7-8 JUNE 2017 / Tour & Taxis / Brussels

Fostering inclusive growth and tackling inequality

Fostering inclusive growth and tackling inequality

The role of budget support, civic space and modernising economic policies and institutions in domestic resource mobilisation

EDD17 - Replay - Fostering inclusive growth and tackling inequality

auditorium
A2
Wednesday, June 7, 2017 -
16:00 to 17:30

Key points

  • Developing countries must raise at least 15 % of their GDP in tax revenues to start delivering on the Sustainable Development Goals. Aid alone won’t be enough.
     
  • Governments need to expand the net to tax new populations and companies; excessive reliance on trade taxes and customs is not sustainable.
     
  • Corporate tax avoidance costs Africa US$50 billion a year. Developing countries should stop offering foreign companies tax incentives as it harms domestic businesses.
     
  • The benefits of growth and taxation are not shared equally. Civil society needs to get engaged with governments on how tax revenues are spent. People need educating in why paying taxes can benefit society.
     
  • The International Monetary Fund (IMF) assists developing countries in tax collection, advising many of them to lower rates but widen the base. The EU is targeting tax havens and big corporates for minimising taxation through state aid tools.

Synopsis

While developed countries raise on average 40 % of their GDP through tax revenues, many developing countries are in single digits – Somalia generates just 2 %, DRC 6 %, even Nigeria only 6% to7%. For developing countries to start converging with richer economies, they should aim to raise 15-20% of GDP from taxation. This will be critical to deliver on the Sustainable Development Goals (SDGs) which will need trillions in spending between now and 2030. Aid alone will not provide enough resources. 

Traditional tax collection has focused too much on trade taxes such as customs duties – easy to levy because of the tight windows through which goods pass. But this is not sustainable. Governments need to throw the net wider to capture new populations, including the informal economy, and companies of all sizes. It’s challenging work, because corporations are good at avoiding tax – costing Africa around $50 billion a year in lost revenues. Attracting foreign investment with tax breaks needs to stop – the companies will invest anyway if the opportunity is good and offering tax breaks just makes it harder for local businesses to compete. 

As well as getting better at collecting taxes, governments need to ensure the revenues are well spent. While many countries in Africa have enjoyed strong economic growth over the past decade, the impact on poverty has remained modest. Where is the money going? There’s a pressing need for civil society to get engaged, both to hold governments to account on spending and to explain to reluctant populations the benefits of paying taxes. Citizens who understand the cost to their country of corporate tax breaks, tax avoidance and corruption are more likely to pressure their politicians for change. The free healthcare, free education and social safety nets common in European countries won’t come without higher tax revenues. Better civil society engagement is vital to secure the social contract between citizens and state on which tax collection depends. Paying taxes and resisting corruption are values that need to be taught in school. 

The International Monetary Fund (IMF) is helping countries improve their tax regimes. In Senegal, for example, the IMF launched a targeted programme to collect taxes through electronic payments, dramatically reducing fraud and increasing revenues. Rather than increasing customs duties and tariffs, the IMF maintains that it often makes sense to reduce tax rates but enlarge the base. Adding a few percent of GDP through strengthening domestic tax institutions is often doable, though changing policy is harder as it requires political will. 

Meanwhile, the European Commission has passed legislation to improve transparency and information exchange between tax authorities and is engaging with the OECD and others to target tax havens and create a global alliance for fair taxation. One key principle is that companies – especially huge players such as Starbucks, Fiat and Apple – should pay the right amount of tax in the countries where they transact their business. The Commission has successfully fined those companies shifting profits to other countries offering tax concessions so low they constitute state aid. 

Insight

In countries where growth is driven mainly by natural resource extraction, such as Mozambique, the benefits of that growth do not reach the poorest in society. But in countries with diversified economies, such as Uganda, the benefits of growth reach all sections of society. And countries with more inclusive growth also tend to sustain that growth for longer.

Organised by

  • Moderator
    Zain Asher
    Journalist
    CNN
  • Abebe Aemro Selassie
    Director of African Department
    International Monetary Fund
  • Richard Dzikunu
    EDD Young Leader, Ghana
  • Farah Karimi
    Executive Director
    Oxfam Novib
  • Christine Lagarde
    Managing Director
    International Monetary Fund
  • Margrethe Vestager
    Commissioner for Competition
    European Commission - DG for Competition
Photo gallery

Password for download : EDD2017