Tax and Development: New Frontiers of Research and Action

In recent years, increasing attention has been paid to tax cooperation for development. At the same time international tax issues such as corporate profit shifting, and the role of tax havens have hit the headlines. It is often suggested that international issues are the most important factor holding back domestic resource mobilisation. This paper looks at estimates of the potential gains from taxing across borders, alongside largely domestic measures such as property tax, personal income tax, VAT, and tobacco taxes. It finds that while action on cross-border taxation could yield additional tax take in the region of one percent of GDP, in many countries measures targeting the domestic tax base might deliver something in the region of nine percent. The main enabler is political commitment. Development actors face a dilemma; international tax issues are salient and accessible, but an intense focus on (and sometimes inflated perceptions of) incremental tax revenues from the “overlapping tax base” between countries, can distract both government and civil society from a clear focus on how tax revenues within a country are collected and spent. International actors should act to close loopholes in the international tax system, and be open to considering whether a more fundamental redesign is needed. But there is also underexplored potential to support and enable improvements in tax policy and administration by seeing key taxpayers (including multinational corporations and investors using international financial centres) not only as potential sources of percentage points of additional revenue, but as potential players in constituencies for reform.