Minimum 15% tax to GDP needed to fund services

February 15, 2018 in Finance, Policy by Editor

February 15— Research indicates that at least 15% of GDP in revenue is necessary to finance basic services but, in almost 30 of the 75 poorest countries, tax revenues are below this 15% threshold. Uganda’s presently between 13% and 14.5% of GDP, but plans have been to raise it a half point annually.

“Fair and efficient tax systems, combined with good service delivery and public accountability, build citizens’ trust in government and help societies prosper,” Jim Yong Kim,  the President of the World Bank Group said.

Major international organisations -including the IMF, OECD, UN and World Bank Group- are meeting in New York City until tomorrow, but have called on governments to strengthen and increase the effectiveness of their tax systems to generate the domestic resources needed to meet the Sustainable Development Goals (SDGs) and promote inclusive economic growth.

Domestic resource mobilisation presents a particular challenge for developing countries, which struggle to raise sufficient revenue to provide basic services, such as road infrastructure, healthcare, and public safety.

At the same time, all countries need to pay greater attention to the spillovers from their tax policies and step up their support for stronger tax systems. Governments and relevant stakeholders also need to continue to work together on establishing a fair and efficient system of international taxation, including efforts to fight tax evasion and tax avoidance.

During a three-day conference at UN headquarters on “Taxation and the SDGs”, ministers and deputy ministers of finance, tax authorities, and senior representatives from civil society, private sector, academia, regional and global organizations will debate the key directions needed for tax policy and administration to meet the SDGs by 2030.

The conference, organized by the Platform for Collaboration on Tax (PCT) at UN headquarters, provides a unique opportunity to discuss the role of tax in ending poverty, protecting the planet and ensuring prosperity for all, including: how to mobilize domestic resources for development;  tax policies to  support sustainable economic growth, investment and trade; the social dimensions of taxation (income and gender inequality, human development); as well as capacity development and international tax cooperation.

IMF managing director, Christine Lagarde said, “Funding the SDGs is an economic and ethical imperative with major implications for taxation. Countries themselves need to raise more revenue in an equitable way. And the entire international community needs to eradicate tax evasion and tax avoidance.”

As an era of unprecedented international cooperation on tax is underway with the advent of initiatives like the Automatic Exchange of Information, the Base Erosion and Profit Shifting (BEPS) project, and the active engagement of the UN Tax Committee—all these initiatives create new opportunities for the enhanced participation of developing countries in international tax policy discussions and institutions, but also new challenges to fully realizing the benefits of international cooperation on tax.

The conference aims to provide guidance to countries and other stakeholders on how to better target tax efforts to achieve broader development goals. Insights from the conference will help inform and shape the future work of the PCT members and partners, including the IMF, OECD, UN and World Bank.

At the end of the event, PCT partners will issue a conference statement, which will inform a future agenda on tax policy and administration.