Introduction there are about 2,600 double tax treaties worldwide. Taxation challenges in developing countries wiley online library. But most of us complain about them exercise our voice and. Challenges of international taxation for developing countries. Directoratege neralforexternal policies of the union. The limited use of the property tax in developing countries may be linked to the relative small size of the tax base. While the united states and switzerland do have somewhat lower levels of taxation compared to other highincome countries, they have much higher levels of taxation compared to developing countries and figure 2. In many countries, however, the problems with the corporation tax lie less in fine tuning for risk than in collecting taxes in the face of effective concealment of profits. Just recently, proposals to raise middleclass taxes toppled the bolivian government, and plans to extend or increase the valueadded tax caused political unrest in ecuador and mexico.
Improving tax administration in developing countries. As part of a broader study of taxation for effective. Bird 1983, mansfield 1988, and tanzi and pellechio 1997 are useful summaries of the practical problems of the interaction of tax policy and tax administration in this context. Most developing countries continue to face serious problems in developing adequate and responsive tax systems. Developing countries, like the rest of the world, exist in a complex and changing international environment, and tax outcomes in many of them have been. The challenges for developing countries in international tax. Critical issues in taxation and development the mit press. This slight downward trend in the prevalence of wealth transfer taxes in developed countries is matched by a similar trend in developing and transitional countries. For example, it is astonishing to see agencies that commonl y urge countries. On the other hand, lowering taxes has the possible effect of lack of public services, particularly for unpopular services, such as prisons and welfare activities. Developing countries with weak revenue administrations face major challenges from bepsin many cases they will simply be unaware of the revenue they are losing. Such countries encompass such a wide spectrum from small fragile and fragmented postconflict states like liberia and afghanistan to large well.
Consequently property taxation is likely to resisted, possibly more than in developed be. A tax collected at the source of transactions for example, excise. Taxation challenges in developing countries carnahan. A perspective from outside the policy arena article pdf available in ssrn electronic journal march 2007 with 9,105 reads how we measure reads. This book, which presents a modern theory of public finance, brings together many of the most distinguished economists who have written on the subject. It is of course difficult to generalize about taxation in developing countries as a group. Taxation of corporations and their impact on economic growth. The role of direct taxation in developing countries is much more. This report an outcome of an expert group meeting held on the challenge of local government financing in developing countries documents both the challenges and solutions related to the ability of local governments to mobilize revenues from local resources.
The challenges of tax collection in developing economies. Taxation for developing countries 1007 consult the twovolume handbook of public economics edited by auerbach and feldstein 1985, 1987. Tax problems of developing countries 157 the analysis is carried out in two broad parts. Investigating the issues involved with tax administration and decentralization in the country and local government finances, it also attempts to explore the problems and successes associated with the implementation of tax reforms. Examples of both the poorest and wealthiest developing countries, argentina, brazil, india, kenya, korea, and russia uniquely demonstrate the diverse fiscal problems of tax reform.
This is attributable, in part, to the information and communications technology ict revolution, which has led to substantial improvements. This implies that multilateral tax treaties cause double taxation. A closely related problem arises in relation to the optimal taxation of commodities. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Developing countries, like the rest of the world, exist in a complex and changing international environment, and tax outcomes in many of them have been affected, sometimes adversely, by globalization. Argentina, brazil, india, kenya, korea, and russia. Taxation plays a central role in promoting sustainable development, and developing countries face significant challenges in developing their tax capacities and mobilising domestic resources. However, the proportion of indirect taxes have an upward tendency. Despite important differences in their economic and cultural background, developing countries have tended to modify their tax systems in roughly the same direction. Tax challenges facing developing countries by richard m. United nations handbook on selected issues in protecting the tax base of developing countries second edition edited by alexander trepelkov, harry tonino and dominika halka. Financial taxation and development link notes link references link part v.
The countries with low industrialization and low human development index are termed as developing countries after a thorough research on the two, we have compiled the difference between developed countries and developing countries considering various parameters, in tabular form. For developing countries a detailed examination of tax structure has been undertaken by tanzi, using a pool of 82 countries divided by strata of per capita income. However, the revenue systems in some developing countries have fundamental shortcomings. The theory of taxation for developing countries english abstract. The following trends in taxation can be clearly seen. Taxes are a crucial policy issue, especially in developing countries.
