Feasibility of an industrial society where a 'modern' tax system is less regarded/effective than 'tax farming'?

" [...] larger bureacratically (ie, more civil servants than ever before)"

The civil service of each administrative division is now directly paid for by local levy (community tax, property tax, road tax, purchase taxes etc.).

Any federal tax (i.e. country-wide revenue for central power) can only be paid for from the net remainder after the local levy has been, er, levied.

If the majority of common-folk's wages is taken to pay for the local admins and their machine-like inefficiency, the share remainder for the central powers is naturally less.

On the face of it, central government is smaller.

In reality, government is larger and squished flatter over a greater area (every once-centralized function must be duplicated in all local areas), and is more expensive to run as a result.

Reference: Poll tax.

You trigger Stagflation comparable to the late Gilded Age

The Gilded Age was a time period in history near the end of the 1800s and early 1900s where unchecked capitalism and corporate control of the government lead to major issues with the monopolization of the markets due to the ability of wealthy businessmen to create unfair economic advantages for themselves at the great expense of everyone else.

In the past, the fixed district taxation was all managed at the federal level with a limited number of tax collectors; so, naturally the federal government chose to focus its efforts on collecting taxes from people and places with the most money. Since the average peasant was too poor to be worth the visit to tax, the limited number of tax collectors focused on low-lying fruit: business owners, land lords, merchants, churches, and anyone else with enough money to be worth fleecing. While this system was not equitious from one district to the next, it actually did a good job of wealth redistribution within each district because the more successful a business was, the more attractive it was to tax collector trying to make quota. So a businessman with a highly profitable factory would have a hard time monopolizing a market or buying out competition when his "extra" profits were being hit so much harder by taxation.

Once they switched to a 10% rate, it required a much bigger bureaucracy to go to every person and collect their 10%. To do this, the central government had to create much larger and more powerful local district governments to manage taxation for them. The problem is that all those businessmen who used to be at the mercy of the tax collectors from the capitol were now able to campaign and get elected (or appointed) as leaders of these local governments. In doing so, they got to rewrite local tax policies however they wanted to to be able to meet that 10% quota; so, instead of continuing to pay the lion's share of the taxes, they moved the responsibility to the middle and lower class. With their newfound authority, they gave themselves (big businesses) tax credits, bailouts, and subsidies and charged smaller businesses and peasants additional taxes over-and-above the 10% federal tax to make up the differance. They also got to levee local taxes of their own to give themselves big salaries and support the larger number of tax collectors and accountants to make sure everyone (else) was paying out. With these new inequities, they were able to force competitors out of business and buy them up rapidly forming powerful monopolies. These monopolies formed trusts across district lines that got irrevocably tied into political party interests. This led to price controls pushing up the prices of many goods and services to double or even triple their original costs.

So, even though each district is paying a more fair amount in taxes to the central government compared to their GDP, the common person is on average paying taxes that they did not used to have to pay, often while making the same salaries they had before, and while paying a much higher rate for the things they were buying. This ultimately causes the economy to contract as your consumer base's buying power goes way down. In an economy with a central banking system, this kind of economic disparity can be slightly offset using inflation as a tool by pumping more money into the system through social services (knowing that it will all eventually be sequestered into powerful monopolies and personal fortunes), but as monetarists, your culture refuses to flood the market with fiat or debased money; so, money is rapidly leached from the economy by monopolies causing cash scarcity which makes the rich even richer from deflation by simply hoarding their wealth which discourages investment into new industries... which further causes economic shrinkage.

Basically, every single administrative division was expected to pay the exact lump sum at the exact same time [...] with no regard for the socio-economic conditions of each respective administrative division.

This sounds like it would create a negative spiral.

If district A has 100,000 residents and district B has 50,000 residents, district B would have to raise twice as much tax per resident. So people would move from B to A - then A would have 120,000 residents and B would have 30,000 so B would have to raise 4x as much tax per resident, and so on.

The USA has different tax rates in different states - but a lower-tax state might be a 9 hour drive from a higher-tax state, so a move means leaving your friends, family and job behind. Not so in a city-state, unless it's a good deal larger than the term 'city-state' implies.

You should take care to explain why this doesn't happen. Are the district boundaries set every year based on population, for example?

Problem: I need the new tax system to derive even less revenue (and be even more unpopular) than the old tax system

In the old system, different tax policies had clustered industries by district but their economic thinking wasn't yet advanced enough for everyone to have noticed it had happened.

District A has a below-average rate of tax on winemakers, so all the winemakers set up there. Half the tax rate per bottle, but three times as many winemakers means they still make more in tax. The industry is thriving because suppliers are set up right next door, employees can move jobs easily, and the district is famous throughout the city for its excellent wine. Wineries in this district are more expensive - but the lower tax rate and thriving business environment more than makes up for it.

District B has a below-average rate of tax on theatres, District C has a below-average rate of tax on leatherworkers, and so on.

After the reforms, because the taxes are the same across the city-state, winemakers and theatres no longer pay a below-average rate of tax - and that means wine and theatres are more expensive. Sure, you can make wine in more districts now - but if you do, employees can't change jobs so easily, and you don't have a supplier right next door. So everything's just a bit less efficient.

This is similar to the ideas behind special economic zones - but you can explain it as "the tax farmer in District A loves wine"

(A word of warning though: there's a risk that it sounds like you're saying "lower taxes equals higher tax revenue" a concept a lot of people associate with Reaganomics which some folks are critical of. You can finesse things with longer explanations - but you're writing a fantasy novel not a macroeconomics textbook, so maybe you don't want to?)

Rampant tax evasion.

The way the 10% tax is determined for each individual person could mean that some people have opportunity to evade taxes through various means, while others don't. This creates two problems:

• Less tax income than expected, resulting in degradation of state services
• Animosity between those who pay their taxes and those who don't, resulting in civil unrest