DFID urges developing countries to improve tax collection

12 Oct 15

Developing countries must continue raising more in domestic taxes while taking advantage of wider efforts to combat tax evasion by multinationals, the IMF/World Bank annual meetings were told.

Liz Ditchburn, director of policy at the UK’s Department for International Development, said initiatives such as BEPS (base erosion and profit shifting), confirmed by world finance ministers during the Lima event last week, will benefit governments in both advanced and developing countries.

But developing countries must also improve their capacity to collect taxes domestically and encourage a culture where more people pay income tax. Better co-operation was also needed between revenue collectors in different countries, she added.

“We need to see really effective south-south and north-south co-operation,” she told a session on tax in the developing world. “Peer support from revenue authority to revenue authority is really important.”

The BEPS package for reforming international tax rules, put together by the OECD, was approved by G20 finance ministers on October 9. It was welcomed by UK Chancellor George Osborne, who attended part of the Lima meetings.

Sri Mulyani Indrawati, managing director at the World Bank, said that, together with an IMF/World Bank tax initiative unveiled in Addis Ababa earlier this year, BEPS ushered in a new era for developing countries.

A shift towards indirect tax in developing countries had reduced the burden on workers, while some countries were making direct taxation more progressive.

“Governments have generated more revenue that’s directed towards benefiting the poor,” she said. “It will challenge inequality.”

David Lipton, deputy managing director at the IMF, said while BEPS represents a major step forward, there was more to do – particularly in the developing world.

“We stand ready to talk with all member countries about developing apparatus to combat evasion and avoidance,” he said. “It’s only through the fair distribution of the tax burden that the fight for sustainable development will be won.”

Delegates heard how tax revenues in Peru now cover 80% of government spending, but

Victor Martin Ramos Chavez, a national superintendent in Peru’s tax department, said while the Peruvian government had reduced informal employment, more effort was needed to tackle other tax evasion.

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