ABSTRACT
Taxation is the cornerstone to build state capacity. It involves reciprocity between citizens and state where the former understand that public goods must be paid for. This chapter contends that the way taxes are collected tends to influence the effectiveness of state institutions, the dynamics of the investment climate, and hence economic development. The colonial state relied on traditional authorities and its bureaucracy to map the countryside, to count citizens, and to collect taxes. The result was an efficient tax collection system. Moreover, the tax burden on Africans declined over the years as the colonial state expanded its tax base to the most prosperous segment of society, the foreign exporting sector. However, the state balanced this policy with massive subsidies in transportation to minimize this sector’s costs. Thus, export taxes created supportive relations by binding the state and foreign exporters, allowing them to negotiate and bargain over policies and strategies. In addition to bargaining and consultation, export taxation influenced redistribution, state capacity, and even societal capacity. The Belgian state also used import duties selectively to carry out its import substitution policy to protect the manufacturing industry. This policy never created any monopoly rent to protect non-competitive industries.
