Tax farming

Means of managing agrarian revenues, as well as of financing governmental programs.

Similar to the contemporary concept of privatization, tax farming is a poorly understood phenomenon in Middle Eastern history. It is often linked to the abuse of state power and debates on the institutional causes of the fall of premodern Islamic states. In essence, however, tax farming refers to any type of tax collection conducted by private individuals rather than salaried state personnel. These individuals acquire the right, often by auction, to collect a defined revenue for a specific period of time. From the Umayyads onward, Islamic states contracted out collection of taxes in proximate and more distant provinces. Tax farming allowed administrators a degree of flexibility and an opportunity to strike a compromise between the old and the new. Indeed, the earliest Islamic administrators of Egypt awarded contracts to Copts and women. Although the powers of tax farmers were contingent on the type of revenue collected, the status of taxpayers, and the degree of state oversight, Islamic governments found ways to curb abuse and default of contract by requiring financial guarantors and subdividing responsibilities. As this form of collection falls under the legal notions of contract, Islamic lawyers usually separate the discussion of tax farming from the actual fiscal responsibilities of Muslim and non-Muslim subjects in terms of alms (zakat), tithes (ushr), and poll taxes (jizya).

There are few comprehensive studies of tax farming during the period between the Abbasids and the Mongols, though Middle Eastern states contracted out to private agents many types of taxes, both those that were Islamically recognized and those that were not. More than an institutional or legal question, tax farming may be regarded as a window on the evolving structure of premodern Islamic states and its relation to society. Because most of the Islamic schools of law regarded conquered land of non-Muslim populations (kharaj) to be, effectively, state land, tax farming was utilized alongside the iqta or tax fief, a form of resident administration, as an important means of managing agrarian revenues. Pending further research, one may speculate that the alternation between military and privatized forms of tax collection preceding and after the thirteenth-century Mongol invasions was not only the result of corruption of institutions or abuse of office, as the private auction of tax fiefs during the later Mamluk period in Egypt suggests, but also a means of coping with the dislocation of agrarian populations, greater demand for cash revenues, and changing land-use patterns.

Although the forms of tax farming in the Middle East after the sixteenth century have similar legal bases, the practices coincide with new worldwide trends, namely the escalating costs of warfare and expanding global trade. In the Ottoman Empire, for example, tax farming before the sixteenth century had been largely limited to certain commercial revenues and tariffs, and many of the tax farmers were non-Muslims. But as participants in the "gunpowder revolution" and the battle for Europe and West Asia, the Ottomans required ever greater sources of cash to pay their infantries. Auctions of revenue contracts were a means of borrowing: They allowed the state to anticipate future tax receipts, albeit at a certain loss. Although the Ottoman state continued to administer many taxes directly, over the seventeenth century, many Muslim Ottoman officers and civilians bid for rights to collect taxes on the extensive crown and vizierial domains, tariffs, and manufacturing and tribal taxes, as well as to hold certain offices. A 1695 decree gave Muslim tax farmers the right to hold contracts for life (malikane mukataa) and to pass these holdings on to male heirs. Although this extensive use of tax farming produced many problems, it also reinforced the loyalty of Muslim tax farmers, if only by dint of self-interest, to the state, which awarded and recognized these rights.

Since the French Revolution, social scientists have tended to regard fiscal decentralization as one of the ancien régime's greatest evils as did the Ottoman state planners who tried to restrict and then eliminate tax farming in the early decades of the nineteenth century. Despite good intentions, Middle Eastern reformers were frustrated by chronic fiscal shortfalls and lack of administrative staff. No such compunctions about modern statecraft burdened the French colonial regime in Algeria, however. Well into mid-century, French imperialists continued to adapt an older tax-farming system to new political and fiscal purposes.

Bibliography

Cuno, Kenneth M. The Pasha's Peasants: Land, Society, andEconomy in Lower Egypt, 1740 - 1858. Cambridge, U.K., and New York: Cambridge University Press, 1992.

Frantz-Murphy, Gladys. "Land Tenure and Social Transformation in Early Islamic Egypt." In Land Tenure and Social Transformation in the Middle East, edited by Tarif Khalidi. Beirut: American University of Beirut, 1984.

Johansen, Baber. The Islamic Law on Land Tax and Rent. London and New York: Croon Helm, 1988.

Morony, Michael G. "Land Holding and Social Change: Lower al-Iraq in the Early Islamic Period." In Land Tenure and Social Transformation in the Middle East, edited by Tarif Khalidi. Beirut: American University of Beirut, 1984.

Salzmann, Ariel. "An Ancien Régime Revisited: Privatization and Political Economy in the Eighteenth-Century Ottoman Empire." Politics & Society 21, no. 4 (1993): 393 - 423.