Pdf tax challenges facing developing countries semantic. Bird, martinezvazquez and torgler 2006 analyze both revenue and tax ratios in developing countries and. Finally, any proposals to change the revenue system in a developing country need to recognise that, like developed countries, tax reforms are highly political. Taxation in developing countries case study of cameroon samuel fambon january 2006 abstract in the beginning of the 1980s, cameroon witnessed a sustained rate of growth, associated essentially with the boom in the oil sector. Pdf the structure and purpose of this paper reflect both its origins and my limitations. International taxation and developing countries center for. The report also identifies successful governance mechanisms for efficient. Barriers to increasing tax revenue in developing countries. Issues of taxation and development, which have long been a central concern of the imf, have attracted wider and renewed interest in the last few years. The following points highlight the three taxes of the tax structure in developing countries. Member countries also have to inform the wto about special programmes involving trade concessions for products from developing countries, and about regional arrangements among developing countries. The simple answer is that, until someone comes up with a better idea, taxation is the only practical means of raising the revenue to finance government spending on the goods and services that most of us demand. Questions and issues in public economics in general, and taxation in particular. A synoptic view 4 table 1 shows tax revenues in different categories of countries.
The increasing globalisation of economic activity adds a further layer of complexity that developing countries need to manage in building and maintaining their revenue systems. Indirect taxes are ones that are levied on goods and services and, thus, only indirectly on individuals. How global tax evasion keeps poor countries poor the. Taxation of financial assets in developing countries christophe chamley link fiscal instruments link impact of taxation on financial deepening link measurements of revenues link efficiency cost of taxation link conclusion. Tax policy has farreaching implications for economic development and public administration. The examples discussed here relate to the calculation of. Moreover, governments ability to accomplish projects such as infrastructure development is diminished if tax rates are lowered. Each of the six case studies lays out the current statutory provisions, how they have evolved. This note focuses on the three main issues facing policymakers dealing with tourism taxation in developing countries. Foreign aid for developing countries problems and solutions. A number of countries have reduced the tax burden of foreigners or foreign companies, leading to double non taxation on international capitals. Role of taxation in developing countries like india.
Discussion of tax administration in developing countries should begin with one central ideathe inseparability of tax administration and tax policy. Yet in the last few years, there has been an exciting and rapidly growing body of empirical research on tax policy in developing countries using data from detailed tax records. Taxation challenges in developing countries asia and the. Given the above mentioned reasons for the poor revenue contribution of pt, the following factors may help increase its contribution over time. Many developing countries find it difficult to raise the revenue required to provide such basic public services as education, health care, and infrastructure. Taxes are a crucial policy issue, especially in developingcountries. Property tax is considered a cornerstone of current efforts to strengthen broad based direct taxation in many developing countries.
We all know we need them to pay for public services. Bird, tax policy and economic development baltimore. Increased budgetary and extrabudgetary resources generated by this. The central question in taxation and development is.
As a result, it provides the mnc with an opportunity for treaty shopping. Empirical welfare economics attempts to use data on individual or aggregate behavior to infer the consequences for behavior and for welfare of various actual or contemplated policy changes. The problem may be that governments do not prioritise tax revenue. Yet, it contributes to limited revenues in most developing countries. This is particularly a problem in developing countries where the capital market often is underdeveloped and other means of holding wealth such as stocks or other financial assets almost do not exist. Between them these two tax bases income and expenditure account for the vast majority of tax revenue for most countries. The tax difficulties for developing countries are longstanding and increasingly wellknown. That said, with limited tax bases at their disposal, developing countries can ill afford to have their corporate tax base eroded. World tax journal october 2014 243 an economic perspective on double tax treaties within developing countries 1. Local property taxation and benefits in developing countries. Complicating the policy challenges of taxation in developing countries are issues that. Tax challenges facing developing countries value added. Tax reforms or tax system changes need to be made mindful of that current capacity. In many developing countries, with poor andor rural populations, collecting tax is expensive for the government, and unaffordable for the majority of.
