Trade Negotiations Insights • Volume 9 • Number 6 • July 2010

Mapping donors’ involvement in the area of taxation and development: The case for better coordination and division of labour

by International Tax Compact Secretariat

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Strengthening tax systems and supporting developing countries’ efforts to increase domestic revenue is receiving growing attention within development cooperation. The declarations of Monterrey (2002) and Doha (2008) have emphasised the importance of domestic resource mobilisation for sustainable development. Numerous international and national initiatives and platforms have also emerged in recent years, underlying the importance of the topic (e.g. EITI, Tax Justice Network, International Tax Dialogue, S4TP, International Tax Compact, Task Force of OECD/DAC on Taxation and Development, etc.). The African Development Bank has dedicated its African Economic Outlook 2010 to the topic of “Public resource mobilization and aid in Africa[i]“. And most recently the EU Council adopted a communication on “Tax and Development - Cooperating with Developing Countries on Promoting Good Governance in Tax Matters”, which was elaborated by the European Commission under the Spanish Presidency[ii].

Thus, the importance of efficient systems of taxation and domestic revenue mobilisation in developing countries is increasingly recognised. To ensure that efforts aimed at improving cooperation, collaboration and alignment in the area of taxation are well targeted, it is first and foremost critical to survey what is being done, where and how. A mapping of worldwide activities in the area of taxation and development reveals that quite a number of actors are already working on these issues. Although each of these actors has different priorities and modalities of work, geographic and thematic overlaps are frequent.

Much engagement in taxation, but also regional overlap

Indeed, a country-specific mapping exercise conducted within the framework of the International Tax Compact (ITC), and as part of a broader mapping survey, indicates generally good worldwide coverage of tax-related assistance projects by donors. However, these activities are at times very intense, with many donors working on tax issues in the same country, while other countries are not supported at all. Asia and Central and South America seem to be quite well covered by donor engagement, for example, while coverage of the African continent seems to be slightly less extensive. This is alarming as the tax revenue to GDP ratio is especially low in Africa, indicating weak revenue raising capacities and, consequently, the necessity for intensive and long-lasting assistance. The initial impression that the regional coverage of support in Africa is not yet sufficient is confirmed when only long-term projects, lasting for at least several months, are taken into account and mission-based cooperation of IMF Regional Technical Assistance Centers (RTACs) is left aside. While there is intensive donor activity in many parts of Africa, 17 out of 53 African countries - a third of the entire continent - still do not receive long-lasting tax-related assistance.

Issues broadly treated but weak division of labor

On the other hand, the topical-mapping conducted as part of the same survey and covering thematic characteristics of the organisation’s work related to taxation show that tax-related activities cover a broad range of issues, including domestic and international taxation, areas of expertise (tax systems reforms, tax administration and organisation reform, tax laws, etc) and country groups (developing countries, emerging market economies, transition countries). Yet activities are often carried out by all organisations with only slight concentration on specific issues. Thus, the division of labor between the different actors is here again rather weak.

Enhancing international cooperation

As a result, the findings of both the region-specific and the topical mapping indicate a high potential of duplication of work, including projects of multiple donors in a specific country, as well as identical working areas with regards to the content of the programmes undertaken. Although it is not clear whether duplications actually occur, it is obvious that organisations need to increase the level of information sharing to guarantee that assistance is indeed complementary and aligned. Moreover, an improved division of labour would encourage in-depth expertise - both with respect to the regional or country-specific background as well as in terms of technical knowledge. Also, a more focused approach and division of labour would unleash forces in areas and regions not well covered so far.

The ITC is an initiative to strengthen international cooperation with developing and transition countries to fight tax evasion and avoidance. Launched by the German Federal Ministry for Economic Cooperation and Development (BMZ), the ITC aims to promote tax systems that allow partner countries to be more effective in fighting tax evasion and inappropriate tax practices with the intention to achieve national and international development goals. BMZ has commissioned GTZ and KfW to support the initiative’s implementation. The secretariat is based in Bonn.

This article is based on the Mapping Survey on Taxation and Development by Daniel Köhnen, Thorben, Kundt and Christiane Schuppert, realized by ITC and supervised by the Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ). Further information on the ITC can be obtained at: www.taxcompact.net

[i] See Henri-Bernard Solignac Lecompte, “Taxation for Development in Africa: A Shared Responsibility”, pages 3-4 of this issue.

[ii] This Communication is available at; http://ec.europa.eu/development/icenter/repository/COMM_COM_2010_0163_TAX_DEVELOPMENT_EN.PDF