compared to the developing Global South is explained by both higher levels of economic growth and higher tax-to-GDP ratios. Austria, Denmark, Finland, France, and Sweden are not only some of the wealthiest countries in the world, but they also have high total tax revenue-to-GDP ratios of about 28 to 45 percent.33 Consequently, developing countries can increase their tax revenues either by initiating economic growth or improving their fiscal capacity, or optimally by doing both. Between 1983 and 2000, Ghana recorded annual growth rates averaging 4.7 percent. Growth rates improved to an average of 7.2 percent between 2000 and 2013, with an all-time high of 14.4 percent in 2011 when commercial oil production commenced.34 While the GDP growth rate began to decelerate in 2014, it picked up again and was 8.5 percent in 2017. The last two decades of economic progress have been important for increasing tax revenues, but the country’s total tax revenue as a share of GDP has remained modest in both global and regional perspectives. It increased from 4.52 percent in 1990 to 12.38 percent in 2016, below Sub-Saharan Africa’s average of 15.47 percent in 2016.35 Further, as Table 1 shows, the country continues to rely on indirect taxes for much of its tax revenues. Table 1 Ghana: Total tax revenue by component, share of GDP, 1990–2015 . 1990 . 1995 . 2000 . 2005 . 2010 . 2015 . Total taxes 4.5 6.5 7.1 10.3 9.8 11.7 Direct taxes 1.1 1.6 2.3 2.9 3.9 4.2  Income taxes 1.1 1.4 2.3 2.9 3.9 4.2   Personal income tax 0.4 0.5 0.9 1.2 1.8 2.0   Corporate income tax 0.7 0.9 1.1 1.4 1.8 2.1 Indirect taxes 3.4 5.0 4.8 7.4 5.9 7.5  Value-added tax 2.0 3.3 3.1 4.0  Excise taxes 1.7 1.2 2.1 0.6 1.3  Trade taxes 1.9 2.1 1.6 2.0 1.9 1.9 . 1990 . 1995 . 2000 . 2005 . 2010 . 2015 . Total taxes 4.5 6.5 7.1 10.3 9.8 11.7 Direct taxes 1.1 1.6 2.3 2.9 3.9 4.2  Income taxes 1.1 1.4 2.3 2.9 3.9 4.2   Personal income tax 0.4 0.5 0.9 1.2 1.8 2.0   Corporate income tax 0.7 0.9 1.1 1.4 1.8 2.1 Indirect taxes 3.4 5.0 4.8 7.4 5.9 7.5  Value-added tax 2.0 3.3 3.1 4.0  Excise taxes 1.7 1.2 2.1 0.6 1.3  Trade taxes 1.9 2.1 1.6 2.0 1.9 1.9 Source: ICTD/UNU-WIDER (2019). Open in new tab Table 1 Ghana: Total tax revenue by component, share of GDP, 1990–2015 . 1990 . 1995 . 2000 . 2005 . 2010 . 2015 . Total taxes 4.5 6.5 7.1 10.3 9.8 11.7 Direct taxes 1.1 1.6 2.3 2.9 3.9 4.2  Income taxes 1.1 1.4 2.3 2.9 3.9 4.2   Personal income tax 0.4 0.5 0.9 1.2 1.8 2.0   Corporate income tax 0.7 0.9 1.1 1.4 1.8 2.1 Indirect taxes 3.4 5.0 4.8 7.4 5.9 7.5  Value-added tax 2.0 3.3 3.1 4.0  Excise taxes 1.7 1.2 2.1 0.6 1.3  Trade taxes 1.9 2.1 1.6 2.0 1.9 1.9 . 1990 . 1995 . 2000 . 2005 . 2010 . 2015 . Total taxes 4.5 6.5 7.1 10.3 9.8 11.7 Direct taxes 1.1 1.6 2.3 2.9 3.9 4.2  Income taxes 1.1 1.4 2.3 2.9 3.9 4.2   Personal income tax 0.4 0.5 0.9 1.2 1.8 2.0   Corporate income tax 0.7 0.9 1.1 1.4 1.8 2.1 Indirect taxes 3.4 5.0 4.8 7.4 5.9 7.5  Value-added tax 2.0 3.3 3.1 4.0  Excise taxes 1.7 1.2 2.1 0.6 1.3  Trade taxes 1.9 2.1 1.6 2.0 1.9 1.9 Source: ICTD/UNU-WIDER (2019). Open in new tab Since the 1960s, Ghana has consistently experienced fiscal imbalances, causing the country to become highly aid dependent.36 Between 1960 and 2014, the average government total revenue as a ratio to GDP was 16.3 percent, while government expenditure was approximately 19 percent of GDP on average.37 Since independence in 1957, there have only been 11 years of marginal budget surpluses (averaging 1 percent surplus to GDP).38 Tax revenues have consistently fallen short of budget estimates. In 2016, total tax revenue in Ghana was GH¢25,729 million, equivalent to 15.2 percent of GDP, falling short by 11.7 percent of the budget target of GH¢29,129 million, or 17.5 percent of GDP.39 With insufficient increases of tax revenues to balance the budget, there have been calls for a reduction in public expenditures. Budget cuts are, however, problematic, as the government needs to continue investing in health, education, and infrastructure to fight poverty and growing economic inequality as well as to keep its end of the fiscal contract. In its tax mobilization efforts, the Ghanaian state has so far addressed administrative and technical bottlenecks. In the 1980s and 1990s, it focused on enhancing the autonomy of revenue collection institutions, reorganizing tax institutions along functional lines, and ensuring monitoring and supervision of tax collection institutions.40 The state has sought to boost tax revenues by strengthening tax administration, reducing tax exemptions, seal tax loopholes, and combat tax evasion.41 A redesigned National Identification System was rolled out in September, 2017 to bring on board economically active but undocumented citizens and to rope in the informal sector of the economy, thereby broadening the tax base. Ghana’s current weak fiscal capacity has a lengthy history. Although Ghana was one of the fastest growing economies during the colonial era, taxation, particularly of incomes, was least developed.42 It was not until 1943 that direct taxation was introduced and in 1958 personal income tax was paid by only 10,000 individuals in a total population of 6 million.43 A comparative assessment of different tax rates for various income brackets showed that Ghana’s income tax in 1960 was among the lowest in the world in spite of its high per capita income of £70.44 The colonial state responded to failed tax reforms by relying heavily on trade taxes and subsequent governments continued with this strategy. Eboe Hutchful argues that independent Ghana inherited a ‘social compact’ constructed in the last decades of the colonial era when the administration increasingly assumed a developmentalist role.45 The process of decolonization pitted a lower class of teachers, civil servants, traders and small businessmen against the intelligentsia, rural cocoa elites, chiefs, and urban businessmen. A ‘populist nationalist stratum’ emerged that favoured a strong central government that plays an active role in guiding economic development and provides social welfare benefits such as free or subsidized education, health and housing.46 In the historical analysis that follows, we show that this social compact has a much longer history and the state’s consistent inability to meet its part of that compact accounts for its weak fiscal capacity. Poll tax, 1852–1861 The poll tax was the first attempt in the Gold Coast by the colonial administration to complement revenues from indirect taxes with direct taxation. This was to help support the government machinery and provide public goods to the coastal communities that had submitted to British rule for protection from then powerful Ashanti kingdom.47 Given its weak administrative structure and lack of direct control over inland areas, the colonial administration saw the need to build relationships with existing influential interest groups. The British concluded that the successful implementation of their fiscal policy depended on the consent and direct cooperation of the powerful local chiefs. Chiefs embodied the collective authority of the people and derived their legitimacy from descent and by their monopoly of material and spiritual means of coercion. They wielded both economic and political power and the colonial state needed to bargain with them to pursue its fiscal goals. At a meeting in April 1852, a fiscal contract was negotiated where the chiefs ‘acting on behalf of themselves and their people’ agreed to pay an annual sum of 1 shilling per head for every man, woman and child under British protection.48 The agreement stated that revenue from the tax, after the payment of stipends for chiefs and collection expenses, was to be devoted to the public good through investments in education, health care, the judicial system, and development of internal communications. Contrary to earlier advice by the then Secretary of State, collection of the tax was not entrusted to the chiefs, who it was thought would use the authority conferred on them to extort large sums from their people.49 Instead, the Governor with the support of the chiefs appointed independent tax officers, and