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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 saleable 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 collect taxes and give them to the state in return for a fee. Tax farming is speculative, meaning that the private individuals 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").



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 step because 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


  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
  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



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