Global Economy

Taxation in the Digital Age

The old adage that nothing is certain except death and taxes still rings true even in the digital age. The debate, however, now lies more in how companies with massive cross-border digital footprints can pay their fair share.

“The long-term view is the short run priority,” Vitor Gaspar, director of the IMF Fiscal Affairs Department, said at an event this week launching a new IMF staff paper on digitalization and taxation in Asia. He stressed that designing tax policies the right way is key, recognizing that digital delivery of goods and services is here to stay.

The controversy over a digital services tax (DST) has brought the issue into clear focus. Most major Asian economies were among the 134 members of the Inclusive Framework led by the Organization for Economic Co-operation and Development, agreeing in July to do away with their DST and allocate some taxing rights on profits to countries where consumers and users are located rather than where companies produce or are headquartered.

Some countries in Asia have gone further. In this week’s event, Febrio Kacaribu, head of Indonesia’s Fiscal Policy Agency, explained how his government has leveraged a more traditional value-added tax (VAT) for a digitalized economy.

Resolving challenges over how to deploy a VAT may pay off, IMF staff research has found. Requiring nonresident suppliers of digital services and e‑commerce marketplaces to register with local tax authorities and remit VATs on their sales could raise revenue between 0.04 and 0.11 percent of GDP in some countries in Asia, translating to an additional $166 million in Bangladesh, $4.8 billion in India, $1.1 billion in Indonesia, $365 million in the Philippines, and $264 million in Vietnam, the IMF’s Era Dabla-Norris, Ruud De Mooij, Andrew Hodge, and Dinar Prihardini write in a blog on the subject.

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Read the IMF Staff Paper: “Digitalization and Taxation in Asia”

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Watch the IMF Event: “Taxation and Digitalization in Asia”

Financial Markets

Investment Funds and Financial Stability

The pandemic-driven economic shock revealed some fundamental vulnerabilities that could affect global financial stability—notably, the resilience of investment funds.

Caught up in the financial market turmoil generated by risk averse investors, many investment funds were heavily affected by the “dash-for-cash” that extended across borders—and which triggered significant outflows from risky assets and from emerging and developing economies. As this happened, and investor capital flowed out of money market and open-end mutual funds, asset managers were forced to fire-sell these assets, which accelerated the drying up of liquidity and the drop in market value of key assets.

Safeguarding financial stability: To better protect markets and economies from crippling capital outflows we need to boost the resilience of investment funds. A key part of this involves reducing the scope for their business models to amplify the macrofinancial impact of adverse shocks, so their business operations are less likely to be susceptible to asset fire-sales during stress, the IMF’s Tobias Adrian, Antonio Garcia Pascual, Ranjit Singh, and Jay Surti write in a new blog.

The blog is based on a new IMF staff paper that outlines the tools policymakers can use to further strengthen risk management, especially liquidity risk management. 

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Read the IMF Staff Paper

📺 WATCH

Watch the IMF Event: “Investment Funds and Financial Stability—Policy Considerations”

Finance & Development Magazine

F&D: Our Last, Best Chance on Climate

In our Fall 2021 issue of F&D Magazine, produced in partnership with COP26, Amar Bhattacharya of the Brookings Institution and Nicholas Stern of the LSE connect the dots in their overview piece, linking policy decisions right now at national and international with a post-COVID recovery that is strong and inclusive. At stake is whether we will embark on a new path of sustainable growth.

“Decisions made now are crucial in shaping the future of people and the planet. We must not go back to the old normal; it’s imperative to build back better through sustainable, inclusive, and resilient growth,” the authors write

Read the full article below, on the web, or download the PDF.

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Quote of the Week

My plea is to pay attention to the parts of the world that are not so fortunate. If we don’t, we will damage the most valuable resource for the future: our social fabric.

—IMF Managing Direct Kristalina Georgieva at the Conference of Montreal

WEEKLY ROUND-UP

01. Podcast: Economics of Biodiversity

In a new IMF Podcast, Partha Dasgupta, professor emeritus of economics at the University of Cambridge, discusses the economic benefits of biodiversity and the costs of losing it. In his landmark 600-page study titled the Economics of Biodiversity: The Dasgupta Review he sets out a framework for including nature in our economic thinking and provides a guide for change through three broad, interconnected transitions. Professor Dasgupta published an article about his findings in the September edition of Finance and Development. In this podcast, he says humans are embedded in nature and cannot escape the biosphere through ingenuity. 

02. Climate Innovation Challenge

The September 30 deadline is approaching to participate in the IMF’s Climate Innovation Challenge on the economic and financial stability aspects of climate change. Country authorities/agencies, civil society organizations (including think tanks), and staff from the IMF, World Bank, and international organizations are invited to submit proposals that have the potential to enhance the IMF’s capacity development, policy advice, and operational impact in areas where economic and financial policies intersect with climate change.

03. Civil Society Policy Forum Registration

The Civil Society Policy Forum has become an integral part of the International Monetary Fund and World Bank Group Spring and Annual Meetings, providing an open space for Civil Society Organizations (CSOs) to dialogue and exchange views with World Bank Group and IMF staff, their peers, government delegations, and other stakeholders on a wide range of topics. The virtual forum will take place from September 27-October 8

04. IMF Press Briefing

The IMF’s bi-weekly press briefings are back. This week, IMF Communications Director Gerry Rice provided updates and answered questions on the United Nations General Assembly, the upcoming IMF-World Bank Annual Meetings, Afghanistan, Argentina, Ethiopia, Guinea, Lebanon, and more.