the chiefs were to be informed on matters relating to the administration and expenditure of the tax revenues. In this regard, the Gold Coast’s experience departs from other British colonial territories in what is now Kenya, Uganda, Nigeria, and Botswana. Given the structure of the economy and their poor monitoring capacity, colonial authorities in those territories rarely used centralized bureaucracies to collect taxes. Instead, they kept their tax collection and administration costs low by decentralizing the collection of direct taxes to chiefs or tax farmers.50 While such a system created opportunities for corruption and rent-seeking, which in turn could undermine compliance, it reduced the costs of monitoring and enforcement.51 In the Gold Coast, about 25 percent of the tax revenues covered collection expenses and an additional 60 percent was used to pay the salaries of colonial officials and stipends for chiefs, leaving little to be invested in public expenditures.52 Out of the realized proceeds of £6,656 in the 1852–1853 financial year, only £45 was spent on schools and £470 on roads. The government failed to keep its part of the fiscal contract and did not provide the expected public goods the chiefs had bargained for in exchange for the payment of the poll tax. Because of its inefficiency, the people became unwilling to comply with the tax. In April 1861, the collection of the tax ceased due to successive violent protests led by the chiefs against the payment of the tax.53 The tax was expected to yield £20,000 annually, but during the eight years that it remained in force only £30,286 was collected.54 The chiefs complained to the Special Commissioner who was appointed to enquire into the failure of the poll tax that none of the improvements which they had been promised had taken place.55 Besides, the government had neglected to consult the chiefs with regard to the expenditure of the money collected. When the colonial administration began collecting the poll tax, it abandoned the principle of representation to which it had adhered when revenue was needed. The Legislative Assembly that had been constituted for the passing of the Poll Tax Ordinance did not meet again after 1852.56 The Assembly did not become a full representative body of all the chiefs of the protectorate as envisaged in the original poll tax agreement.57 Further, suspicions of misappropriation by tax collectors and colonial officials did not help the course of the Gold Coast colonial administration. In 1865, Edward Conran, governor of the Gold Coast, told a parliamentary select committee that the main reason for the failure of the poll tax was malfeasance and that ‘faith in the white man on the coast is very much shaken’.58 The colonial administration was reluctant to use coercion to enforce compliance and it preferred to preserve the ‘voluntary character’ of the poll tax.59 Collisions with the native population could threaten trade and undermine the main objective for which the Gold Coast settlements were being retained. Natives were to be induced to continue paying the tax by making them feel that the ‘continuance of the benefits accruing therefrom, is dependent on its payment’.60 Nonetheless, there were some threats of coercion, and the Gold Coast natives resisted them with force.61 In 1854, when the authorities sent a soldier to collect the tax in Accra, the chiefs and elders refused to pay. They extorted 100 heads of cowries from others who had paid the tax and intimidated them not to pay again. When further attempts were made to collect the poll tax, the people stoned the soldiers and attempted to cut off government supplies.62 Where there was some degree of coerced compliance, sporadic violent protests continued until the collection of the poll tax ceased. Later efforts by the administration to remedy the defects in the collection of the tax and to ensure consistent consultation with the chiefs on the expenditure of the tax proceeds failed to erase memories of the abuses of the poll tax system. There was no objection to the poll tax per se and if the colonial government had fulfilled its part of the fiscal contract, the tax would not have failed.63 The Gold Coast government was forced to give up on the idea of introducing direct taxation and between 1860 and 1900, it relied on custom duties for about 90 to 95 percent of its revenues to finance the colonial project.64 The stage was set for a century of steady resistance to taxation in any shape or form. More notably, as Paul Nugent argues, the failure of the poll tax entrenched the principle that the state’s power to tax was circumscribed and had to be negotiated rather than presumed.65 Throughout the colonial period and thereafter, consent over taxation would be hammered out through bargaining over the reciprocal rights of the government and the governed and compliance would be based on the government’s ability to keep its part of the fiscal contract. Income tax, 1931–1944 After the failed poll tax, the colonial administration relied on import and export duties. The Gold Coast economy had developed into an export economy based largely on cocoa. Demand for imports increased as incomes from cocoa export production increased.66 Public revenues generally increased in the late nineteenth and early twentieth centuries due to the growth of the cocoa export economy. In addition to import and export duties, there were a miscellany of licenses, fines, various fees, postal charges, and railway freights and fares. Occasionally, there were also minor contributions from rents and sale of government lands and in the 1930s excise duties were introduced.67 Mining royalties were collected on behalf of native administrations, and municipalities’ rates on utilities were levied, but these were insignificant in the context of central government finances. The collapse of the world cocoa market due to the Great Depression and a decline in the importation of spirits, which accounted for about 36 percent of government’s largest source of government finance (import duties), weakened the colony’s fiscal position, and created the need for additional revenues.68 Government revenue shrank by almost one half between 1927 and 1930–1931. The colonial government recognized that its dependence on indirect taxation placed its finances at the mercy of world market prices, and that a broadening of the basis of taxation was necessary to secure the future of the colony.69 Besides, while indirect taxation was regressive, burdening the producers of exports and consumers of imports, a modernized tax system could both optimize tax revenues and do so in a more equitable manner.70 A final argument was that direct taxation would make indirect rule possible and enable native administrations to carry out local government functions appropriate to local needs and customs.71 Table 2 Colonial government expenditure (percentage shares), 1905–1935 . 1905 . 1910 . 1915 . 1920 . 1925 . 1930 . 1935 . Administration 49 42 46 39 37 37 37 Public debt 12 25 18 9 28 4 23 Military 14 8 4 4 3 3 3 Domestic security 6 5 5 5 4 6 7 Education 2 2 2 2 3 8 7 Health care 6 6 7 7 7 10 10 Public works 11 12 18 34 19 32 13 Total 100 100 100 100 100 100 100 . 1905 . 1910 . 1915 . 1920 . 1925 . 1930 . 1935 . Administration 49 42 46 39 37 37 37 Public debt 12 25 18 9 28 4 23 Military 14 8 4 4 3 3 3 Domestic security 6 5 5 5 4 6 7 Education 2 2 2 2 3 8 7 Health care 6 6 7 7 7 10 10 Public works 11 12 18 34 19 32 13 Total 100 100 100 100 100 100 100 Source: Government of the Gold Coast, Report upon the Treasury Department, 1905–1935 Open in new tab Table 2 Colonial government expenditure (percentage shares), 1905–1935 . 1905 . 1910 . 1915 . 1920 . 1925 . 1930 . 1935 . Administration 49 42 46 39 37 37 37 Public debt 12 25 18 9 28 4 23 Military 14 8 4 4 3 3 3 Domestic security 6 5 5 5 4 6 7 Education 2 2 2 2 3 8 7 Health care 6 6 7 7 7 10 10 Public works 11 12 18 34 19 32 13 Total 100 100 100 100 100 100 100 . 1905 . 1910 . 1915 . 1920 . 1925 . 1930 . 