In his 2013 volume explaining why donor-supported reforms often go awry in developing states, Kennedy School Professor Matt Andrews lays the blame on the failure to appreciate how political imperatives, patronage networks, cultural practices, and other elements of local context affect the way reforms are implemented. While Andrews offers telling examples of how ignorance of context doomed reforms in Argentina and Malawi, the failure to stamp out corruption in Uganda’s revenue collection service provides an even more vivid illustration of the way the very different context in a developing state can cause “best practice” reforms to fail. The analysis is taken from Odd-Helge Fjeldstad’s classic account of the attempt to reform tax collection in Uganda, “Corruption in Tax Administration: Lessons from Institutional Reforms in Uganda,” chapter 17 of Susan Rose-Ackerman’s 2006 edited volume, International Handbook on the Economics of Corruption.
In 1991 revenue from taxes and customs duties in Uganda were seven percent of GDP, an astonishing low figure even on a continent where tax evasion was the norm. Under pressure from the IMF, the World Bank, and other donors the then recently installed government of Yoweri Museveni took decisive action. Following what was then considered best practice for boosting revenues and cutting corruption in a revenue service, the government made the revenue department of the Ministry of Finance into an autonomous agency. Independent agency status allowed the Uganda Revenue Authority to implement a number of reforms to reduce corruption. Salaries were raised above civil service levels and strictures on firing non-performing workers removed. As a new agency, all employees were considered new hires and had to prove themselves during a probationary period; as a result almost 250, or 15 percent, of the old revenue department staff were weeded out. In addition, “clean” expatriates were hired into senior management positions, and measures were taken to improve morale: offices were upgraded, working conditions improved, and training provided. All in all, the Uganda Revenue Authority was considered a model for how to create an efficient, non-corruption revenue collection agency.
During the first years of its existence, the authority’s performance suggested these reforms were succeeding. Revenue collection as a percentage of GDP improved and perceptions of corruption declined. These early indicators of success, however, soon began to decline. Forty-three percent of businesses surveyed in 1998 reported paying a bribe to a Uganda Revenue Authority employee; in March 2000 President Museveni termed the authority a “den of thieves,” and in 2003 its former head listed corruption as “problem number one” in the organization. A Commission of Inquiry of C corruption in the Uganda Revenue Authority was appointed in 2002, and although its report was never released, leaks suggest the commission found massive corruption in the ranks. Continue reading