| Abstract: |
To achieve the Sustainable Development Goals (SDGs) by 2030, developing
countries need additional funding. Funding can come from four sources:
domestic public resources (or revenues), international public resources,
domestic private resources or international private resources. Of these four
sources, domestic revenues from taxes and non-tax sources (e.g. profits from
state-owned oil companies) are by far the most important. Tax revenues
amounted to USD 4.3 trillion in 2016 for low- and middle-income countries
alone, which is more than double the amount of international public and
private capital these countries received in the same year. Domestic revenues
have been growing in a majority of low- and lower-middle-income countries over
the last 15 years. However, these increases remain insufficient to cover the
financing needs of the SDGs, estimated at USD 2.5 trillion per year for
developing countries, according to figures from the United Nations Conference
on Trade and Development. In addition, these countries have to deal with the
recent decline in financial flows from international public and private
sources - a decline of 12 per cent between 2013 and 2016. As a result, many
governments are under pressure to mobilise more revenues at home. What options
do they have to achieve this goal? In this briefing paper, we focus on the
international dimensions of the issue. We argue that governments need to act
multilaterally in three key areas. First, tax avoidance by multinational
corporations (MNCs) remains a global problem, despite important progress in
recent years. Though not openly illegal, tax avoidance causes considerable
damage to developing countries. Poorer countries depend to a higher degree on
corporate taxes than richer countries and are thus more vulnerable to these
practices. International initiatives to act upon tax avoidance - for instance,
by introducing a minimum tax and by taxing the digitalised economy - should
take the taxation rights of poorer countries into account. Second, fighting
illegal tax evasion is another relevant topic. At an international scale, the
exchange of tax-related information - for instance, on the beneficial
ownership of assets - is a key factor, and developing countries need to
participate in this exchange on a broad scale. This will require additional
domestic and international efforts to boost capacity and credibility. Third,
governments worldwide should increase transparency on their tax expenditures
and dismantle those structures that prove to be either harmful or ineffective
in fiscal, social or environmental terms, or create negative spillovers for
other countries. As a first step, governments should agree on common reporting
standards and start producing regular, public and encompassing reports on the
tax expenditure schemes in place. Evidently, this is not an agenda for
individual countries or a call for unilateral action. Current approaches to
international tax cooperation - mostly propelled by the Organisation for
Economic Co-operation and Development (OECD) and the G20 - need to be
broadened and include all countries on an equal footing; they should also be
deepened to cover those aspects of taxation that are not yet being
sufficiently addressed. It is also clear, however, that the degree to which
developing countries will take part in international standard-setting and
regulation depends to a considerable degree on their capability to push
forward critical governance reforms at the domestic level. |