EL BLOG DE LA FIIAPP. Cooperación Española

The municipality of San Vicente del Caguán has been particularly affected by armed conflict. Its inhabitants are trying to free themselves from the stigma of living in a ‘land of guerrillas’. The town was at the heart of the El Caguán demilitarised zone—–where the army would not enter–—during the Andrés Pastrana administration, something which allowed FARC to consolidate is influence in the region.

We are now heading there to inaugurate an NAF. The three-hour journey from Florencia passes through idyllic landscapes peppered with military roadblocks. Stories of armed conflict are inevitable: “presidential candidate Ingrid Betancourt was kidnapped making this same journey, three days after Pastrana broke off contacts with the FARC”, “the parliamentarian Diego Turbay was killed here a few minutes before arriving at the town of Puerto Rico”.

A car crosses our path, a strange manoeuvre which puts us on our guard. The suspicious vehicle has changed lanes to access a farm. False alarm. These are new times, but past fears have not abated. There are still FARC splinter groups who have not abandoned their weapons.

Taxes for development

The NAF is located in a citizen coexistence centre which offers services to vulnerable people: a family commissioner, police inspection, coordinating council meetings, a victim assistance unit, and so on. The mayor of San Vicente del Caguán, who opposes the peace agreements, is currently in Europe to see the lessons learnt in Northern Ireland first-hand. A total of 53% of the population of Caquetá voted against the agreement, so reconciliation has a long and difficult road ahead.

We are met by Cecilia Collazos, the acting mayor and social development secretary. In her view, tax fraud is mainly due to a culture of avoiding paying taxes: “rather than difficulties understanding the tax system, what there is here is a culture of non-payment and hiding real income in order to avoid taxes. The peace agreements have brought some changes, but there is still extortion, there are still splinter guerilla groups in the area. Real peace is achieved through projects, investment and employment”.

For Cristián, who studies accounting, the NAFs are very useful for his future career: “the accounting component focuses mainly on taxation, and the NAFs give us the chance to offer guidance to people with low incomes and so they can then be competitive in a market like San Vicente del Caguán, where there are a lot of businesses and lots of accountants are needed”. For Cristián, it’s obvious that development and taxation go hand in hand: “if we want social investment, we need to contribute by paying taxes. It will be difficult and we will encounter a lot of opposition at the start, but we will gradually provide a good service for the well-being of communities”.

The creation of the NAF is met with satisfaction from the business sector in San Vicente. This is the message we get from César Augusto España, coordinator of the Business Services Centre at the Chamber of Commerce of Caquetá: “We are three hours from Florence, where the DIAN (Colombian National Taxes and Customs Directorate) has its offices, and the NAF will expedite the process of fiscal formalisation in all municipalities”. España argues that “there is resistance to paying taxes due to limited access to public services and the scarce presence of the State. A full 98 per cent of companies in Caquetá are micro-enterprises and tax revenues are low, but the peace agreements are starting to stimulate the economy: in 2017, these companies grew by 34%”.

Light at the end of the tunnel

Despite the many obstacles, Hernando Vásquez, District Director for the DIAN, is optimistic about the new state of affairs: “I have been to almost 80 per cent of municipalities and I have encountered more receptivity. The public are asking us to assist and guide them in voluntarily meeting their tax obligations”.

Long-lasting peace and economic development are what the inhabitants of Caquetá most long for. A fertile, hospitable land with enormous potential for rural tourism and agricultural development, with a real desire to show that its fate is not sealed and that things can be different. It is now up to them to take the necessary steps to regain security and social cohesion.

It is also up to the institutions, who must forge a new relationship between the State and citizens based on reciprocity, a process in which civic-tax education will be enormously useful as a communication channel between the two.

Citizens and institutions both know that if they wait for the other side to do something, the vicious cycle of ‘not paying taxes-scarce public services-mistrust of the State’ could go on forever. To find a way out of the labyrinth of the post-conflict, it is necessary to move forward decisively with our sights set on a better future.