1935 . Administration 49 42 46 39 37 37 37 Public debt 12 25 18 9 28 4 23 Military 14 8 4 4 3 3 3 Domestic security 6 5 5 5 4 6 7 Education 2 2 2 2 3 8 7 Health care 6 6 7 7 7 10 10 Public works 11 12 18 34 19 32 13 Total 100 100 100 100 100 100 100 Source: Government of the Gold Coast, Report upon the Treasury Department, 1905–1935 Open in new tab In September 1931, the government announced in the Legislative Council its intention to impose a tax of 6 pence on the pound on all incomes of or over £40 per annum.72 African members of the Legislative Council protested against the proposed Income Tax bill and pointed to the inefficiency of the government. They argued that the government’s fiscal crisis was self-inflicted as it was spending its revenues on frivolous ventures, instead of being efficient and investing in public goods that met the needs of the subjects. Administrative expenditures constituted between 37 and 50 percent of total government expenditure between 1905 and 1935, while health and education expenditures were less than 10 percent throughout the period (see Table 2). The bill also provoked violent demonstrations from the chiefs, commoners, some European merchants, and the educated elite who by virtue of their representation in political institutions now had political influence.73 The African members of the Legislative Council argued that government had been ‘gallivanting with the finances of the country’, ‘building palatial bungalows at the rate of £130,000 a year and bringing out officials in large numbers’ in spite of the protests of the people. The people therefore did not sympathize with government’s steps to remedy its fiscal predicament and were unwilling to comply.74 Instead of resorting to fresh taxation, the African members of the Council insisted that government should retrench its staff and cut official salaries by 10 percent. Outside the Legislative Council, some European merchants shared similar sentiments arguing that ‘in England the people who paid income tax knew what the money was used for, and that monies gathered for income tax in the Gold Coast would not be used for their benefit, but for the benefit of the European government officials’.75 The bargaining for the fiscal contract was about more than government spending; it was about state legitimacy, as opposition to the income tax extended to demands for constitutional changes for equal representation in the colonial administration. The educated elite and chiefs in the Legislative Council argued that in every country where direct taxation was imposed, there must be equal representation.76 In the Gold Coast, however, there was no African representation on the Executive Council; the 30-member Legislative Council had only nine African unofficial members; and Ashanti and the Northern Territories were not represented at all.77 While Martin Wight argues that the views of the unofficial members were ‘carefully weighed and scrutinized’ and they were consulted at every stage of the legislative process, this was not enough for the African members.78 They insisted that government had failed to accede to earlier calls for changes in its fiscal policy and ‘everything [was] nothing so long as it [was] not government’s proposition’.79 Since the government was not prepared to give the people full representation and full control of their finances, it should find other means to balance its budget.80 Protest meetings, street demonstrations, riots, work stoppages, and boycotts took place in several towns across the Gold Coast.81 As was the case during the protests against the Poll Tax Ordinance, the colonial government was hesitant to use coercion to ensure compliance to avert further riots and damage to property.82 In the face of public uproar, the colonial state abandoned the Income Tax bill. External factors had constrained its ability to raise additional revenues through indirect taxation and perhaps it was imprudent to attempt to impose an income tax at a time of severe economic distress. But the failure of the 1931 Income Tax Bill was due more to the colonial government’s inability to acquire legitimacy ‘by way of rewards and the accommodation of society’s demands’.83 When an Income Tax Ordinance was finally passed in 1943, its introduction had been ‘sweetened’ in advance by the appointment of Africans to the Executive Council and as Ghanaian district commissioners.84 The Income Tax was accepted in the belief that these appointments presaged substantial constitutional changes that would allow for elective representative government.85 True to its word, the government announced constitutional reforms towards the end of 1944. Ashanti was to be included for the first time in the Legislative Council, which was to have a majority of elected unofficial members.86 In the sense that legitimacy due to representation formed the bedrock of the fiscal contract and led to the introduction of direct taxation, the Gold Coast Colony’s experience 1931–1944 is not different from that of pre-modern states where monarchs exchanged political representation for consent to taxation.87 This also confirms the notion that taxation, through revenue bargaining, makes governments more representative, responsive and accountable.88 Cocoa taxation, compulsory savings and sales tax, 1951–1966 Ghana became self-governing in 1951 and achieved full independence in 1957. Kwame Nkrumah, the new nationalist leader, and his Convention People’s Party (CPP) had promised to transform the Gold Coast ‘into a paradise in ten years’.89 The party argued that taxation had been unpopular under colonial rule because people did not get returns commensurate with the taxes they paid. Under self-government, taxes would still be levied, but government would ensure that taxation brought with it social education, cultural and economic rewards for the whole community. Government would ensure the progressive mechanization of agriculture, embark on an energetic programme of industrialization, and create avenues of employment for all with better conditions.90 With political independence now achieved, Nkrumah needed to satisfy appetites whetted by a successful anti-colonial campaign.91 In particular, it was necessary to repay the economically deprived commoners from whom the CPP garnered support.92 As Nkrumah himself observed, We cannot tell our peoples that material benefits and growth and modern progress are not for them. If we do they will throw us out and seek other leaders who promise more. And they will abandon us too, if we do not in reasonable measure respond to their hopes.93 Political pressures for development meant increased government expenditure on infrastructure and social services. The first independent government expanded public administration and set-up parastatal enterprises to create jobs for political clients.94 The growing expenditures initially were financed by external reserves, cocoa revenues and loans from domestic banks. But by 1960, these balances were exhausted, and an uninterrupted series of budget deficits began.95 Government therefore needed more revenues to finance its increasing expenditure. The country, however, had a revenue structure that proved to be a constraint on the developmental role government was increasingly assuming.96 Cocoa was the mainstay of its revenues. Export duties, which were mainly from cocoa, accounted for 29.5 percent and 48.8 percent of government tax revenue between 1955/6 and 1960/1.97 By contrast, income tax (company and personal) accounted for 10.8 to 13.8 percent of the total throughout the period. In 1960, a fall in world market cocoa prices led to a decline in the contribution of export duties to total tax revenue, from 42.7 percent in 1959/60 to 19 percent in 1961/62. Unrelenting in its pursuit of rapid development, Nkrumah’s government reformed the country’s tax system to raise more revenues. In July 1961, an austerity budget was introduced in parliament that contained several fiscal reforms. The budget introduced a single uniform schedule of income tax that was applicable to all individuals receiving an income of more than £480 per annum, without any differentiation according to family circumstances and nature of income.98 Further, government introduced a property tax and a purchase