Tax Reform and Development

Raising taxes is at the heart of nation-building. Nations cannot own their development processes if a great part of the efforts behind them is funded by external agencies. Moreover, as many donors now face increasing budget constraints, raising funds through taxation is more important than ever in developing countries.

To understand these challenges better, as well as the need for tax reforms and the transition process which they imply, the  European Commission organised a week-long seminar on tax reforms and development in Brussels recently.

Tax reform is high on the national agenda of many developing nations but levels of success have been uneven not least because tax reform is not just a technical matter, but has political and social implications.

In the area of tax legislation, some developing countries have brought up a number of innovations recently, including:

• The introduction of single-rate VAT with a high threshold, thereby exempting small-business from VAT-levies.
• The reduction of intra-regional disparities in corporate taxes.
• In some instances, the informal sector has even been targeted for taxation.
• While local taxes have proved effective for funding some needs closely linked to the citizens.
• Efforts at reducing tax holidays and ensuring that Multinational Corporations pay their due taxes.

Nonetheless, whether taxes should be used as an economic incentive or for redistribution of wealth remains a matter for debate.

Against such a backdrop, an increasing number of international agencies and donors are engaging in tax reform programmes, including the European Commission. And it was with this in mind, that the EC organised the workshop on ‘Tax Reforms and Development’ from the 20 – 24 June.

Participants from donor agencies and partner governments were able to share their understanding and experience of tax reform with representatives from EU delegations.