Enhancing the effectiveness of external support in building tax capacity in developing countries

TITLE: Enhancing the effectiveness of external support in building tax capacity in developing countries


YEAR: 2016

ABSTRACT: This paper produced for the G20 by the IMF, OECD, UN and World Bank Group seeks to investigate how support for developing tax capacity can be improved. It recognises that, while real progress has been made on increasing tax revenues in low income countries over the past two decades, for many countries revenues remain well below levels that are likely needed to achieve the 2030 Sustainable Development Goals, and to secure robust and stable growth. The report also takes as a fundamental premise that it is not just how much revenue is raised that matters for development and growth, but also how it is raised - and that strong tax systems are key for both equity objectives and enhancing state building.

The report finds that an indispensable prerequisite to improving tax capacity is enthusiastic country commitment. While such political commitment must arise within the country and its government and cannot be created by external support, the report assesses ways in which such support can encourage and reinforce that commitment.

Several key enablers to building tax capacity:

  • A coherent revenue strategy as part of a development financing plan
  • Strong coordination among well-informed and results-oriented providers
  • A strong knowledge and evidence base
  • Strong regional cooperation and support
  • Strengthened participation of developing countries in international rule setting

The report also recommends several measures to achieve or strengthen the above enablers, including:

  1. Options for international organisations to encourage political support for tax systems development;
  2. Development of country-owned medium-term revenue strategies or tax reform plans;
  3. Support to non-governmental stakeholders;
  4. Support from development partners to increase skills in taxation agencies;
  5. Approaches to develop better coordination and collaboration among providers/