The 2014 CAPE Conference

Session 2: Domestic revenue mobilisation, international public finance and the SDGs – all good things go together?

12 November 2014

Oliver MorrisseyCREDIT, School of Economics, University of Nottingham

Tax Performance

Mobilizing Domestic Revenue

•Tax performance (tax/GDP) is determined by structural factors (variables capturing the tax base, to which tax rates are applied)

•Tax policy (reform) primarily concerned with tax rates and measures to improve administration and collection efficiency.

•Changes in the tax base are largely determined by economic performance and some bases are easier to tax (trade, consumption spending) than others (corporations, MNEs, resource sector).

 

Constraints on DRM

• Resource tax revenues often less transparent and more volatile

• Absence of growth in tax base even with increasing GDP

• Increasing difficulties in taxing the bases that are growing (resource extraction, MNEs and very wealthy individuals)

• Formal sector employment/earnings (the income tax base) and private spending (the consumption tax base) are not growing at the same rate as GDP

• Hence difficult to increase the ratio of tax to GDP

Aid, Donors and Taxation

• Aid (grants) -- no robust effect on tax effort (Tax/GDP)

• But donors do influence policy options and choices:

• Advocating reforms that reduce tax rates (e.g. tariffs)• Supporting reforms to improve the tax system (e.g. VAT,

SARAs, administration, PFM, MTEF)• SSA: VAT has not increased total revenue, SARAs have

• Effective aid and economic reforms increases the tax base

The Corruption Challenge

Money attracts the corrupt

•Aid may be least affected because of monitoring

•Administrative reforms have improved monitoring of tax and expenditure

•Natural Resources may be most affected

•FDI/MNEs can be part of the problem

External Finance

External Finance can be particularly suited for:

•Areas where there are regional spillovers (e.g. health, environment)

•Reforms that incur potentially high initial costs or revenue losses

•Clearly targeted project interventions