The taxman cometh

It’s conventional wisdom that the main threats to law and order in the Congo are the forces of law and order – the police and the army.

Now we’re hearing an increasing number of complaints about a new ogre: the taxman. Taxmen have always had a bad press. The apostle Matthew had a tough time convincing people that he had changed. But the Congolese equivalent have definitely got the edge. From large to small companies, the taxman poses an uncomfortable threat.

It’s not just formal business that’s targeted. In a focus group discussion that we held market women said that they were subjected to 22 different sorts of tax, many of which seemed to have no legal basis.

I recently witnessed a woman at the airport, obviously a trader, who was organising porters to carry her boxes from the car park into the terminal building. A blue-dressed official – a conventional sign of authority here – caught sight of her and pounced. I don’t know what he said, but guess it was “you’re only allowed three pieces of baggage, you’ll have to pay a fine for the other ten. That will be” (and this bit I did hear) “6,000 francs” (about $6). Let’s be clear: this was nothing to do with overweight baggage, he was in the car park, a small official who had spotted a gap. Her choices: to fight, and be kept by him until she had missed her flight, and risk being arrested for something; or just pay up. Obviously, though very reluctantly, she chose the latter.

To revert to formal business, I had been tasked with opening a bank account which was to be jointly managed by a firm of consultant accountants. I had their address: it was an office building entered from a courtyard. Once I found the building, I could see no sign of them at all; I checked the address again and started asking people. No one knew. I tried upstairs – nothing doing. Eventually, I thought of asking the little old watchman who was standing at the street entrance. He knew exactly, and proudly showed me to a small, unmarked door, underneath the stairs. At the time I couldn’t understand why a firm which would, one would expect, want to advertise its name, and make life easy for its visitors, choose to operate in such obscurity, if not squalor. But now, of course, it’s clear. They are hiding from the taxman.

We were talking to a colleague who had been working on a democracy project. They had quite a big team and opened offices in a bright new office block somewhat out of the centre. She said that every month the taxmen would come round and demand payment. Sometimes it would be a small routine payment – a sort of protection money – but they could suddenly change and demand to see the books. This would be the pretext for some outrageous demand which then had to be negotiated down to a reasonable amount.

This imposes huge burdens on small business, not just in terms of the amount that must be paid, but in terms of the need to have accounts updated daily so that one could never be caught out. I was talking to an old-timer who has many Congolese friends who operate businesses in a small way. He said that if you are comply with the tax laws to the letter it is literally impossible to make a profit. Thus you have to keep two sets of books: one for the tax man. OK I know there’s nothing new in that, but the gap here is huge. Even more damning, a Congolese lawyer who works for a huge company here told me that taxes for their business amount to 360% of the profits. The rumour is that they are pulling out shortly, but we’ll see.

In principle one applauds efficient tax collection. It has certainly made a huge difference in South Africa. But here, it’s different. The incentives are to exploit, without a fair legal system to keep the exploitation in bounds. It was possibly to try and achieve results like South Africa’s that the Congolese Government introduced a commission system, under which the tax department retains a percentage of their takings; the collector receives his percentage, and the rest goes to the central treasury. The rate for the collectors’ commission is highest for penalty payments, so if they can find an excuse to charge a penalty for under-declaration of earnings or late payments they will. And since they know that no one, literally no one, can possibly comply with all the regulations – because if they did so they would be out of business – they can always find something with which to penalise the businessman.

So, tax avoidance, typically the domain of the wealthy, has a totally different meaning here. It’s hide, duck and dive in their most literal sense.