tax on imported luxury goods.99 Another important feature of the 1961 budget was the compulsory savings scheme. A compulsory deduction was to be made in exchange for National Development Bonds that were redeemable after ten years. For wages or salary earners, 5 percent was to be deducted from their emoluments and 10 percent on all other types of incomes. Cocoa farmers were required to take up 10 percent of the prices they received for the sale of cocoa in these bonds, or 6 shillings per load.100 As government expenditures kept soaring, it introduced a number of reforms and tax increases in the 1962–1963 budget. The minimum exemption limit for personal income tax was reduced to £240. A tax was imposed on football matches, cinema shows, night clubs and other entertainments where admissions charges were collected.101 A Hotel Customers Tax was introduced in 1963, which imposed a 10 percent levy on bills for accommodation and food. In 1965, a Foreign Travel Tax Act imposed a 10 percent tax on the cost of tickets of all Ghanaian residents traveling by air or by sea. Additionally, a Sales Tax was introduced to cover all imported articles and locally produced goods other than food items at the wholesale level, and an Estate Duty Act was enacted to impose a duty on the estates of deceased persons bequeathed to their surviving relatives.102 As a result of these tax initiatives, the tax-to-GDP ratio rose from less than 11 percent in 1960 to about 16 percent in 1965.103 The ratio of domestic tax revenues (revenues from taxes other than those on external trade) to GDP increased from 3.8 percent in 1963 to 7.9 percent in 1965. Nkrumah’s government ensured continuous growth in its tax capacity by using the state’s instruments of coercion to repress and prevent political opposition to its fiscal goals. Chiefs and the intelligentsia had challenged the tax capacity of the colonial government, and they, together with other politically influential interest groups that emerged during the nationalistic struggles, were potential threats to the government’s tax capacity. In line with the ruling CPP’s quest to consolidate its power and centralize the machinery of state control, it reformed local government institutions and stripped chiefs of the political and economic power they had under colonial rule.104 Furthermore, it passed repressive laws to demobilize the ‘intelligentsia opposition’ that challenged its actions in parliament.105 In 1964, a referendum confirmed Ghana as a one-party state, and the minority group in parliament and the coalition of opposition parties were finally extinguished. Moreover, Nkrumah demobilized social groups by bringing them under the CPP’s control or established new organizations to represent certain social groups.106 Women’s associations and youth movements, farmer associations, and the workers’ union were knit into the main structures of the CPP.107 In 1961, when some railway and harbour workers initiated strikes and protests against the new purchase tax and the compulsory savings scheme, the coercive powers of the state were marshaled to stop them.108 Nkrumah succeeded in making the interest groups dependent on him instead of himself on them. By monopolizing all forms of economic and political representation, the state increased its economic and political powers. Although it was inefficient, it secured a continuous growth in its extractive and accumulative capacity through force. In the long run, however, the use of force to legitimize the government’s increased extraction proved unsustainable. Legitimacy was distinctly a function of performance, and as government proved incapable of devising and implementing economic and social policies that met the needs of the people, its support base narrowed.109 In February 1966, against the background of a record of economic failure, administrative corruption and poor planning performance, rising costs of living, and falling real wage earnings, Nkrumah’s government was ousted in Ghana’s first military coup. Value-added tax, 1995–1998 By the end of 1995, VAT had earned the global reputation of being governments’ ‘money machine’ and was implemented in over a hundred countries.110 In Ghana, VAT was introduced as part of a broader programme of tax reforms initiated under the International Monetary Fund (IMF) and World Bank-backed Economic Recovery Programme to widen the scope of indirect taxation, make the incidence of taxation less burdensome, and inject greater efficiency and equity into the indirect tax system.111 Decades of political instability followed Ghana’s first military coup and by 1981, its economy neared collapse. In April 1983, Jerry J. Rawlings’ military government launched the structural adjustment programme to halt economic decline. Structural reforms led to the reduction of both direct and indirect tax rates in order to enhance productivity and improve the general performance of the economy.112 Further reduction of taxes was however impeded by then narrow-based and multiple rate structured sales tax regime.113 The government introduced VAT to correct the deficiencies of the sales tax.114 In its introductory year, government projected that domestic VAT would yield an increase of almost 50 percent over the outturn of previous year’s sales tax, while import VAT would generate 60 percent more than import sales tax collection.115 In the long-term, it was expected to become the mainstay of government finances, as it would diversify government’s revenue sources, provide a stable revenue base and ensure that government finances were not at the mercy of volatile commodity prices. Moreover, by bringing all economic sectors under the same tax net, VAT sought to eliminate distortions in investment incentives and create a level playing field for investors. VAT was introduced in March 1995, but only three months later it was withdrawn following public outcry and street demonstrations resulting in 16 casualties.116 Ghana thereby became only the second country to have repealed a VAT. Government had not assessed the political risks associated with the introduction of VAT. Also, it was insensitive to the new social and political institutional arrangements stimulated by the country’s return to constitutional rule.117 The ruling National Democratic Congress (NDC) metamorphosed from the erstwhile Provisional National Defense Council (PNDC), a group of army officers and civilians who had governed the country since Rawlings’ coup in December 1981. Although the PNDC promised that ‘nothing will be done from the Council, whether by God or the Devil, without the consent and the authority of the people’, participation in policy-making by interest groups was not actively encouraged during its rule.118 Dissenting voices and potential sources of opposition were either ignored or neutralized by co-optation or intimidation into silence. Channels for voicing dissent, such as the print media, were suppressed through stricter licensing regulations, and state-owned newspapers censored themselves in fear of the regime.119 Tax compliance was ensured by the use of the coercive powers of the state. A Citizens Vetting Committee investigated cases of alleged tax evasion and default and penalized those who breached the law. The PNDC also set up a parallel judicial system of public tribunals to expedite the trial of such cases.120 Most taxable Ghanaians who hitherto ignored their social obligation to pay tax began to do so, and public resistance to government’s tax reforms were very minimal.121 Coercion was successful in the sense that tax-to-GDP ratio increased from less than 4 percent in 1982 to more than 10 percent in 1986.122 Income and property taxes as a share of government revenue increased from 16.9 percent in 1983 to 21.1 percent in 1987, jumping to an all-time record of 25.8 percent in 1988.123 The return of the country to democratic rule in 1992 meant, however, that government could no longer force citizens to acquiesce to unpopular fiscal policies. Previously demobilized groups and new groups emerged and became channels for opposition to government policies.124 These included interest groups such