While tax revenues are a critical part of financing government services, many developing countries face obstacles in implementing effective and efficient tax systems. Direct taxes, such as personal income taxes, are particularly difficult to administer as they require complex processes and structures to identify taxpayers and facilitate and enforce compliance. Given these difficulties, many developing countries rely heavily on consumption taxes that cannot be evaded even by those in the informal sector. One of the most popular consumption taxes is value added taxation (VAT). In São Tomé and Príncipe, domestic revenue collection is constrained by a small taxpayer base. In recent negotiations with the International Monetary Fund, the government proposed the introduction of a VAT to improve domestic revenue mobilization. Recent Afrobarometer surveys show that most São Toméans see taxation as a key tool for development and a civic duty regardless of whether one is satisfied with government services. However, there is a widespread perception of unequal application of tax regulations and high levels of perceived corruption in the tax department.
