By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-Global financial institutions, the International Monetary Fund (IMF) and the World Bank on Friday said analysis suggests that many lower-income countries have the potential to increase their tax ratios by at least 2–4 percent of Gross Domestic Product (GDP), without compromising fairness or growth.
This is coming on the heels of both institutions launching a new initiative to help developing countries strengthen their tax systems. “Raising additional revenues will allow developing countries to fill financing gaps and to promote development,” a statement from the IMF said.
The announcement comes ahead of the “Financing for Development” conference in Addis, Ethiopia next week, at which heads of state, CSOs, multilateral institutions and private sector representatives will discuss how to scale up finances to meet the Sustainable Development Goals (SDGs).
“A strong revenue base is imperative if developing countries are to be able to finance the spending they need on public services, social support and infrastructure. But experience shows that with well-targeted external technical support and sufficient political will, it can be done,” Christine Lagarde, IMF managing director (MD) said.
“We very much want to help developing countries raise more revenues through taxes because this can lead to more children receiving a good education and more families having access to quality health care. If everyone pays their fair share – even while challenging the status quo– developing countries can close their financing gaps and promote inclusive growth,” Jim Yong Kim, World Bank Group President said.
According the statement, responding to country demands, the IMF/World Bank initiative has two pillars: deepening the dialogue with developing countries on international tax issues, aiming to help increase their weight and voice in the international debate on tax rules and cooperation; and developing improved diagnostic tools to help member countries evaluate and strengthen their tax policies. This builds on the Bank’s current tax programs in over 48 developing countries and the Fund’s technical assistance projects in over 120 countries.
“By further leveraging their collective expertise, the Bank and Fund aim to play a fuller role in helping their entire member countries achieve the ambitious goals that the world will be setting for itself later this year in New York,” the IMF added.
It affirmed that bringing the voice and interests of developing countries, particularly those too small to play a role at the G-20 level, into the debate on international tax policy issues is a key priority for the Bank and the Fund. “The initiative will deepen the institutions’ ongoing collaboration with developing countries to identify key international tax policy concerns and potential solutions, both at the country level and in the context of the continuing international dialogue,” it said.
The IMF and World Bank disclosed they also plan to strengthen their diagnostic tools, developing new methodologies where needed, to enable member countries to identify priority tax reforms and design the requisite support for their implementation. “This effort would complement the launch of the Tax Administration Diagnostic Assessment Tool (TADAT) in November,” it revealed.
