68, because either no direct-to-indirect tax revenue breakdown was available, or no income tax revenue data was available, or because data was significantly outdated (prior to 2011).<sup>32</sup> Additional data quality issues were found with data for some of the countries included. For each country, the data provides a total tax revenue figure, total direct and indirect tax revenue figures, and more detailed breakdowns across individual tax types. However, in a number of cases, the total tax revenue figure exceeds the sum of the sub-components. This may occur, for example, where some revenue was not allocated to a specific category. Perhaps of more concern, in a smaller number of countries, the sum of the components exceeds the total tax revenue figure. This includes, in several countries, the addition of the direct and/or indirect tax subcomponents not equaling the direct and indirect tax aggregates. A judgement call was therefore necessary in calculating the indicators for several countries as to whether to rely on the provided direct/indirect tax figures, or the addition of their subcomponents. To provide consistency across the three indicators, the subcomponents were used rather than the aggregates. This ensures that any differences in the country rankings in Figure 5 are due purely to the inclusion or exclusion of property taxes from the numerator.

Figure 5 clearly shows the strong reliance of IDA countries on indirect as opposed to direct taxes. Only five countries have a direct-to-indirect tax ration greater than 1. The highest of these is Papua New Guinea, where income taxes are the dominant revenue source. In contrast, Vanuatu – which employs no personal or corporate income tax – has the lowest direct-to-indirect tax ratio. While there is also no PIT in the Maldives, the CIT increases the indicator slightly. The greater reliance on indirect taxes in most IDA countries is likely driven to a significant extent by administrative capacity constraints that result in greater emphasis being placed on indirect taxes that may be easier to collect than direct taxes. Additionally, the low income levels of a significant proportion of the population can significantly limit the scope for personal income taxation.

Comparing the direct-to-indirect and income tax-to-total tax ratios, shows the tempering impact that the inclusion of income taxes in the base has. As a result the variation in indicator is lower across countries than for the direct-to-indirect tax ratio. Beyond this, the absence of property tax revenue results in some differences in ranking of countries. For example, Grenada, which raises 1.2% of GDP from property taxes, ranks 40<sup>th</sup> based on the direct-to-indirect tax ratio, but 47<sup>th</sup> equal under the income tax-to-total tax ratio.

The benefit of presenting the income tax-to-GDP ratio is also illustrated when looking, for example, at Lesotho, which ranks only moderately according the direct-to-indirect tax and income tax-to-total tax ratios. But the likely redistributive effect that the income taxes have in Lesotho is likely significantly higher than many other countries as it raises significantly more tax revenue from these taxes (as a percentage of GDP). Mozambique, meanwhile, both relies significantly on income taxes and also raises significant revenues implying both significant progressivity and redistribution. Other countries that rely heavily on direct taxes, such as Bhutan, Chad, and the Democratic Republic of Congo, may not achieve significant redistribution as a result of the comparatively low aggregate tax level.

> 32 In some cases, total tax revenue was available for 2019 or 2020, but income tax revenue figures were significantly outdated: Republic of Congo (1994), Côte D’Ivoire (2005), Ethiopia (2007), Guinea (2006). In Mali, 2020 data is available for the direct-to indirect tax ratio, but income tax data is only available for 2012, so results are based on 2012 data for all three indicators (the direct-to-indirect tax ratio is very similar for 2012 and 2020).

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