Taxation and Financing for Development

The follow-up International Conference on Financing for Development will be held in Doha from 29 November until 2 December 2008. The goal of this conference is to review implementation of the Monterrey Consensus, which was the outcome document of the first Financing for Development conference in 2002. The Monterrey Consensus embraces six areas of Financing for Development:

  1. Mobilising domestic financial resources for development
  2. Mobilising international resources for development: foreign direct investment and other private flows
  3. International trade as an engine for development
  4. Increasing international financial and technical cooperation for development.
  5. External debt
  6. Addressing systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development

Taxation is inseparably bound up with these issues, considering that a fair and efficient taxation system is a sine qua non for the improvement of the financial situation of developing countries. This is recognised in the Monterrey Consensus, stating that tax systems are important for raising domestic resources.

The link between development and taxation has come up on other occasions too, such as in the Millennium Development Goals (MDGs). Strangely enough, however, taxation is still not getting the attention it deserves. This is surprising given the potential of domestic tax revenues to reduce poverty and promote sustainable development. The call for attention is now becoming louder. The Tax Justice Network (TJN), for one, works to analyse and explain the link between taxation and development and to expose harmful tax practices in order to encourage reform at the national and international levels. In May 2008, Christian Aid drew attention to the subject,with striking country examples, in the report ’Death And Taxes: The true toll of tax dodging’. In addition, Greenpeace has exposed tax fraud in the logging industry.

The aim of this briefing paper is to inform civil society and policymakers about the importance of a fair international tax system that is supportive to development.

The paper provides an overview of recent developments in the areas of taxation and development. It deals with issues relating to taxes paid by corporations only, not taxes paid by individuals. The structure of the paper is as follows. The next section explains the purpose of taxation and the link between taxation and development. Subsequently, a recap of taxation problems and their influence on developing countries is given. These problems are divided into three parts: problems arising from the characteristics of developing countries, problems arising from capital flight, and problems arising from corporate tax avoidance. The last section explains the role of international forums and organisations relevant to taxation, and provides concrete policy recommendations.

Read full text of the paper (in .pdf)

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