Borja Díaz Rivillas, Senior Expert in Democratic Governance for the EUROsociAL+ Programme 

Read the first two parts:

Taxation, the state and the public in the labyrinth of the post-conflict (I)

Taxation, the state and the public in the labyrinth of the post-conflict (II)

The National Taxes and Customs Directorate (DIAN) in Caquetá knows that coercion will not get it anywhere, what it needs to do is convince. With only ten auditors, there is no way it can be breathing down every taxpayer’s neck. It needs to build bridges. It needs carrots as well as sticks.

The tax incentives created to promote formalisation and investment must therefore be accompanied by better tax information and assistance for citizens, as well as a good dose of education on the social purpose of taxes and public spending. Teaching children about taxes from an early age can make this process sustainable, and over the long-term, contribute to voluntary compliance with tax obligations.

For several years, the DIAN has been promoting meetings with children and young people on tax culture in schools in Caquetá and it holds tax services events to raise awareness of its role and get closer to the public. New opportunities are arising to consolidate and multiply these efforts through universities in the form of the Tax Assistance Hub project (NAF in its Spanish acronym).

University as a bridge between the DIAN and citizens

Last November, EUROsociAL+ – the European Union’s regional cooperation programme with Latin America – organised a workshop at the University of the Amazon in Florence dedicated to promoting post-conflict tax culture strategies. It was attended by tertiary education institutions and DIAN sections from the Areas Most Affected by the Armed Conflict in Colombia (Zomac).

The University of the Amazon is a unique institution. It is the only public university in Caquetá. It is strongly committed to the peace process, the environment and sustainable development.

Its Public Accounting Programme has joined the post-conflict challenge by creating a Tax Assistance Hub (NAF), an information point where university students give free tax and accounting advice to people with low incomes and micro entrepreneurs.

Trained by the tax administration, the students dedicate as much time as necessary to citizens, listening to their problems and concerns. They generate trust and help them understand the tax system and improve their small businesses.

NAFs are a bridge between the DIAN and the public. This experiment, devised in Brazil, is now present in more than 450 universities in 10 countries. In Colombia, 43 universities have joined, 20 of them in ZOMAC areas.

In the past 4 years, EUROsociAL has been supporting the expansion of this initiative by sharing experiences. The workshop in Florencia gave the opportunity to share lessons learned that can be applied to the post-conflict.

Young people as drivers of change

Hernando Vásquez, District Director with the DIAN sees the NAFs as a way for young people to transform the current situation: “The NAFs are an opportunity to generate trust in the tax administration and create civic awareness about taxes. What better way to give future accountants, administrators and lawyers a real view of what is happening?”.

The students attend campus every day and also visit business in Florencia and the surrounding municipalities. This allows them to see the reality of the post-conflict and the opportunities that peace brings for the development of the region.

One of the NAF students tells us about their experience: “Caquetá was badly affected by the armed conflict. We now have the opportunity to get to places that were inaccessible until now, and make Colombians from other regions and foreigners see that Caquetá wants to give the best of itself. Paying taxes means contributing to ourselves”.

And the student continues: “Business owners had the excuse that they shouldn’t pay taxes due to the armed conflict. But those excuses are no longer valid. We have gone to NAFs in some of the most difficult places such as San Vicente del Caguán or Cartagena del Chairá, where people are preparing for the law to be enforced more stringently. We need to show what taxes are used for and for farmers or businesspeople to see that taxes build roads to make their work easier”.

This reality is not alien to that of other areas affected by armed conflict, areas that share their experiences at the workshop. Natalia is another of the young people working in the NAFs in ZOMAC areas, in this case in Ibagué: “It’s really rewarding to help someone in need, someone who doesn’t know how to read or write, let alone use a computer, and for them to go away happy with their new knowledge“.

Borja Díaz Rivillas, Senior Expert in Democratic Governance for the EUROsociAL+ Programme

Our twin-engine plane touches down in Florencia, capital of Caquetá Department, the gateway to the Colombian Amazon. The storm which preceded our arrival has left the evening bright and clean. The sun melts onto the strikingly beautiful emerald green landscape. Zebu cattle surrounded by white herons, meandering rivers, rice, plantain and cassava plantations, farmers finishing off their working day… A haven of peace and harmony in a land stricken by armed conflict, drug trafficking and poverty.