as professional associations, trade unions, civil society groups, and think tanks who brought new intellectual resources to bear on policy analysis.125 The lifting of the ban on political parties in 1992 also led to the emergence of various parties and political activities, but the government with its inherited authoritarian mindset did not encourage participation in the decision-making process by interest groups. As one observer noted, there appeared to be ‘no evidence that Ghana had moved from authoritarian rule to a democratic regime’.126 Consequently, discussions on VAT were limited to Parliament, where there were no opposition parties.127 They had boycotted the 1992 parliamentary elections in protest against the alleged rigging of the presidential elections by Rawlings and the NDC.128 The NDC-dominated parliament passed the VAT legislation under a certificate of emergency and the lack of consultation with interest groups and the non-participation of opposition parties undermined the legitimacy of the VAT policy. Many interest groups were not interested in complying with the policy, as they did not view the processes to have been right and proper. Outside parliament, the opposition parties criticized government for introducing VAT at a time when Ghanaians were already enduring economic hardships caused by the PNDC’s Economic Recovery and Structural Adjustment Programme. The social costs of the programme had been high, as evidenced by mass unemployment, erosion of real incomes, high costs of education, medical care, housing, and other basic services.129 In the midst of domestic crisis, the government seemed more concerned to placate the IMF and the World Bank than to promote the welfare of Ghanaians.130 While poor urban households bore much of the costs of adjustment, there was widespread disillusionment and anger throughout the country.131 Although there were slight increases in health and education expenditures during this period, their importance relative to other expenditure items declined. For example, the share of public health spending in total government expenditure declined from an average of 9 percent between 1984 and 1991 to 4.9 percent in 1994.132 Education expenditures as a share of total government expenditures also decreased from 25.5 percent in 1990 to 18.7 percent in 1994.133 Government expenditures on health and education were also urban-biased and favoured the non-poor.134 In addition, allegations of inefficiency, corruption and wastefulness in government expenditure created suspicions in the minds of the general public about government’s intention to introduce VAT. Opposition parties insisted that until the NDC government ‘learns to put a stop to its profligacy, and individual state officials learn to live in a style and manner commensurate with the immense sacrifices of our people, there can be no justification for any new tax burden on the people’.135 Amid public antagonism towards fiscal policies and at the risk of losing the impending 1996 presidential and parliamentary elections, government was compelled to withdraw the VAT policy in 1995 and reinstated the flawed sales tax of 1965. As Seth Terkper observes, the decision to repeal the VAT law ‘had more to do with political expediency than any insurmountable flaws in the technical aspects of the program’.136 However, two years later, the government declared its intention to reintroduce VAT, this time having taken cognizance of the need for careful preparation and public engagement.137 The government conceded that the earlier VAT policy had failed because ‘a lot of people…felt left out of being part of the processes that led to the introduction of tax and that there was a general feeling that there were not enough discussions and consultations on all aspects of the economy’.138 Government therefore intensified efforts at building consensus, bargaining for a legitimate fiscal contract on which to base the new tax policy. Several meetings were held with members on both sides of the political divide and civil society bodies. With opposition members now in Parliament after the 1996 elections, they took part in shaping the VAT policy, erasing any legitimacy doubts about the process of tax formulation.139 In March 1998, parliament enacted the new VAT law. Conclusion It is increasingly argued that politics matters for successful tax reforms and tax bargaining: reciprocity and fiscal contracts between citizens and governments are the foundation for effective taxation. Yet, while widely accepted, not much research has probed the precise mechanisms through which politics, tax bargaining and the extent of state reciprocity affect the state’s ability to tax. Using a conceptual framework inspired by Margaret Levi’s work on the development of states’ fiscal capacity, we have examined the complex and arduous processes of tax bargaining and how the development and enforcement of fiscal contracts play out in practice in Ghana. Far from being a recent phenomenon, our analysis shows that successful tax reforms in Ghana have long depended on the state’s ability to demonstrate its efficiency, by using tax revenues for the public benefit. The study establishes a consistent historical pattern of the state’s inability to keep its part of the fiscal contract, thus undermining its ability to tax. Misappropriation of tax revenues, corruption and wasteful government expenditure consistently undermined perceptions of the legitimacy of the state, by colonial subjects and then citizens of independent Ghana. The colonial administration’s inefficiency led to the failure of the poll tax in 1852 and its inability to introduce direct taxation in the 1930s. Africans opposed the tax mainly because the administration did not provide public goods in exchange for the payment of the poll tax and did not consult the chiefs in spending the money collected. The income tax was opposed in the 1930s because Africans suspected that taxes paid to the state were wasted and spent in ways that did not meet their expectations. The administration had failed to keep its part of the fiscal contract. Further, Africans were underrepresented in the Legislative Council and did not have control over the colony’s finances. The successful introduction of direct taxation in the 1940s and the VAT in 1995 owed more to the legitimacy of the tax bargaining process. The attempt by Nkrumah government to extract tax revenues by acts of coercion proved unsustainable in the long run, for citizens’ willingness to defer to government’s actions had always been a function of performance in office. Our conclusions have implications on popular views on the causes of the weak fiscal capacity of African states. Whereas existing research has stressed that the low fiscal capacity of African states is a product of weak infrastructural and institutional colonial legacies, this article shows that historically, the inability of states to fulfill their part of the fiscal contract undermine their fiscal capacity. Governments are more likely to increase their fiscal capacity and transform taxpayers’ compliance attitude by providing benefits in exchange for the payment of taxes. Further, it has been argued that the ability of African states to collect taxes is constrained by weak administrative capacity as demonstrated by ill-equipped and inadequate tax collectors, ambiguous tax laws, and the lack of reliable data that make it difficult to identify taxpayers. This view abstracts from the more complex social and political interactions between state and society, which as we have shown are also important determinants of fiscal capacity. As Nicholas Kaldor pointed out long ago, lack of knowledge or administrative competence alone cannot explain ineffective tax systems. Ineffective tax systems are also the result of resistance from citizens who block the way to tax reforms.140 Expert advice can point the way, but overcoming resistance to more effective policies for raising revenues requires an understanding of how tax bargaining works in practice and of people’s perceptions of their governments over the long term. Footnotes 1 ICTD/UNU-WIDER (2019), Government revenue dataset, <https://www.wider.unu.edu/project/government-revenue-dataset> (20 November 2019). 