— ARIEL SALZMANN

Tax farming was originally a Roman practice whereby the burden of tax collection was reassigned by the Roman State to private individuals or groups. In essence, these individuals or groups paid the taxes for a certain area and for a certain period of time and then attempted to cover their outlay by collecting money or salable goods from the people within that area.^[1] The system was set up by Gaius Gracchus in 123 BC primarily to increase the efficiency of tax collection within Rome itself but the system quickly spread to the Provinces.^[2]

Within the Roman Empire, these private individuals and groups that collected taxes in lieu of the bid they had paid to the state were known as publicani, of whom the best known is probably St. Matthew, a publicanus in the village of Capernaum in the province of Galilee. The system was widely abused, and reforms were enacted by Augustus and Diocletian.^[3] Tax farming practices are believed to have contributed to the fall of the Roman empire.^[4]

Tax farming is not identical with privatized tax collection, where private individuals or groups collected taxes and give them to the state in return for a fee. Tax farming is speculative, meaning that the private individual or group must invest their own money initially to pay off the tax debt, against the hope of collecting a larger sum subsequently (hence "farming").

Contents 1 History 2 Pros and cons of tax farming 3 Tax farming in modern days 4 See also 5 References 6 Further reading 7 External links

History

Besides the Romans, historical examples include the tax collection methods of the Ptolemies, Seljuks, Mamluks, Ottomans, and the French State prior to Louis XVI. In many cases, such as the Abbasid practice of Iqta, these rights were granted by an authority, in this example the caliph, for services rendered or promised. In the Byzantine pronoia system, similar rights were often purchased from the crown.^[5] Though such arrangements in some respects seem similar to the feudal system, there are significant disparities, including continuance of state power and, at least in the case of pronoia, theoretical time limits on the grant. In many cases, including those mentioned, tax rights were not transferable or divisible, unlike feudal fiefdoms.

Pros and cons of tax farming

Tax farming was historically an important step in the development of state revenues and economic growth by providing a method for collecting taxes across a large area without the need for a tax-collecting bureaucracy (or during periods when such a bureaucracy is unworkable or impossible to maintain). As such, systems of tax collection more or less similar to Roman tax farming were used in Pharaonic Egypt, various medieval Western European countries, the Ottoman and Mughal Empires, and in Qing Dynasty China. On the other hand, as states become stronger, buoyed up by revenues brought in by tax farming, tax farming was discarded in favour of centralized tax collection systems. In part this was because tax farming systems tended to rely on wealthy individuals outside the state machinery, gangs, and secret societies.^[6]

The key flaw in the tax farming system is the tension between the state, which wants a long-term source of taxation revenue, and the tax farmers, interested in making a profit on their investment in as short a time as possible. As a result tax-farmers often abuse the taxpayers in various ways, such as deliberately undervaluing goods paid to them in lieu of taxes, which allows the tax-farmers to re-sell those goods at maximum profit. However, such abuses stifle economic growth, limiting the quantity of taxes generated over the long-term.

Tax farming in modern days

In practice tax farming is not outdated as yet. In many countries, including Bangladesh and India, collection of toll on bridges or other public properties like lakes and forests, is often entrusted to private persons or firms to avoid the problems related to the collection of revenue. In 1999, the National Board of Revenue in Bangladesh (NBR) negotiated with the cigarette producing firms the minimum amount of Value Added Tax (VAT) that should be paid per month, although VAT was an ad valorem tax. NBR took this attempt, since under the self-clearance system, monitoring of production and sales of cigarettes proved to be difficult. It was negotiated that if the cigarette producing firms paid the minimum revenue fixed by NBR, physical monitoring would be withdrawn. NBR resorted to this technique of tax farming to avoid the unbearable costs of monitoring, while gaining more in revenue with certainty.^[7]

See also

• Maona
• Privatized tax collection
• Publicani
• Farmers-General

References

1. ^ Howatson M. C.: Oxford Companion to Classical Literature, Oxford University Press, 1989, ISBN 0198661215
2. ^ Balsdon J.: Roman Civilization, Pelican, 1965
3. ^ Roman-taxes at unrv.com
4. ^ Cahill, Thomas. How the Irish saved civilization: the untold story of Ireland's heroic role from the fall of Rome to the rise of medieval Europe. Anchor Books, Doubleday, 1996, p. 26.
5. ^ Timothy E. Gregory, A History of Byzantium (Malden, MA: Blackwell, 2005)
6. ^ John Butcher and Howard Dick, The Rise and Fall of Revenue Farming: Business Elites and the Emergence of the Modern State. St. Martin's Press, 1993
7. ^ Chowdhury, Faizul L. NBR's attempt at Tax Farming - fixed amount of VAT on Cigarettes in 1999, 2007 : Desh Prokashon, Dhaka.

Further reading

• Chowdhury, F. L. (2007): NBR's attempt at Tax Farming - fixed VAT on Cigarettes in 1999, Desh Prokashon, Dhaka.
• Levi, M. Of (1988), Rule and Revenue, California Series on Social Choice and Political Economy (13), University of California Press.
• Stella, P., (1992) Tax Farming: A Radical Solution for Developing Country Tax Problems? (September 1992). IMF Working Paper No. 92/70.

External links

• Roman Taxes

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