World Bank, IMF launch initiative to strengthen tax system in developing countries

Initiative aims to deepen dialogue with developing countries and develop diagnostic tools for member countries to evaluate and strengthen tax policies

The World Bank and the International Monetary Fund (IMF) launched a new initiative Friday, to help developing countries strengthen their taxation systems.

The move comes on the back of studies that recommended lower-income countries have the potential to increase their tax ratios by at least 2%-4%, without compromising fairness or growth.

A statement published on the World Bank’s website explained that raising additional revenues will allow developing countries to fill financing gaps and to promote development.

The IMF-World Bank initiative has two pillars: deepening the dialogue with developing countries on international tax issues, aiming to help increase their voice in the international debate on tax rules and cooperation; and developing improved diagnostic tools to help member countries evaluate and strengthen their tax policies.

The initiative builds on the World Bank’s current tax programmes in more than 48 developing countries and the IMF’s tax-related technical assistance projects in over 120 countries, the statement said.

“A strong revenue base is imperative if developing countries are to be able to finance the spending they need on public services, social support and infrastructure,” said IMF Managing Director Christine Lagarde. “But experience shows that with well-targeted external technical support and sufficient political will, it can be done.”

According to the World Bank, the initiative will deepen the institutions’ ongoing collaboration with developing countries to identify key international tax policy concerns and potential solutions. This will occur both at the country level and in the context of the continuing international dialogue.

“We very much want to help developing countries raise more revenues through taxes because this can lead to more children receiving a good education and more families having access to quality health care,” said World Bank Group President Jim Yong Kim.

The institutions also plan to strengthen their diagnostic tools, developing new methodologies where needed, to enable member countries to identify priority tax reforms and design the requisite support for their implementation. This effort would complement the launch of the Tax Administration Diagnostic Assessment Tool (TADAT) in November.

Egypt’s Ministry of Finance is planning to increase tax revenues for fiscal year (FY) 2015-2016 to EGP 422bn, compared with EGP 364.2bn in FY 2014-2015, a growth rate of 16.8%. The ministry said it will undertake a comprehensive development of the taxation system, to include raising the efficiency and performance of tax-collection entities.

“This guarantees the state’s rights, as well as the society’s, and prevents tax evasion,” the ministry said.

The expected amount of tax revenues to be collected during FY 2014/2015 had increased to EGP 364bn compared to EGP 358bn in the preceding fiscal year, representing a 1.6% increase.

In May, however, Minister of Finance Hany Kadry Dimian said that taxes collected during the first nine months of FY 2014/2015 registered EGP 180bn. This was an increase of 20% compared to the corresponding period the previous year.

The government is hoping to collect EGP 549bn in budget revenues in the FY 2014/2015, compared to EGP 569bn in revenues in the previous fiscal year. However, the estimate of the current fiscal year’s expenditures is EGP 789bn. The budget deficit is expected to register EGP 240bn, which is equivalent to 10% of GDP.