2 Richard M. Bird and Milka Casanegra de Janstcher, ‘Improving tax administration in developing countries’ (International Monetary Fund, Washington, DC, 1992); Robin Burgess and Nicholas Stern, ‘Taxation and development’, Journal of Economic Literature, XXXI (1993), pp. 762–830; Vito Tanzi and Howell H. Zee, ‘Tax policy for emerging markets: Developing countries’, (WP/00/35, International Monetary Fund, Washington, DC, 2000); Timothy Besley and Torsten Persson, ‘Why do developing countries tax so little?’, Journal of Economic Perspectives 28, 4 (2014), pp. 99–120. 3 Thandika Mkandawire, ‘On tax efforts and colonial heritage in Africa’, Journal of Development Studies 46, 10 (2010), pp. 1647–1669; Thuto Feger and John Asafu-Adjaye, ‘Tax effort performance in sub-Sahara Africa and the role of colonialism’, Economic Modelling 38 (2014), pp. 163–174. 4 See for example, John L. Campbell, ‘The state and fiscal sociology’, Annual Review of Sociology 19 (1993), pp. 163–185; Christine Fauvelle-Aymar, ‘The political and tax capacity of government in developing countries’ KYKLOS 52 (1999), pp. 391–413; Deborah Bräutigam, Odd-Helge Fjeldstad and Mick Moore (eds), Taxation and state-building in developing countries: Capacity and consent (Cambridge University Press, Cambridge, 2008); Isaac William Martin, Ajay K. Mehrotra and Monica Prasad (eds), The new fiscal sociology: Taxation in comparative and historical perspective (Cambridge University Press, Cambridge, 2009). 5 Wilson Prichard, Taxation, responsiveness and accountability in Sub-Saharan Africa: The dynamics of tax bargaining (Cambridge University Press, Cambridge, 2015); Mick Moore, Wilson Prichard and Odd-Helge Fjeldstad, Taxing Africa: Coercion, reform and development (Zed Books Limited, London, 2018), pp. 179–210. 6 Prichard, Taxation, p. 83. 7 See for example, Prichard, Taxation. 8 For a summary and review of these models, see Odd-Helge Fjeldstad, ‘What’s trust got to do with it? Non-payment of service charges in local authorities in South Africa’, Journal of Modern African Studies 42, 4 (2004), pp. 539–562; Merima Ali, Odd-Helge Fjeldstad and Ingrid Hoem Sjursen, ‘To pay or not to pay? Citizens’ attitudes toward taxation in Kenya, Tanzania, Uganda and South Africa’, World Development 64 (2014), pp. 828–842. 9 Michael G. Allingham and Agnar Sandmo, ‘Income tax evasion: A theoretical analysis’, Journal of Public Economics 1 (1972), pp. 323–338; Joel Slemrod, ‘Tax Compliance and enforcement: New research and its policy implications’. Ross School of Business Working Paper 1302 (University of Michigan, 2017); Margaret A. McKerchar and Chris Evans, ‘Sustaining growth in developing economies through improved taxpayer compliance: Challenges for policy makers and revenue authorities’, eJournal of Tax Research 7 (2009), pp. 171–201. Ali, Fjeldstad and Sjursen, ‘To pay or not to pay?’. 10 Ahmed Riahi-Belkaoui, ‘Relationship between tax compliance internationally and selected determinants of tax morale’, Journal of International Accounting, Auditing and Taxation 13 (2004), pp. 135–143. 11 Ali, Fjeldstad, and Sjursen, ‘To pay or not to pay?’, pp. 829–830; Keith Snavely, ‘Governmental policies to reduce tax evasion: Coerced behavior versus services and values development’, Policy Sciences, 23 (1990), pp. 57–72; James Andreoni, Brian Erard and Jonathan Feinstein, ‘Tax compliance’, Journal of Economic Literature 36, 2 (1998), pp. 818–860. 12 Snavely, ‘Governmental policies’, p. 63. 13 Ali, Fjeldstad, and Sjursen, ‘To pay or not to pay?’, p. 830; Joel Slemrod, Why people pay taxes: Tax compliance and enforcement (University of Michigan Press, Michigan, 1992). 14 Fauvelle-Aymar, ‘The political and tax capacity’, p. 399. 15 Margaret Levi, Consent, dissent, and patriotism (Cambridge University Press, Cambridge, 1997); Margaret Levi, Of rule and revenue (University of California Press, Berkeley and Los Angeles, CA, 1988). 16 We do not discuss and apply the concepts of transaction costs and discount rates thoroughly due to difficulties in operationalizing these concepts, see Campbell, ‘The state and fiscal sociology’, p. 172. 17 Douglass C. North, Structure and change in economic history (New York, Norton, 1981), pp. 28–29; José Antonio Cheibub, ‘Political regimes and the extractive capacity of governments: Taxation in democracies and dictatorships’, World Politics 50, 3 (1998), pp. 349–376. 18 Paul Nugent, ‘States and social contracts in Africa’, New Left Review 63 (2010), p. 43. 19 Fauvelle-Aymar, ‘The political and tax capacity’, p. 399. 20 Levi, Of rule and revenue, p. 49. 21 Levi, Of rule and revenue, p. 49–55. We do not discuss and apply the concept of ‘ideological compliance’ in this paper. The concept is inadequately described and it is hard to separate it from other factors that influence compliance, see Levi, Of rule and revenue, p. 51. 22 Ibid, p. 50. 23 Ibid, p. 52. 24 Margaret Levi, Audrey Sacks and Tom Tyler, ‘Conceptualizing legitimacy, measuring legitimating beliefs’, American Behavioral Scientist, Vol. 53, 3 (2009), pp. 354–375; p. 354; see also Seymour M. Lipset, ‘Some social requisites of democracy, economic development and political legitimacy’, American Political Science Review 53, 1 (1959), pp. 69–105; p. 86. 25 Russell Hardin, ‘Compliance, consent and legitimacy’, In Carles Boix and Susan C. Stokes (eds), The Oxford Handbook of Comparative Politics (Oxford University Press, Oxford, 2007), pp. 236–265; Blaine Robbins and Edgar Kiser, ‘Legitimate authorities and rational taxpayers: An investigation of voluntary compliance and method effects in a survey experiment of income tax evasion’, Rationality and Society 30, 2 (2018), pp. 247–301. 26 Fauvelle-Aymar, ‘The political and tax capacity’. 27 Ibid; Jeffrey F. Timmons, ‘The fiscal contract: States, taxes, and public services’, World Politics 57, 4 (2005), pp. 530–567. 28 Levi, Sacks and Tyler, ‘Conceptualizing legitimacy’, p. 359; Mitchell A. Seligson, ‘The impact of corruption on regime legitimacy: A comparative study of four Latin American countries’, The Journal of Politics 64, 2 (2002), pp. 408–433. 29 Levi, Of rule and revenue, p. 53. 30 Ibid, p. 53–54. 31 Cheibub, ‘Political regimes’; Carles Boix, ‘Democracy, development, and the public sector’, American Journal of Political Science 45, 1 (2001), pp. 1–17; David A. Luke and Matthew A. Baum, ‘The invisible hand of democracy: Political control and the provision of public services’, Comparative Political Studies 34, 6 (2001), pp. 587–621. 32 Burgess and Stern, ‘Taxation and development’; Besley and Persson, ‘Why do developing countries tax so little?’, pp. 4–5. 33 ICTD/UNU-WIDER (2018), Government revenue dataset, <https://www.wider.unu.edu/project/government-revenue-dataset> (13 June 2019). 34 Ernest Aryeetey and Ama Pokuaa Fenny, ‘Economic growth in Ghana: Trends and structure, 1960–2014’, in Ernest Aryeetey and Ravi Kanbur (eds), The economy of Ghana: Sixty years after independence (Oxford University Press, Oxford, 2017), pp. 45–65. 35 ICTD/UNU-WIDER (2018), Government revenue dataset, <https://www.wider.unu.edu/project/government-revenue-dataset> (20 November 2019). 36 Lindsay Whitfield, ‘The state elite, PRSPs and policy implementation in aid-dependent Ghana’, Third World Quarterly 31, 5 (2010), pp. 721–737. 37 Robert Darko Osei and Henry Telli, ‘Sixty years of fiscal policy in Ghana: Outcomes and lessons’ in Ernest Aryeetey and Ravi Kanbur (eds.), The economy of Ghana, pp. 66–87. 38 Years of budget surpluses have been 1986–91, 1994, 1995, 1997, see Osei and Telli, ‘Sixty years of fiscal policy’, p. 68. 39 Ministry of Finance, ‘The budget statement and economic policy of the government of Ghana for the 2017 financial year’ (Ministry of Finance, Ghana, 2017), p. 20; 41. 40 Seth E. Terkper Ghana: Tax administration reforms (1985–93) (Report No. 504, Harvard Institute for International Development, Harvard University, 1995). 41 Budget statement, 2017, p. 3. 42 Stephen Broadberry and Leigh Gardner, ‘Economic growth in Sub-Saharan Africa, 1885–2008’, (Oxford Economic and Social History Working Papers, Number 169, March 2019). 