Caquetá, land of informality

Caquetá lives primarily from livestock and agricultural production. Its 480,000 inhabitants are distributed among 16 municipalities, although the majority of caqueteños live in Florencia, a young city, founded in 1902.

Life in Florencia takes place in the shadow of the underground economy. According to figures by the Bank of the Republic of Colombia, 76 per cent of the working population are informal workers. The weak presence of the State, low quality public services and corruption are fed by deep-rooted practices among citizens, such as tax fraud, violence and a failure to respect public property. The city’s social problems have been accentuated by a massive influx of people displaced by the armed conflict, who account for 60% of the population.

“Why pay if they steal it, what is the State giving us? I pay taxes while others thrive by not paying them. It’s not fair”, complain business owners. “There are rich livestock owners who don’t fulfil their tax obligations out of pure selfishness, this way, public services are never going to improve”, one public official told us.

Caquetá Department, just like other areas of the Colombian post-conflict, is caught in a vicious circle that complicates the social contract and the construction of a new framework for coexistence. The reciprocity between the State and citizens and trust between individuals is complicated.

The difficult task of collecting taxes

Being a public official in Caquetá is a challenge, but being a tax collector there deserves a medal. Someone who is only too aware of this is Hernando Vásquez. Hernando came up through the ranks to become the District Director of the Colombian Directorate of National Taxes and Customs (DIAN) in Caquetá: “Many years ago, when I first began working in the tax administration, I was the only auditor in the whole of Caquetá and I noticed real resistance from business owners and taxpayers. I conducted censuses and at times, I feared for my life, I almost had to run away”.

One result of the absence of the State in much of the region was that in many places, people paid a ‘vaccine’, a tax that citizens were made to pay by FARC (Revolutionary Armed Forces of Colombia). Business owners were forced to keep two sets of books in order to pay the extortion, keep their business, and most importantly, keep their family safe. Extortion by paramilitaries was also common.

Sometimes, business owners used armed groups to avoid paying taxes to the State. Hernando tells us that the inhabitants of one town told FARC about the presence of DIAN auditors. Faced with an incursion by guerilla fighters, the public officials had to leave the town in order to save their lives

Carrots and sticks

Although times have changed since the peace agreements between the Government and the armed groups, collecting taxes in this region of Colombia is still complicated, and paying them is not a priority civic duty in the minds of most caqueteños.

The State and DIAN are viewed with suspicion. There is a general lack of awareness about taxation. Many people are forced to work in the underground economy. Those that are aware of their obligations and have the financial means do not pay due to a lack of solidarity. Criminal gangs that benefited from contraband and extortion are still a threat for traders and business owners and of course, DIAN officials.

For taxes to be key in building peace and a more equal society with better public services, it is essential to transform the tax culture of the population and cause a paradigm shift in the relationship between the tax collector and the public.

Álvaro Pacheco, the Governor of Caquetá, is conscious of the need for more reciprocity: “As public awareness increases, so does tax revenue, and we see this reflected in projects that our country really needs, meaning we can advance forwards Paying taxes is nothing to be afraid of”.

The DIAN in Caquetá knows that coercion will not get it anywhere, what it needs to do is convince. With only ten auditors, there is no way it can be breathing down every taxpayer’s neck. It needs to build bridges. As well as sticks, it needs carrots.

The tax incentives created to promote formalisation and investment must therefore be accompanied by better tax information and assistance for citizens, as well as a good dose of education on the social purpose of taxes and public spending. Teaching children about taxes from an early age can make this process sustainable, and in the long-term contribute to voluntary compliance with tax obligations.

For several years, DIAN has been promoting meetings with children and young people about tax culture in schools in Caquetá, and it holds tax services events to raise awareness of its role and get closer to the public. New opportunities are arising to consolidate and multiply these efforts through universities in the form of the Tax Assistance Hub project (NAF in its Spanish acronym).

