title: Financing for development and domestic revenue mobilisation: more international reforms are needed
Creators: name: Von Haldenwang, Christian
name: Laudage, Sabine
Publisher: name: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
publisherIdentifier: https://ror.org/01t3zke88
publisherIdentifierScheme: ROR
Year: 2019
Subjects: subject: Agenda 2030
subject: Development financing
subject: Public Finance
subject: Entwicklungsfinanzierung
subject: Öffentliche Finanzen
subject: Agenda 2030

description: To achieve the Sustainable Development Goals (SDGs) by 2030, developing countries need
 additional funding. Funding can come from four sources: domestic public resources (or
 revenues), international public resources, domestic private resources or international
 private resources. Of these four sources, domestic revenues from taxes and non-tax sources
 (e.g. profits from state-owned oil companies) are by far the most important. Tax revenues
 amounted to USD 4.3 trillion in 2016 for low- and middle-income countries alone, which is
 more than double the amount of international public and private capital these countries
 received in the same year. Domestic revenues have been growing in a majority of low- and
 lower-middle-income countries over the last 15 years. However, these increases remain
 insufficient to cover the financing needs of the SDGs, estimated at USD 2.5 trillion per
 year for developing countries, according to figures from the United Nations Conference on
 Trade and Development. In addition, these countries have to deal with the recent decline
 in financial flows from international public and private sources – a decline of 12 per
 cent between 2013 and 2016. As a result, many governments are under pressure to mobilise
 more revenues at home. What options do they have to achieve this goal? <br> In this
 briefing paper, we focus on the international dimensions of the issue. We argue that
 governments need to act multilaterally in three key areas. <br> First, tax avoidance by
 multinational corporations (MNCs) remains a global problem, despite important progress in
 recent years. Though not openly illegal, tax avoidance causes considerable damage to
 developing countries. Poorer countries depend to a higher degree on corporate taxes than
 richer countries and are thus more vulnerable to these practices. International
 initiatives to act upon tax avoidance – for instance, by introducing a minimum tax and by
 taxing the digitalised economy – should take the taxation rights of poorer countries into
 account. <br> Second, fighting illegal tax evasion is another relevant topic. At an
 international scale, the exchange of tax-related information – for instance, on the
 beneficial ownership of assets – is a key factor, and developing countries need to
 participate in this exchange on a broad scale. This will require additional domestic and
 international efforts to boost capacity and credibility. <br> Third, governments
 worldwide should increase transparency on their tax expenditures and dismantle those
 structures that prove to be either harmful or ineffective in fiscal, social or
 environmental terms, or create negative spillovers for other countries. As a first step,
 governments should agree on common reporting standards and start producing regular, public
 and encompassing reports on the tax expenditure schemes in place. <br> Evidently, this is
 not an agenda for individual countries or a call for unilateral action. Current approaches
 to international tax cooperation – mostly propelled by the Organisation for Economic
 Co-operation and Development (OECD) and the G20 – need to be broadened and include all
 countries on an equal footing; they should also be deepened to cover those aspects of
 taxation that are not yet being sufficiently addressed. It is also clear, however, that
 the degree to which developing countries will take part in international standard-setting
 and regulation depends to a considerable degree on their capability to push forward
 critical governance reforms at the domestic level.
description: Briefing Paper, 13/2019