10 Facts About Tax farming

Tax farming's profit becomes the excess of whatever revenues he can extract from the farm less the rents payable, less his administration, levying and collection expenses.

Tax farming must be satisfied that he has the ability to enforce payment of the debts, ultimately by use of a court of law, in which he must pay the standard fee for bringing a suit, under the legal system generally instituted by the government authority which is the lessor of the farm.

Tax farming was originally a Roman practice whereby the burden of tax collection was reassigned by the Roman State to private individuals or groups.

Tax farming practices are believed to have contributed to the fall of the Western Roman Empire in Western Europe.

Tax farming was an important step in the history of economic development 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.

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In part this was because tax farming systems tended to rely on wealthy individuals outside the state machinery, gangs, and secret societies.

Key flaw in the tax farming system is the tension between the state, which seeks a long-term source of taxation revenue, and the tax farmers, who seek to make a profit on their investment in as short a time as possible.

Tax farming is not synonymous with modern privatized tax collection, where private individuals or companies collect taxes and pass them to the state in return for a commission or fee, without bearing any risk consequent of default by the taxpayer.

Tax farming is speculative, meaning that the tenant of the farm bears the full risk of defaulted debts.

In 1999 the National Board of Revenue in Bangladesh negotiated with cigarette producing firms a minimum amount of Value Added Tax farming that should be paid per month even though VAT is an ad valorem tax, that is to say of variable yield.