Walking in the Dark: informal Cross-border trade ... - International Alert

Walking in the Dark: Informal Cross-border Trade in the Great Lakes Region
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7. Informality: the “devil’s deal”
Paradoxically, the interviews conducted with traders revealed a preference for informal taxes in
DRC over formal taxes in Burundi. The latter are perceived as being a source of ‘hassle’, while
the former are seen as more reasonable because they are ‘negotiable’. 142 In other words, the
legitimacy of taxes is in no way linked to their legality: on the contrary, traders prefer informal
and often illegal taxes, perceiving them to be less expensive than formal and legal taxes. 143 As a
result, traders often prefer to involve themselves in informal situations in which they can either
try to avoid paying any taxes or pay informal taxes.
In her analysis of informality, Judith Tendler discovered that this state of affairs was based on
tacit agreements between politicians and traders (especially in terms of the informal economy),
whereby politicians promised not to collect taxes from traders or to protect them against the
regulations in force. 144 She refers to this phenomenon as the “devil’s deal” because, in this context,
informality is made more attractive than a formalised system, an arrangement that is difficult
for both parties to leave behind. Although informal arrangements benefit traders in the short
term, they provide no sustainable development at the local level: the resulting job creation is not
sustainable and neither is the informal arrangement. The same argument applies to the situation
experienced by small traders at the locations concerned by this report: they may not depend
on agreements reached with politicians, but their actions are, to a large extent, informal. This
manifests itself in two different ways: traders prefer to pay informal taxes or reach an agreement
with individual public officials; or they try to avoid paying taxes by using smuggling routes (and
therefore participate in the informal economy). While this provides advantages in the short term,
the negative effects significantly outweigh the positive effects in both the medium and long term.
First of all, many of these taxes are not supposed to be paid and are therefore a violation of national
laws or inter-state agreements ratified within the framework of CEPGL or EAC. 145 Secondly, the
large number of taxes and high degree of informality lead to significant levels of confusion at
border points. This is not only due to the fact that operators are unfamiliar with the taxation rates
in force, but also because there is a general lack of clear regulations at all the borders concerned.
In concrete terms, it is difficult to know how (or whether) national regulations and regional
trade agreements are being respected. One agent from the Uganda Revenue Authority (based in
Kampala) commented that ‘our laws are there [...] but their application depends on the person
working at the border post’. 146 In other words, national institutions are not always aware of
practices on the ground and do not consider this to be a priority. 147 Furthermore, fiscal rates and
practices can vary considerably within a single country. As illustrated above, the two Congolese
border posts covered by our study displayed significantly divergent rates of informal taxation:
Bukavu applied low levels of informal taxation (USD0.17), whereas in Uvira their value was
much higher (USD1.75). All of the border posts have informal arrangements with regard to the
value of taxes and the quantities of merchandise which can cross without being taxed.
142 Traders focus group, Gatumba, 8th October 2011.
143 I. Abraham and W. van Schendel (2005). ‘Introduction: the making of illicitness’, in I. Abraham and W. van Schendel (eds) (2005). Illicit Flows
and Criminal Things. Bloomington/Indianapolis: Indiana University Press.
144 J. Tendler (2002). ‘Small firms, the informal sector, and the Devil’s Deal’, IDS Bulletin, 33(3).
145 For example, small quantities are not supposed to be taxed in DRC, except in the case of small batches being transported for a “large
trader”. Interview with DGDA Director in North Kivu, September 2011.
146 Interview with URA official, Kampala, 2nd February 2012.
147 For a detailed analysis of this phenomenon in Uganda, see K. Titeca and T. De Herdt (2010). Op. Cit.