Taxation challenges in developing countries carnahan 2015. Pdf tax challenges facing developing countries researchgate. The oecd centre for tax policy and administration has been engaging with developing countries in the following projects. The theory of taxation for developing countries english. The optimal choice of tax regime may be different when administrative capacity is low. Taxation in developing countries university of michigan law. Chapter 36w challenges facing the developing countries 3 figure 1 countries of the world, classified by per capita gnp, 2000 income group u. Role of taxation in developing countries like india, article posted by gaurav akrani on kalyan city life blog. Taxation challenges in developing countries michael carnahan abstract a wellfunctioning revenue system is a necessary condition for strong, sustained and inclusive economic development. Taxation and developing countries overseas development institute. Taxation of corporations and their impact on economic.
Tax challenges facing developing countries 5 evidence with respect to the effects of taxes and herd thinking in tune with the fashion of the day continues to be as influential in taxation as in most areas of public policy. Reforming tax systems in the developing world overseas. In the median developing country the taxgdp ratio is only 15. This volume provides a detailed assessment of the current tax structure in six developing countries. Oecd countries had wealth transfer taxes in the 1960s. For most developing countries, tax revenue lies somewhere between 10% and 15% of gross domestic product. A number of countries have reduced the tax burden of foreigners or foreign companies, leading to double nontaxation on international capitals. Like developed countries, developing countries with weak revenue administrations face major challenges from base erosion and profit shift beps. Difference between developed countries and developing. The case of eu countries baranova veronika, janickova lenka abstract one of the most debated questions in economy is the relationship between tax rates and economic growth. My focus here, however, is not on what the world has done to. The challenges of tax collection in developing economies with special reference to india by pramod kumar rai under the direction of prof. For developed countries, tax revenue is still based on direct taxes.
Especially taxation of corporations has great importance because a corporate tax. United nations handbook on selected issues in administration of double tax treaties for developing countries edited by alexander trepelkov, harry tonino and dominika halka. The challenges of tax collection in developing economies with special reference to india pramod k. Each economy relies heavily on indirect and corporate income taxes, though recently some have reduced their tariff rates and have switched from excise to valueadded. Jan 28, 2015 developing countries with weak revenue administrations face major challenges from bepsin many cases they will simply be unaware of the revenue they are losing. In industrial countries tax administration is concerned with assessment, collection and enforcement of legislation that forms the content of tax policy. Many of the international tax reform initiatives are designed by, and for, developed economies, and so may be too complex andor not practical in a developing country. The first is quantitative, essentially statistical, and attempts to prove, in very crude statistical terms, that the tax burden, defined as the ratio of tax yield to gross national output, is on the whole lower in the less developed countries than in the. Raghbendra jha fiscal policy in developing countries. Examples are excise duties and sales taxes, import and export duties. Regressive tax a tax that takes a larger percentage from lowincome people than from highincome people. These are a consequence of the rapid population growth, a lack of capital to invest and a nonexistent, very poor andor outdated infrastructure. Housing, being a basic need, absorbs a high share of income for a vast number of people in poor countries. This paper reflects on three broad lessons of experience.
Tax effort in developing countries and high income countries. Pdf econometric issues for tax design in developing. In order to alleviate the illeffect, the solution is more treaties. Walter hellerstein abstract this paper gives an overview of the indian tax system and discusses the challenges in tax collection faced by developing economies using india as a model.
Experts analyze the policy challenges of taxation in developing countries, including corruption, tax evasion, and ineffective political structures. Why developing countries need to toughen up on taxes. An economic perspective on double tax treaties within. Difficulties in compressing expenditures necessitated that tax system reform take an. If the international community wants developing countries to do more to meet fiscal challenges, its main contribution, i suggest, should be to improve the capacity of the domestic policy communities in those countries to cope with such challenges in their own way, not to tell them in detail how they should do it. It discusses different policy options to encourage tourism investments while ensuring sustainable revenue collection.
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