Enhancing the effectiveness of external support in building tax capacity in developing countries
This report responds to the February 2016 request from the G20 for the IMF, OECD, United Nations and World Bank Group to:
“…recommend mechanisms to help ensure effective implementation of technical assistance programs, and recommend how countries can contribute funding for tax projects and direct technical assistance, and report back with recommendations at our July meeting.”
The report has been prepared in the framework of the Platform for Collaboration on Tax (the “PCT”), under the responsibility of the Secretariats and Staff of the four mandated organizations. The report reflects a broad consensus among these staff, but should not be regarded as the officially endorsed views of those organizations or of their member countries.
The request arises in the context of increased recognition of the centrality to development of strong tax systems and of the importance of external support in building them, and a correspondingly increased willingness of advanced economies to provide substantially greater financing and other support for this. It recognizes that, while real progress has been made on increasing tax revenues in low income countries over the past two decades, for many countries revenues remain well below levels that are likely needed to achieve the 2030 Sustainable Development Goals, and to secure robust and stable growth. The report also takes as a fundamental premise that it is not just how much revenue is raised that matters for development and growth, but also how it is raised – and that strong tax systems are key for both equity objectives and enhancing state building.
In that context, the report uses the experiences of the international organizations to analyze how support for developing tax capacity can be improved. It does not attempt to reiterate the nature of the challenges faced by developing countries, about which much has been written – but rather focuses on ensuring that the countries have the support needed to overcome them. An indispensable prerequisite to improving tax capacity is enthusiastic country commitment.
While such political commitment must arise within the country and its government and cannot be created by external support, the report assesses ways in which such support can encourage and reinforce that necessary commitment. Given such commitment, the report points to several key enablers to building tax capacity:
A coherent revenue strategy as part of a development financing plan
Strong coordination among well-informed and results-oriented providers
A strong knowledge and evidence base
Strong regional cooperation and support
Strengthened participation of developing countries in international rule setting
The report arrives at a number of recommendations for measures to strengthen or achieve those enablers. These are summarized in Appendix 4. The primary ones include: (i) options through which the G20, IOs and other development partners can encourage political support for tax systems development; (ii) the development of country-owned medium-term revenue strategies, or tax reform plans depending on country circumstances; (iii) support to nongovernment stakeholders; (iv) support by development partners to increase managerial, as well as technical, skills in taxation agencies; (v) various approaches to developing better coordination and collaboration among providers, and avoidance of fragmented support and approaches; (vi) intensification of work by PCT partners and others to produce comparable and reliable data; (vii) increased partnerships and support for regional tax organizations; and (viii) support to developing countries to facilitate meaningful participation in international tax policy discussions and institutions.
The agenda going forward would include implementation of 3 to 5 pilot medium-term revenue strategies (MTRSs); support for developing countries to participate effectively in international tax policy discussions and institutions; work by the international organizations (IOs) to measure and report upon the impact of various different interventions; and a follow up report by the IOs within 3 years, to reflect lessons learned from actions hereunder.