Thursday, March 17, 2011

Is the IMF starting to get it on tax and development?

The IMF has finally released its long-prepared document entitled Revenue Mobilization in Developing Countries (hat tip: David McNair.)

We have only read the Executive Summary so far (sorry, we've been incredibly busy of late), but we've pulled out a couple of quotes already for our quotations page. Such as this:
"The need for additional revenue is substantial in many developing countries."
"Eliminating exemptions that forego revenue to little useful end—these are often still substantial and can amount to several points of GDP"
This sounds like the IMF calling for higher taxes. Interesting, and welcome that the always-cut-tax shibboleth has been cast aside. Here's another.
"The centrality of taxation in the exercise of state power means that more efficient, fairer, and less corrupt tax systems can spearhead improvement in wider governance relations."
Exactly. Just as we've been saying. Quite so. This is the 'no taxation representation' argument long used by students of European and American history, now being applied to students of international development.

There are lots of areas which we'd be concerned about: while we'd strongly welcome this broad statement:
Protection of the poorest, including through basic public spending, is an overarching concern.
We'd express caution about the paragraph below it, with sentences such as:
a regressive tax may be the only way to finance strongly progressive spending.
Experience in many poor countries has shown that despite the intention of using regressive taxes to finance progressive spending, this often does not work well, because of governance problems, and you end up with regressive taxes with not much progressive spending to show for it.

The Executive Summary ends with a paragraph that contains two big good things. First,
Challenges in international taxation and from regional integration are intensifying, and call for closer cooperation on tax matters—including with advanced economies—in both policy and administration, as well as further support for capacity building.
Yes. Absolutely. One of the very reasons for TJN's existence is to push for exactly this. And the last sentence:
Not least, and important too for the wider legitimacy of tax systems, greater efforts can be made—requiring political will as much as technical capacity—in taxing elites and high-income/wealth individuals.
Yes! Well said! We will now read the whole report, consult with a few people, and get back with more details. Overall, this looks like the IMF is starting to take tax seriously with respect to developing countries, and this report, though it is faulty in some respects in our opinion, is to be welcomed.


Anonymous Steve Macey, ODI Fellow, Sierra Leone said...

I also approve of the IMF's focus on this area. The article seems to suggest that this is a rather new development for the IMF. I don't know whether this is the case but I do believe that improving tax policy and tax administration has not until recently got the attention it deserves among thse in the business of development.

I have briefly read through the report and cannot recommend strongly enough its comments on tax expenditures and exemptions. The emphasis on transparency in this area is as important as in the area of natural resource management.

They are also correct about the importance of political will in improving revenue performance. Although I am not an aid expert, I have wondered about the possibility of attaching conditions to aid given to countries demanding a degree of improvement in revenue performance. Assistance can be provided to revenue authorities in terms of improved customs administration etc and this is all well and good. However, the success of this will be limited without political will. One idea I would like to throw out into the open is the possibility of aid agencies offering to match increased revenues earned by revenue authorities as a way of incentivizing improved revenue performance.

4:36 am  
Blogger TJN said...

Steve, this is a subject worthy of debate. There have been calls in the past for similar things: see, for example, this blog we did last October, posing similar questions.

We don't claim to have all the answers to these particular questions - among other things each country is different - but they are well worth discussing.

12:30 am  

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