Borja Díaz Rivillas, Senior Expert in Democratic Governance for the EUROsociAL+ Programme.

 A year since the signing of the Colombian Peace Agreements, we went to Bogotá to interview the city’s former mayor, Professor Antanas Mockus, a big defender of the national reconciliation process and a leader in changing collective behaviour through education, including behaviour related to paying taxes.

During his terms as mayor, Bogotá underwent a transformation in its tax culture, as its citizens began to notice a relationship between taxes and an improvement in public services. This led to feelings of a shared responsibility for funding development that were based on conviction rather than on the fear of being sanctioned. ‘Todos pagan’ [‘We all pay’] and ‘Recurso público, recurso sagrado’ [‘Public resources, sacred resources’] were some of the slogans coined by Mockus, who also promoted a campaign called ‘110 por ciento con Bogotá’ [‘110 per cent with Bogotá’], which appealed for a voluntary 10% tax increase, with a chance to choose the project the money would go to.

What role do taxes pay in post-conflict Colombia?

The peace process that Colombia is going through has many aspects. One of these is avoiding the use of the force of arms to implement changes. The State must reach the country in a much more substantive way, but the public must also play their part. The public must learn to understand how the State works, how the State reallocates resources for purposes that are usually much more admirable than private spending; it would not make sense to collect taxes to do things that are not as good.

The social rule of law established by the Colombian Constitution of 1991 establishes that one of a citizen’s duties is to pay taxes. However, this duty is associated with the State’s duty to protect citizens’ rights. But rights cost money. There is a book by an American academic named Stephen Holmes entitled ‘The Cost of Rights’, which asserts that a right cannot be guaranteed if no resources have been invested in defending that right.

Colombia is in debt in terms of socio-economic inequality and taxes must be understood to be part of the tools that we have for levelling the playing field and creating more equality. We hope that FARC and the ELN, if they join the peace process, will participate in this learning process and understand the enormous importance of redistribution mechanisms. It is essential to go through the tax system, which is the only method of wealth redistribution open to a democratic government. Redistribution must be understood not only as a way of sharing out resources but also as an essential part of human relations. Public resources are sacred resources.

How can a country’s tax culture be changed?

I have an anecdote about a Colombian who is working and studying in the United States. At breakfast, he tells an American friend: “Last night I found a way to avoid paying taxes”, and he then explains his scam. And the American says: “I’ll give you 24 hours to put that right or I’ll report you”.

The mafia culture is associated with a code of silence. In the mafia culture, the social norm is more than simply not complying with legal regulations, breaking the law becomes part of your obligations.

For a while, I thought that corruption was something it would be very easy to resist, just by saying no, but then I met mayors who had been threatened with violence for not cooperating with criminals. As a result, the combination of the code of silence with the use of violence against those who do not allow themselves to be corrupted generates an illness that is slightly more difficult to deal with, but it is one that needs to be treated all the more urgently.

When you buy a tin of paint at a hardware store in Colombia, you are still often asked whether you want it with or without VAT, with or without a receipt, which is an implicit or explicit offer to not pay sales tax.

This has a decisive influence on the public’s attitude toward taxes…

The field of behavioural economics has found that as humans, we are very risk-averse. If you lose 10 euros and find 10 euros, you won’t be happy; from a psychological point of view, you’ve suffered a loss. You would need to find 27 euros. Losses are seen through a magnifying glass. If you see taxes as a loss, you suffer disproportionately; but it is different if you see them as a contribution, a bit like putting money into a kitty, a mechanism for pooling resources to achieve common goals.

Bogotá has managed to improve people’s attitude toward paying taxes. We have also worked with the Ministry for Health to show that there are other redistribution schemes, as well as taxes. In the Colombian healthcare model, the more economically powerful classes contribute more than their proportion to healthcare and this is a clear redistribution model, because people from very different financial situations receive similar medical attention. Having the same guarantees is another expression of the social rule of law.

