Help Improve Fragile Tax Systems, OECD Tells Donors

 

12 February 2014

The Organization for Economic Cooperation and Development (OECD) has accused international donors of failing to do enough to help “fragile” states increase their domestic revenue. A new OECD report, “Fragile States 2014: Domestic Revenue Mobilization,” claims that a mere 0.07 percent of official development assistance (ODA) to such countries is directed toward building accountable tax systems. The OECD’s list of fragile states includes the Central African Republic, Haiti, North Korea, and South Sudan; while Egypt, Libya, and Mali have been added so far this year.
 
This group of 51 countries on average collects less than 14 percent of its gross domestic product in taxes. Afghanistan, Ethiopia, and Pakistan have tax collection rates below 10 percent of GDP. The level considered necessary for meeting poverty goals stands at a far higher 20 percent. The amount of international aid allocated to efforts for improving vulnerable tax systems is deemed “near to negligible” when compared with the 18 percent of ODA that goes toward economic infrastructure, the 12 percent spent on health, and the 7 percent on education. “Just a few hundred thousand dollars” of this money is spent on domestic revenue mobilization in Ethiopia, South Sudan, and Côte d’Ivoire.
 
The report should offer “a wake-up call for development cooperation providers,” according to its foreword. Donors ought to encourage states to broaden their tax base, by focusing on direct taxation, and design frameworks to better manage natural resource revenues. The transparency and governance of tax incentives should be improved, and donors are urged to help boost tax morale, by “strengthening the link between revenue collection and responsible expenditure management.”
 
The OECD will launch a related “Tax Inspectors Without Borders” initiative later this year, to help poor countries combat tax evasion.
 
 
Source: Tax News