Monday, October 27, 2008

Tax and state-building in fragile states, new report

A short new report is available from the Danish Institute for International Studies. It's called Taxation and state-building with a (more) human face. This fits into a broader body of new research which is emerging, and in which TJN is involved. See more here.

The new report's new recommendations, aimed at people working in fragile states, are:
  • Tax issues should be dealt with up-front in post-conflict states, even if revenue yields may be modest to start with. "the challenges of building an effective state, a robust economy and a durable peace are closely related."

  • Taxes that suit local circumstances should be identified and tapped, even if they may notit the current global ‘best practice’ advice. "Currently advocated approaches to tax reform may not be appropriate. These emphasise the use of broad-based consumption taxes (e.g. VAT), simplified tax designs and improved tax administration, but shy away from using taxation to pursue issues of redistribution. An urban property tax, for example, is therefore often not part of the tax agenda. Yet, it targets the relatively well off, is presently often relatively low and is one of the few taxes available to urban authorities starved of funds (but not of tasks) by central government. Innovative ways of taxing the informal sector are important too."

  • Reduce/abolish tax exemptions for donors and their contractors/NGOs. "If donors are serious about state-building they should agree to pay part of their contribution to the recipient countries by paying taxes and duties just like everyone else."
The last recommendation, of course, will be controversial in the donor community.

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