Taxation is increasingly recognized in the global discourseOctober 11, 2017
By Mohamed Konneh
A report by OFAM said Taxation is increasingly recognized in the global discourse on development financing as the most reliable and sustainable source to finance economic development and help poor countries overcome the poverty trap.
This report presented on a factsheet states that the centrality of taxation to development is further underlined in the Outcome document of the Third Financing for Development Conference (FfD3) which clearly outlines the importance of Domestic Resource Mobilisation (DRM) in raising development finance and in the context Sustainable development Goals (SDGs). This comes after a global realisation that resourcing was one of the biggest challenges of the Millennium Development Goals (MDGs). With the relative decline of Official Development Assistance, the post 2015 SDG agenda looks to domestic resource mobilisation as well as other internal innovative financing options which came out clearly at the discussions at the FfD3 conference.
However, a global system that is as flawed as it currently is undermines African countries’ efforts to secure their own resources which would in turn contribute to their development.
The factsheet says African Tax Administration Forum (ATAF Launched in 2009, this body brings together 25 African tax administration bodies. Its mission is to mobilise domestic resources more effectively and increase the accountability of African states to African citizens while actively promoting an improvement in tax administration through sharing experiences, benchmarking and peer reviewing best practices. According to the OECD (2013), base erosion and profit shifting refers to “tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax being paid.”
The base erosion and profit shifting project coordinated by the OECD, mandated by the G20 countries, seeks to reform international tax standards that have become open to exploitation by multinational firms.
The factsheet also stated that the ever-growing wealth inequality between and within African countries threatens both political and economic stability of these countries and could reverse the marginal gains achieved in the last decade.
This economic inequality is perpetuated by among other things, non-inclusive, inequitable and unaccountable tax systems characteristic of most countries in Africa. There is need to counter and reverse the trend towards regressive tax policies that has seen the introduction or increased application of consumption taxes that increase the burden on the already disadvantaged low income earners and their families. Equally, in view of increasing wealth concentration in the hands of the richest few as reported in a 2015 Oxfam Inequality Report2 , it is essential to push for reforms and introduction and enforcement of policies that will encourage the redistribution of income. Tax systems play a key role in redistributing wealth. The tax system itself is the key lever to directly address inequality by redistributing income from the rich to the poor by taxing the rich more heavily and directing public spending to benefit poor people. The 2014 TJN-A and Christian Aid inequality report showed that tax systems in sub-Saharan Africa are far from fulfilling this vision of equality3. On the contrary many governments under pressure to increase tax collection are relying on indirect taxation including VAT which as studies have shown if not well applied can further exacerbate income inequality. There is need to counter and reverse the trend towards regressive tax policies and push for progressive tax policy reforms such as the use of wealth taxes (such as property or capital gains tax) which target High Net Worth individuals and wealth hidden in tax havens or offshore in jurisdictions such as Panama.