The truth is: Taxes matter most. This is why increasing the ability of countries to raise taxes is high on our agenda. Taxes already provides most of the resources available for developing countries to meet development objectives–more than aid and other forms of financing. But the new Sustainable Development Goals can only be achieved if we redouble efforts to improve domestic revenue mobilization.
Enhancing government revenues is only part of the mobilization story. Improving the effectiveness and efficiency of the use of those funds is just as important.
Let me give you a few examples of what we know works well. Experience in tax reforms across countries set out certain basic principles. By shifting away from taxation of income toward consumption taxes and other indirect taxes, many countries have reduced the fiscal burden on labor and savings, and have strengthened the foundations for economic growth.
Similarly, by making personal income taxes more progressive, according to the “ability to pay” principle, governments have generated additional revenues which have been channeled towards targeted spending to benefit the poor, while giving a signal to society that equity matters.
Regarding corporations, reducing distortive and unfair tax incentives has enabled governments to enlarge the tax base and reduce rates, and thereby promote neutrality and efficiency in taxation.
In addition, tackling aggressive tax planning by internationally operating companies is important. Improving arrangements around transfer pricing and making further progress with the exchange of taxpayer information between countries are critical elements of this agenda.
For resource rich countries, rationalizing the fiscal regimes with a good mix of tax and non-tax instruments can help governments capture the rent, attain a fair share of fiscal revenues, and smooth out their inflows.
And by doing this, the social contract between citizens, companies and the government gets reinforced and inclusive development is promoted.
We recently started an initiative with the International Monetary Fund to support developing countries in strengthening their tax systems. This initiative has two key components: development of an innovative tax policy assessment framework; and increasing the voice of developing countries in the global discussion on international tax issues.
The commitment under this Initiative to double support for tax capacity building at the country level is shaping up to be a turning point in meeting high expectations about strengthening domestic revenue mobilization.
We are also continuing the dialogue on tax issues in developing countries with development partners. Germany, Netherlands, the UK and US launched the Addis Tax Initiative in Addis Ababa. And the topic of mobilizing resources has also been on the G20 agenda.
We started a discussion on domestic revenue mobilization in developing countries earlier this year at the Spring Meetings, and within a few months we have achieved important steps towards success.
It is important that we keep the momentum going.
As President Kim and Christinge Lagarde have indicated on previous occasions, we’ll need to shift our thinking “from billions to trillions” and, in that context, maximizing the potential of developing countries to mobilize their own resources and be in charge of achieving their goals.
I wish you a fruitful discussion and look forward to hearing about the outcome.