My experience is that if people understand what taxes are for, if they understand how the rates for the different groups of citizens work, they can understand how important taxes are. The proper management of these is, in part, the secret to the country’s development.

What is your opinion of the work sponsored by the EUROsociAL+ programme in universities with Tax and Accounting Assistance Hubs (NAFs)?

What is being promoted with the university tax consultancies is a very important step. The role of the accountant as someone who advises you how to evade or avoid taxes is giving way to a culture of a tax adviser who explains the purpose of the regulations to the public, taking on the role of educator.

Borja Díaz Rivillas, Senior Expert in Democratic Governance for the EUROsociAL+ Programme.

Sometimes, life sends you opportunities and it’s up to you as the individual to decide whether to seize them and take on the responsibility or not. One such opportunity that came my way was the NAF*. Who’d have thought that I could be part of something new? Perhaps no one. In the beginning, maybe we were a little intimidated by the recruitment process, where many fell by the way side. But were we lucky? Hmmm, I don’t think so. Well perhaps in my case, but more than luck, it was a question of perseverance, studying hard and, above all, feeling the need to be part of something.

They say that it’s not easy to start something new, of course it’s not. Particularly when you are not used to interacting with others. I don’t mean that I’m someone who doesn’t socialise with other people, but this is very different to just talking to your friends, because your friends know you and if you make a mistake they will let you know, with a little ribbing and mockery along the way. But trying to interact with taxpayers was horrible in the beginning! My legs were shaking! I would think “What if I make a mistake? What will I do? Should I just go? I know, it’s a little immature for someone of my age and especially for someone in their final year at university, but I was scared. And then the first taxpayer arrived. She was a very nice dark haired lady, a real delight, and it was then that I understood how unjustified my fear had been, because not all taxpayers are ogres (no offence intended).

Then it was our turn to do a “tax fair” for the inauguration of NAF. We had to set up the marquee the night before the fair. What a drag! But it was for our own benefit so off to work we went. We learned two things that day: firstly, that putting up a marquee is not a simple thing to do, and secondly, that working on a fair requires team work. On the following day all the members of NAF were really nervous and very tired, of course, but it was worth the effort because the fair went ahead without a hitch. Dozens of people stopped to see the stand and others to ask for information or for the NAF opening hours. In short, it was an immense satisfaction to all of us. Finally, NAF open the doors to its first office in Bolivia, in the city of El Alto. What joy! Our hard work was paying off.

In our office at last! Well, the office that the university has loaned us, but it was just as though it was our very own. We had to put into practice everything that we had learned up to this point. In the beginning we had days where we only saw a handful of taxpayers and other days were we saw no one at all. Is that frustrating? Well yes it is, very. Even though we saw approximately 100 different taxpayers in our first month, we thought that this was not good enough and that we needed to be more efficient. Personally, I felt disappointed in myself.

But now we know that 100 is a good number to start with and that we shouldn’t feel frustrated or disappointed because we are giving our best every day. We are a new service, people still don’t know about us, but over time everyone will be talking about NAF.

I don’t want to change the world, the country or even this city alone, I want to change and help that person that comes to NAF for help, because by helping that person, he or she will go on to help another, and he or she will go on to help another, and by doing so, together we can make the world a better place to live. Someone once said that all changes starts with something simple.

My time at NAF is now drawing to an end; the time has flown by. I would love to stay longer but I need to make way for new people.

We aren’t geniuses here and we make mistakes just like anyone else, but whilst we are helping people who need assistance with their accounting and tax affairs, we will always be part of NAF.

*About NAF: Tax Support Centres, better known as NAFs, are part of a university social responsibility initiative promoted by the Brazilian Tax Administration, (Receita Federal).Through NAFs, students studying accounting and finance degrees who have received the necessary training from the tax administration can offer a free advisory service to low income individuals and entities in relation to basic tax issues. NAFs are available at 50 universities in Brazil, and with the backing of EUROsociAL, an EU cooperation programme, they have now been extended to 66 universities in Latin America: Mexico, Costa Rica, Honduras, Ecuador, Chile, Bolivia & Guatemala