Taxation on the Congo River

This is the abstract of Olsson, Baaz, and Martinsson in the JDE:

In many post-conflict states with a weak fiscal capacity, illicit domestic levies on trade remain a serious obstacle to economic development. In this paper, we explore the interplay between traders and authorities on Congo River – a key transport corridor in one of the world’s poorest and most conflict-ridden countries; DR Congo. We outline a general theoretical framework featuring transport operators who need to pass multiple taxing stations and negotiate over taxes with several authorities on their way to a central market place. We then examine empirically the organization, extent, and factors explaining the level of taxes charged by various authorities across stations, by collecting primary data from boat operators. Most of the de facto taxes charged on Congo River have no explicit support in laws or government regulations and have been characterized as a “fend for yourself”-system of funding. Our study shows that traders have to pass more than 10 stations downstream where about 20 different authorities charge taxes. In line with hold-up theory, we find that the average level of taxation tends to increase downstream closer to Kinshasa, but authorities that were explicitly prohibited from taxing in a recent decree instead extract more payments upstream. Our results illustrate a highly dysfunctional taxing regime that nonetheless is strikingly similar to anecdotal evidence of the situation on the Rhine before 1800. In the long run, a removal of domestic river taxation on Congo River should have the potential to raise trade substantially.

The magnitude of taxation is not trivial:

congotaxesIn our applied analysis, we collect novel data from a sample 137 river boat operators, which corresponds to approximately 90 percent of all boats arriving during our 3.5 month survey period. During the journey downstream on Congo River, a boat passes several administrative stations where various authorities are present. Our data record more than 2000 de facto tax payments to more than 20 different authorities at 10 different stations on the journeys downstream Congo River towards the capital Kinshasa. The average total cost of such de facto taxes amounts to almost 14 percent of the variable costs of a single journey, equivalent to more than 1.5 times the official GDP per capita in DR Congo and 9 times the average monthly wage of a public official.

… In total, 2226 tax payments were recorded among the sampled boats, adding up to a total sum of 76,148 USD. On average, boat operators made about 18 payments per journey.

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