43 Noah Arthur Cox-George, Studies in finance and development: The Gold Coast (Ghana) experience, 1914–1950. (Dobson, 1973), pp. 51–52; Report on the Income Tax Department for the Year 1957–58, LSE Library Government Publications Journals 667 (R32). 44 John H. Perry, Taxation and economic development in Ghana (Report No. TAO/GHA/4/Rev, United Nations Commissioner for Technical Assistance, Department of Economic and Social Affairs, New York, 1959); Fuat Andic and Süphan Andic, A survey of Ghana’s tax system and finances (London School of Economics and Political Science, 1963), LSE Library Archives special HJ/D594, pp. 25–26. Kenya’s per capita income was £31; Uganda, £23 and Tanzania, £21, see U.N. Statistical Yearbook, 1961. 45 Eboe Hutchful, Ghana’s adjustment experience: The paradox of reform (James Curry, Oxford, 2002), pp. 8–20. 46 Ibid, p. 8. 47 David Kimble, A political history of Ghana: The rise of Gold Coast nationalism, 1850–1928 (Oxford University Press, Oxford, 1963). 48 CO 96/25, Despatches, National Archives, Kew. 49 CO 96/19, National Archives, Kew; CO 96/25. 50 Christian J. Makgala, ‘Taxation in the tribal areas of the Bechuanaland protectorate, 1899–1957’, Journal of African History, 45 (2004), pp. 279–303; Ben Naanen, ‘ “You are demanding tax from the dead”: The introduction of direct taxation and its aftermath in South-Eastern Nigeria, 1928–39’, African Economic History, 34 (2006), pp. 69–102; Edgar Kiser and Audrey Sacks, ‘Improving tax administration in contemporary African states: Lessons from history’, in Martin et al. (eds), The new fiscal sociology, pp. 183–200; Leigh H. Gardner, ‘Decentralization and corruption in historical perspective: Evidence from tax collection in British Colonial Africa’, Economic History of Developing Regions 25, 2 (2010), pp. 213–236. 51 Pius N.C. Okigbo, Nigerian public finance (Northwestern University Press, Evanston IL, 1965); Atul Kohli, State-directed development: political power and industrialization in the global periphery (Cambridge University Press, Cambridge, 2004); Gardner, ‘Decentralization and corruption’; Kiser and Sacks, ‘Improving tax administration’. 52 CO 96/33; Kimble, Political history, p. 177. 53 Carl C. Reindorf, The history of the Gold Coast and Asante (Ghana Universities Press, Accra, 1966), pp. 324–331; CO 96/33. 54 W. J. A Jones, ‘Memorandum on the introduction of direct taxation in the Gold Coast colony’ (Government Printing Office, Accra, 1931), LSE Library, Government Publications 667(156). 55 CO 96/40; Jones, ‘Memorandum’. 56 Martin Wight, The Gold Coast Legislative Council (Faber and Faber Limited, London, 1947), p. 23. Kimble, Political history, p. 190. ‘The Legislative Assembly of Native Chiefs upon the Gold Coast’ comprised the Governor, his Council and the chiefs and headmen of the coastal communities. It was to have ‘full powers to enact such laws as it shall seem fit, for the better government of these countries’. 57 G.E. Metcalfe, Great Britain and Ghana: Documents of Ghana history, 1807–1957 (Thomas Nelson and Sons Ltd, London, 1964), pp. 230–231; Kimble, Political history, p. 190. 58 1865 Report, Evidence of Conran, in Kimble, Political history, p. 189. 59 C.O.96/37; Kimble, Political history, p. 178. 60 C.O.96/37. 61 Reindorf, The history, pp. 324–331; Kimble, Political history, p. 179. 62 Kimble, Political history, p. 179. 63 Ibid, p. 190. 64 Gold Coast Blue Books, 1860–1900. 65 Nugent, ‘States’, pp. 45–46. 66 Lindsay Whitfield, Economies after colonialism: Ghana and the struggle for power (Cambridge University Press, Cambridge, 2018), p. 3. 67 Cox-George, Studies in finance and development, Gold Coast Blue Books. 68 Gold Coast Annual Report, 1931–32, Governor’s address, 23 February 1931; Emmanuel Akyeampong, ‘The state and alcohol revenues: promoting “economic development” in Gold Coast/Ghana, 1919 to the Present’. Histoire sociale/Social History 27, 54 (1994), pp. 393–411. 69 Legislative Council debates, 1931–2, pp. 276–82. 70 Cox-George, Studies in finance and development, p. 26; Florence Mabel Bourret, The Gold Coast: A survey of the Gold Coast and British Togoland, 1919–1951 (Oxford University Press, London, 1952), p. 29. 71 Jones, ‘Memorandum’; Stanley Shaloff, ‘The income tax, indirect rule, and the depression: The Gold Coast riots of 1931’, Cahiers d’Études Africaines, 14, 54 (1974), pp. 359–375. 72 Legislative Council Debates, 1931–2, pp. 276–82, Income Tax Bill, Gold Coast Gazette, 25 September 1931, National Archives Kew. The Legislative Council consisted of 30 members: the Governor as President and 15 official members and 14 unofficial members. The official members comprised 13 members of the Executive Council (a non-representative advisory body to the Governor) and two others appointed by the Governor. There were five European unofficial members, three appointed by the Governor, one representative of the business community and one representative of the mining industry. There were nine African unofficial members comprising three provincial members for the Eastern Province, two for the Central Province and one for the Western Province of the Gold Coast, and three municipal members one for each of the towns of Accra, Cape Coast, and Secondee. 73 Proposed income tax-protests, CO 96/699/13, National Archives Kew. 74 Legislative Council Debates, 1931–2, pp. 380–5. 75 CO 96/699/13. 76 Legislative Council Debates, 1931–2, p. 367, pp. 380–5; p. 396. 77 The Governor alone legislated for Ashanti and the Northern Territories, see Wight, Legislative Council, p. 53. 78 Ibid, p. 87; 115; 140; see also, Legislative Council Debates, 1942, ii, pp. 2–4. Matters proposed for debate in the Council were decided by the majority of votes. The Governor had an original and casting vote, see Gold Coast Colony (Legislative Council) Order in Council, 1925, in Wight, Legislative Council, p. 236. 79 Legislative Council Debates, 1931–2, pp. 380–5. 80 Ibid. 81 CO 96/699/13, Proposed income tax-protests. 82 CO 96/699/13; Shaloff, ‘The income tax’, pp. 368–369. 83 Gallarotti, ‘Legitimacy as a capital asset of the state’, p. 45. 84 Legislative Council Debates, 1943, I, pp. 5–8; pp. 29–36; Wight, Legislative Council, pp. 190–191. 85 Legislative Council Debates, 1943, pp. 49–53; Metcalfe, Great Britain and Ghana. 86 Metcalfe, Great Britain and Ghana, p. 661. 87 Bates and Lien, ‘A note on taxation’; Douglass C. North, John J. Wallis and Barry R. Weingast. Violence and social orders: A conceptual framework for interpreting recorded human history (Cambridge University Press, Cambridge, 2009). 88 Moore, ‘Between coercion and contract’; Prichard, Taxation. For a contrasting view, see Deborah Boucoyannis, ‘No taxation of elites, no representation: State capacity and the origins of representation’, Politics & Society 43, 3 (2015), pp. 303–332. 89 Ashanti Pioneer (Kumasi), 5 March 1949, cited by Bob Fitch and Mary Oppenheimer, Ghana: End of an illusion, (Monthly Review Press, New York, 1966), p. 25. 90 CPP, General Election Manifesto, 1951 ‘Toward a goal’ in Metcalfe, Great Britain and Ghana, pp. 704–706. 91 Tony Killick, Development Economics in action: A study of economic policies in Ghana (Routledge, London and New York, 2010), p. 38. 92 Commoners or ‘young men’ referred to citizens who were not councilors or elders. See Kofi Abrefa Busia, The position of the chief in the modern system of Ashanti: A study of the influence of contemporary social changes on Ashanti political institutions (Oxford University Press, Oxford, 1951), p. 9; George M. Bob-Milliar, ‘Verandah boys versus reactionary lawyers: Nationalist activism in Ghana, 1946–1956, The International Journal of African Historical Studies 47, 2 (2014), pp. 287–318. 93 Kwame Nkrumah, I speak of freedom (Heinemann, London, 1961), p. 145; see also Kwame Nkrumah, ‘African prospect’, Foreign Affairs 37, 1(1958), pp. 45–53. 94 Douglas Rimmer, ‘The crisis in the Ghana economy’, Journal of Modern African Studies 4, 1 (1966), pp. 17–32; M.M. Huq, The economy of Ghana: The first 25 years since independence (St. Martin’s Press, New York, 1989); Jonathan H. Frimpong-Ansah, The vampire state in Africa: The political economy of decline in Ghana (James Curry, London, 1991); Douglas Rimmer, Staying poor: Ghana’s political economy, 1950–1990 (Pergamon Press, Oxford, 1992). 