An IMF discussion note published on 29 April 2021 entitled A Post-Pandemic Assessment of the Sustainable Development Goals, written by Dora Benedek, Edward Gemayel, Abdelhak Senhadji, and Alexander Tieman, looked at a framework for developing countries to evaluate policy choices to raise long-term growth and mobilize more revenue.

COVID-19 pushed more people into extreme poverty in 2020, and has halted progress towards basic development goals. Although progress can be made if wide-ranging domestic reforms are introduced, most low-income developing countries will have difficulty financing their development goals, and support will be needed from the international community.

Even before the beginning of the pandemic, many countries were not on target to achieve the Sustainable Development Goals by 2030. Following the severe recession caused by the pandemic, the economies of low-income developing countries are falling further behind the advanced economies.

The reform agenda required from developing countries must give priority to encouraging economic growth; strengthening the capacity to collect taxes; increasing the efficiency of public spending; and strengthening the framework for encouraging private investment.

Many lower income developing countries and emerging market economies have a low tax-to-GDP ratio. By making the appropriate policy changes and collecting more tax these countries can increase government resources over time.

The lower income developing countries in the sample analysed by the authors had tax-to-GDP ratios of around 17.5% on average, and the emerging market economies had tax-to-GDP ratios of around 20.5% on average. There was therefore potential to increase domestic revenue over time.

This would require tax policies aiming to eliminate tax incentives and exemptions as these can reduce the efficiency, neutrality and simplicity of a country’s tax system. There is also a need to improve tax revenue administration to improve taxpayer compliance and collect tax revenues from sectors that are currently hard to tax, so the size of the informal and shadow economies can be reduced.

In relation to international tax issues, developing countries should reduce opportunities for base erosion and profit shifting. Carbon taxation should be considered as a way to combat global warming and raise more tax revenue. Countries need to show stakeholders that the tax reforms are in their own interest and gain public acceptance for the reforms.

Increases in domestic tax revenue can only be introduced when a country’s economy is entering a solid period of post-pandemic economic recovery. When revenue-raising measures are introduced countries should ensure that tax rates are progressive, so that those who can afford to pay the taxes are the ones bearing their correct share of the burden.

If these reforms to the tax system are all introduced around the same time they could potentially raise up to half the resources required for substantial progress towards achieving the Sustainable Development Goals. If those goals are to be achieved at the right time, the international community will also need to become involved in supporting developing countries.