On 25 July 2016 the Platform for Collaboration on Tax made available a report on enhancing the effectiveness of external support in building tax capacity in developing countries. The report was written for the meeting of the G20 finance ministers and central bank governors in July 2016. The Platform for Collaboration on Tax is a cooperative platform for the OECD, IMF, UN and World Bank group to work together on tax issues.
There has been increasing recognition that a well designed tax system is central to economic development and that outside help is required with capacity building. Although there has been progress in the past twenty years on increasing the tax collected by developing countries the collection levels are still too low in many countries to achieve the 2030 Sustainable Development Goals and secure growth. Objectives of equity in the tax system and enhancing state building are also seen as important.
The report sets out certain key enablers for building tax capacity:
- A coherent revenue strategy set out in the development financing plan;
- Efficient coordination between the providers of capacity building;
- A strong knowledge and evidence base;
- Regional cooperation and support; and
- More participation by developing countries in setting international tax rules.
The report makes recommendations on how to achieve or improve these important enablers in the provision of tax capacity building support.
Recommendations
The report recommends that the international organizations and development partners need to encourage political support for the development of efficient tax systems. Countries should develop medium term revenue strategies with a view to launching pilot strategies by July 2017. This would also enable the international organizations to draw lessons for developing further strategies and reform plans. The G20 countries and other donors should facilitate capacity building of local stakeholders such as business and media to engage in reforms and development of medium term revenue strategies.
The problems and options for revenue strategy development need to be diagnosed with the help of an appropriate diagnostic framework. This would assess cross-border tax issues and include a strategy for tackling tax avoidance, evasion and tax crimes. Agencies dealing with taxation should develop high quality technical and management skills as part of their organization capacity. The international organizations will then review the use of diagnostic tools in assessing the priority of reforms as part of the medium term tax strategies and reform programs. The reviews will lead to the design of further useful tools if necessary.
Collaboration among the providers of tax capacity building and other stakeholders should be a central part of the pilot tax strategies. There should be coordination within each developing country between the international organizations and their counterparts within the country. The international organizations involved in the Platform for Collaboration on Tax will develop a manual for good practices and set up a voluntary peer review mechanism among the development partners. The manual would set out ways of facilitating coordination between providers of capacity building and the stakeholders within each developing country including business and community organizations. The Platform should also devise methods of supporting the development of coordinated plans for the work of development providers in implementing the OECD/G20 recommendations on base erosion and profit shifting and on other international tax issues.
There should be coordination among the different agencies involved in tax reform in developing countries and the providers of capacity building using a “whole of government” approach. Where the international organizations are providing support in different areas that affect the tax system they should ensure there is internal coordination (a “whole of institutions” approach). The organizations need to ensure their tax people are made available in a timely and efficient way for participation in capacity building efforts. The Platform recommends that the range of indicators of results currently used should be reviewed so that progress in tax system reform can be tracked against a wide range of indicators.
The report recommends that collaborative work among providers of capacity building should provide comparable, reliable data on revenue and tax policy. Statistical capacity should be developed for tax, including capacity within revenue administrations. This should include encouragement by the G20 for full participation in the International Survey of Revenue Administrations (ISORA).
There should also be close cooperation between G20 countries, development partners and regional tax organizations. The regional organizations should be supported in increasing their coverage, developing local networks and influencing the process of setting international rules. The developing countries themselves should also participate in discussion of international tax policy with the support of regional organizations.
The report also recommends that the Platform should collect and share experiences on what methods are effective in tax development programs. In this connection the impact of various interventions could be measured. The international organizations are to prepare a follow-up report after three years incorporating the lessons learned on support for tax capacity building and the implementation of the current proposals.