95 Naseem Ahmad, Deficit financing, inflation and capital formation: The Ghanaian experience 1960–65 (Weltforum Verlag, 1970). 96 Dudley Seers and C.R. Ross, Report on financial and physical problems of development in the Gold Coast (Government Printer, Accra, 1952), LSE Library Government Publications 667 (79). 97 Fuat Andic and Süphan Andic, A Survey of Ghana’s Tax System and Finances (London School of Economics and Political Science, 1963), LSE Library Archives special HJ/D594, p. 21. 98 President’s Sessional Address July 4th, 1961; Budget Statement, July 7th, 1961, LSE Library Government Publications 667(164). 99 These included items such as bicycles, sewing machines, radio sets and wall clocks. 100 Budget Statement, 1961. 101 President’s Sessional Address, 2 October 1962; Budget Statement, 1962–63. 102 The Budget, 1965. 103 E.N. Omaboe, Developments in the Ghanaian Economy between 1960 and 1968, LSE Library Government Publications 667(261). 104 David E. Apter, Ghana in transition (Princeton University Press, Princeton, 1972); Richard Rathbone, Nkrumah and the chiefs: The politics of chieftaincy in Ghana, 1951–60 (Ohio University Press, Athens, 2000); Catherine Boone, Political topographies of the African state: Territorial authority and institutional choice (Cambridge University Press, Cambridge, 2003). 105 Parliamentary Debates, First Series, Volume 24, Session 1961–62, pp. 55–56; 64; 76–84; 139–150; 199; See Dennis Austin, Politics in Ghana, 1946–1960 (Oxford University Press, London, 1964), pp. 377–381. 106 Whitfield, ‘Civil society’, pp. 385, 387. 107 Björn Beckman, Organising the farmers: Cocoa politics and national development in Ghana (Scandinavian Institute of African Studies, Uppsala, 1976); Piet Konings, The state and rural class formation in Ghana: A comparative analysis (KPI, London, 1986). 108 See Richard Jeffries, Class, power, and ideology in Ghana: The railwaymen of Sekondi (Cambridge: Cambridge University Press, 1978); Jon Kraus, ‘Strikes and labour power in Ghana’, Development and Change 10, 2 (1979), pp. 259–286. 109 Naomi Chazan, An anatomy of Ghanaian politics: Managing political recession, 1969–1982 (Westview Press, Colorado, 1983), p. 81. 110 Malcom Gillis, Carl S. Shoup and Gerardo P. Sicat (eds) Value added taxation in developing countries (The World Bank, Washington, DC, 1990), pp. 220–1. 111 The Budget statements, 1994, p. 32 and 1995, pp. 24–25, LSE Library Government Publications 667(R79). 112 Whitfield, Economies after colonialism. 113 The Budget Statement, 1994, p. 32 114 Ibid. 115 The Budget statement, 1995, p. 25. 116 Nana Akufo-Addo, ‘The birth of a united opposition: Aims and objectives of the alliance for change’, in Napoleon Abdulai (ed), Ghana: The kume preko demonstrations, poverty, corruption and the Rawlings dictatorship (Africa Research and Information Bureau, London, 1995), pp. 16–20. 117 Philip D. Osei, ‘Political liberalisation and the implementation of value added tax in Ghana’, Journal of Modern African Studies 38, 2 (2000), pp. 255–278. 118 Rawlings’ Radio broadcast of 31 December 1981, cited by Paul Nugent, Big men, small boys and politics in Ghana: Power, ideology and the burden of history, 1982–1994 (Pinter Publishing Limited, London and New York, 1995). 119 E. Gyimah-Boadi and Donald Rothchild, ‘Rawlings, populism, and the civil liberties tradition in Ghana’, A Journal of Opinion 12, ¾ (1982), pp. 64–69; Baffour Agyeman-Duah, ‘Ghana, 1982–6: The politics of the P.N.D.C.’, Journal of Modern African Studies 25, 4 (1987), pp. 613–642; Mike Oquaye, ‘Human rights and the transition to democracy under the PNDC in Ghana’, Human Rights Quarterly 17, 3 (1995), pp. 556–573. 120 Agyeman-Duah, ‘Ghana, 1982–6’. 121 Robert Darko Osei and Peter Quartey, ‘Tax reforms in Ghana’ (UNU-WIDER Research Paper No. 2005/66, UNU-WIDER, 2005). 122 Prichard, Taxation, p. 85. He argues that, the improvement in revenue production was in part due to broader economic reforms by the IMF backed Economic Recovery Programme, but the most dramatic increases in revenue were achieved prior to these reforms in 1985–86. See, also Newman K. Kusi, ‘Tax reform and revenue productivity in Ghana’ (African Economic Research Consortium, Nairobi, Research Paper 74, 1998), pp. 21–23. 123 Kusi, ‘Tax reform’. 124 Nugent, Big men, pp. 183–198; Whitfield, ‘Civil society’. 125 Osei, ‘Political liberalisation’ 126 Paul Ansah, Going to town (Ghana Universities Press, Accra, 1996) cited by Osei ‘Political liberalisation’, p. 263. 127 The ruling NDC controlled almost all seats in Parliament, 189 out of 200. 128 Richard Jeffries and Clare Thomas, ‘The Ghanaian elections of 1992’, African Affairs 92, 368 (1993), pp. 331–366. 129 Kwadwo Konadu-Agyemang, ‘The best of times and the worst of times: Structural adjustment programs and uneven development in Africa, the case of Ghana’, The Professional Geographer 52, 3 (2000), pp. 469–483. 130 Jeffries and Thomas, ‘The Ghanaian elections’, p. 366. 131 Mahamudu Bawumia, ‘Understanding the rural-urban voting patterns in the 1992 presidential election: A closer look at the distributional impact of Ghana’s Structural Adjustment Programme’, Journal of Modern African Studies 36, 1 (1998), pp. 47–70. 132 Edward Nketiah-Amponsah, ‘Public spending and economic growth: evidence from Ghana (1970–2004)’, Development Southern Africa 26, 3 (2009), pp. 477–497. 133 Ibid, see also Sudharshan Canagarajah and Xiao Ye, ‘Public health and education spending in Ghana in 1992–98: Issues of equity and efficiency’ (The World Bank Policy Research Working Paper 2579, The World Bank, Washington, DC, 2001). 134 Ibid. 135 Charles Y. Wereko-Brobby, ‘VAT and the kume/sieme preko demonstrations’, in Abdulai (ed), Ghana: The kume preko demonstrations, p. 34. 136 Seth Terkper, ‘VAT in Ghana: why it failed’, Tax Notes International 12, 23 (1996), pp. 1801–16. 137 The Budget Statement, 1997, LSE Library Government Publications, 667 (R79), pp. 34–36. 138 Parliamentary Debates, Official Report, Wednesday, 7 January 1998, p. 836. 139 Parliamentary Debates, Official Report, Friday, 6 February, 1998, pp. 1450–1598; Thursday, 12 February 1998, pp. 1763–1890. 140 Nicholas Kaldor, ‘Taxation for Economic Development’, Journal of Modern African Studies, 1(1963), pp. 7–23. Author notes Prince Young Aboagye (prince_young.aboagye@ekh.lu.se) is a PhD candidate and Ellen Hillbom (ellen.hillbom@ekh.lu.se) is an Associate Professor in the Department of Economic History, Lund University, Sweden. The research for this article was conducted within the research projects ‘Longitudinal Inequality Trends’ funded by Jan Wallander and Tom Hedelius Foundation (P2015-0076:1) and ‘Growing more Unequal? Long term trends in inequality in Africa’ funded by Marianne and Marcus Wallenberg Foundation (MMW 2015.0028). The authors have benefited from insightful comments from two anonymous reviewers, and Jens Andersson, Jutta Bolt, Erik Green, Sara Torregrosa-Hetland, Lindsay Whitfield, and participants in the panel session ‘Development under Dictatorship? Revisiting Economic Development under Authoritarian Regimes in the Periphery’ at the 2018 World Economic History Congress in Boston, MA (USA) and the Development Lunch Seminar series at the Department of Economic History, Lund University, Sweden. © The Author(s) 2020. Published by Oxford University Press on behalf of Royal African Society. All rights reserved This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contact journals.permissions@oup.com © The Author(s) 2020. Published by Oxford University Press on behalf of Royal African Society. All rights reserved
TI - Tax bargaining, fiscal contracts, and fiscal capacity in Ghana: A long-term perspective
JF - African Affairs
DO - 10.1093/afraf/adaa004
DA - 2020-04-23
UR - https://www.deepdyve.com/lp/oxford-university-press/tax-bargaining-fiscal-contracts-and-fiscal-capacity-in-ghana-a-long-cToA0gHeIX
SP - 177
EP - 202
VL - 119
IS - 475
DP - DeepDyve
ER -