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  • Collecting taxes and fees is a fundamental way for countries to generate public revenues that make it possible for countries to finance investments in human capital, infrastructure and the provision of services for citizens and businesses. 

    Preliminary analyses estimate the financing gap for achieving the Sustainable Development Goals for developing countries at about US$2.5 trillion. Yet, developing countries that are most in need of revenues, including fragile and conflict affected states (FCS), often face the steepest challenges in collecting taxes.

    Many countries are still struggling to collect sufficient revenues to finance their own development. Countries collecting less than 15 percent of GDP in taxes must increase their revenue collection in order to meet basic needs of citizens and businesses. This level of taxation is an important tipping point to make a state viable and put it on a path to growth. As of 2017, 36 percent of IDA countries and 70 percent of countries affected by fragility and violence (FCV) countries fall below this 15 percent baseline.

    Making it easier to pay taxes improves competitiveness. Overly complicated tax systems are associated with high levels of tax evasion, large informal sectors, more corruption, and less investment. Modern tax systems should seek to optimize tax collections while minimizing the burden of taxpayers to comply with tax laws. 

    There is a need to ensure that the tax system is fair and equitable. Governments need to balance goals such as increased revenue mobilization, growth, and reduced compliance costs with ensuring that the tax system is fair and equitable. Fairness considerations include the relative taxation of the poor and the rich; corporate and individual taxpayers; cities and rural areas; labor and investment income; and the older and the younger generations. 

  • The World Bank is the largest provider of development finance for collecting public revenue. As of March 2020, the Bank Group had 173 active engagements on domestic resource mobilization across 77 countries totaling $2.5 billion in commitments.

    In addition to financial support, the Bank also provides governments with guidance and support in the following areas:

    The World Bank assists countries in raising revenue through efforts to:

    • Improve tax policies and administrations’ ability to collect revenues
    • Equip revenue administrations with knowledge and tools to raise revenues in hard-to-tax sectors and reduce the size of the shadow economy
    • Institute transfer pricing arrangements and mechanisms for resolving disputes between taxpayers and revenue administrations that secure a fair share of taxes on profits for developing countries, like what has been done Vietnam
    • Expand the tax net to include the digital economy
    • Build trust in the tax system by fighting tax evasion through early detection, smarter auditing, and effective investigation and prosecution that hold evaders accountable.
    • Increase taxpayers’ voluntary compliance with tax laws through outreach and education to increase collection and address informality
    • Close wasteful loopholes and reduce unwarranted tax incentives for investors

    Depending on the nature of tax burdens in a given country, the World Bank Group can help governments improve competitiveness:

    • Simplify taxes for small and medium-size enterprises—this also can help to address corruption
    • Institute e-filing to reduce the time and effort spent on filing
    • Establish one-stop shops (e.g., for registering businesses and obtaining VAT and company tax numbers)
    • Create swift and fair dispute settlement mechanisms that instill confidence among investors
    • Ensure the predictability of tax policies and their administration, thus reducing corporate risks.

    The World Bank Group works with governments to create fair and equitable tax systems by reducing the adverse impact of the tax system on the poor, which may include helping to:

    • Increase taxes on wealthy households through taxation of properties and capital gains
    • Use the tax system to provide incentives for better social outcomes, for example through tobacco taxation and smart earmarking of taxes to support social programs in education and health
    • Institute minimum thresholds for paying taxes and progressive personal income tax regimes which contribute to reducing income inequality.
    • Armenia: The Tax Administration Modernization Project (2012-2018) has trained 35,000 tax inspectors, automated 96 percent of tax services and documents, and significantly reduced the time required for making tax payments (by 187 hours, or 37.5  percent). Since 2012, tax collection has improved from 16.3 to 21.0 percent of GDP.
    • Kuwait: Through Reimbursable Advisory Services, the Bank supported the government’s efforts to modernize its entire system of tax administration by creating an automated database covering more than 95 percent of registered taxpayers.
    • Peru: Technical assistance under an international tax project has contributed to tax adjustments of more than US$120 million in 2018 due to audits by the tax administration of multinational companies’ transfer pricing arrangements.
    • Philippines: With World Bank support, the government raised tobacco and alcohol taxes over the period 2012-16. The "sin tax" reform helped reduce the number of smokers from 30 percent of the population in 2011 to 25 percent in 2015, with the largest declines posted by the poor and young. The reform also generated 80 percent of the US$3.9 billion in additional revenues that were recorded over three years and was linked to a threefold increase in the budget of the Department of Health. The additional resources were used to triple the number of families receiving free health insurance, from 5.2 million in 2012 to 15.3 million in 2015.
    • Tajikistan: A Bank-financed project has helped double the number of active firms and individual taxpayers filing taxes, increased the average tax revenue collected per tax official by 85 percent, and reduced the number of hours spent on complying with tax-related regulations by 36 percent.
    • Tanzania: The Bank has helped the government increase e-filing of VAT returns from less than 500 in 2009 to over 4,000 in 2011, while some 376,666 taxpayers registered with the newly introduced mobile tax payment for property taxes. The reforms helped triple total tax revenue collection between 2007 and 2011.
    • Pakistan: The Bank supported revenue authorities at the federal level, as well as in Pakistan’s two most populous provinces, Sindh and Punjab, through a comprehensive domestic resource mobilization engagement focusing on tax, customs and administration reforms. The ongoing engagement has already produced tangible results. Pakistan’s tax-to-GDP ratio rose steadily to 12.5 percent (FY17), a significant 2.3 percentage points above the 9.5 percent baseline (FY11).



MULTIMEDIA

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VIDEO

Taxation and the Sustainable Development Goals

Achieving the Sustainable Development Goals requires massive investment in physical and human capital. Focus is needed on the quality, fairness, and equity of domestic tax collection.

Related Trust Funds

Platform for Collaboration on Tax

The Platform for Collaboration on Tax is a joint initiative of the IMF, OECD, UN, and the World Bank Group to strengthen coordination and collaboration on domestic resource mobilization.

Innovations in Tax Compliance

Innovations in Tax Compliance is a World Bank Group program that aims to advance tax reform and compliance in developing countries.

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Global Tax Program

The Global Tax Program supports the strengthening of tax systems in developing countries.

Prosperity Collaborative

The Prosperity Collaborative is a multi-stakeholder initiative dedicated to helping countries create better tax systems through innovative technology.