Tax and Development: Topics for Discussion

By Adrian Grant & Frederik Heitmüller

This post will give a short wrap-up of a one-day workshop that took place on 14 January 2019 in Bruges (Belgium), and was co-organized by Irma Mosquera from the GLOBTAXGOV project, and Wouter Lips and Dries Lesage from Ghent University and the United Nations University Institute on Comparative Regional Integration Studies, located in Bruges.

The starting point of the discussion was a UNU-CRIS working paper written in July 2018 by the co-organizers of the workshop. The paper identified a number of important issues in the debate on tax for development. These focused on the OECD BEPS project and its adequacy for developing countries as well as on problems in the general mode of governance in international taxation. It questioned the role of the EU with regards to developing countries and whether current initiatives like the BEPS Inclusive Framework are truly inclusive. Participants of the workshop who came from diverse academic backgrounds, professions and institutes, discussed the paper intensively, added further arguments to the debate and raised some new topics as well. We have made all presentations public here.

As an outcome of this workshop, we are also looking forward to publishing an edited volume with contributions by many of the workshop’s participants, prospectively by the end of 2019. Topics covered will include policy coherence in tax policy, tax and investment, tax and sustainable development, as well as issues of governance with regards to developing countries.

To bridge the time until its publication, however, we have already identified some interesting cross-cutting topics and debates of the workshop that we will treat in further blogs.

At first, it is possible to note a growing interest in holistic approaches to taxation and an acknowledgment of the interconnectedness of a globalized world. This includes a discussion of the concepts of policy coherence (integrating tax and development policy in developed countries) and sustainable tax systems (integrating tax with economic, social, environmental, institutional and gender concerns), as well as an increased discussion on how to view taxation and spending together. On a policy level, this can be seen at the increased use of spillover analysis conducted by the EU and member countries (analysing how developing countries are affected by policies of developed countries) as well as a discussion of the usefulness of Medium-Term-Revenue-Strategies (MTRS) for developing countries.

Related to this, the topic of the politicization of international tax policy was brought up by several participants. While there is no final agreement on whether politicization is a good or bad thing, the empirical dynamics of whether politicization is taking place are not easy to assess as well. It would be interesting to further investigate this systematically. Will more holistic approaches make debates around taxation also more political?

One way to do this is to take a closer look at the strategies pursued by the numerous actors in the field of tax and development such as the Platform for Collaboration on Tax, the UN, the EU, bilateral technical assistance, as well as regional tax organizations, since their different preferences and strategies not only enrich, but also contribute to outline the debate.

On a global level, the UN could move the tax debate from an OECD-dominated approach to a discussion on broader topics. However, the role of regional actors cannot be understated, since the idea that tax and development are linked with the need for tailor made solutions has inspired several organizations to take action via the setting of local objectives that fulfil their tax needs and are adapted to the characteristics of their tax systems.

For instance, the position of the EU is particularly interesting: even though the institution has been criticized for “imposing” EU standards worldwide, the EU tax strategy in development matters could also be understood as a value-sharing effort via initiatives such as the Toolbox on Double Tax Treaties, which strives for coherence between tax and development policies.

Additionally, there are several institutions and organizations who also have their say in the relation between tax and development — and deserve careful attention—, such as the African Tax Administration Forum (ATAF), the Inter-American Center of Tax Administrations (CIAT), or the International Tax Compact (ITC), which focuses on the enhancement of domestic revenue mobilization via the facilitation of the secretariats of the Addis Tax Initiative, the Network of Tax Organisations (NTO), and the DRM Innovation Forum. Finally, the role of national development organizations such as the German Development Agency (GIZ) cannot be understated. Indeed, the tension between the call for harmonized rules and the desire to reach tailor-made solutions could grow in the coming years.

In this respect, it is important to take into account the role of the tax mix in actor preferences when it comes to tax policy design. A good and interesting example of the role of the tax mix would be the weight of certain taxes in different types of countries: whereas developed countries appear to rely more heavily on personal income tax, developing countries tend to show a higher reliance on indirect taxes and corporate income tax for practical reasons. The interpretations one can make of this fact are however not straightforward.

Finally, the very concept of “developing” country in the field of taxation should be analysed carefully, for it is rather ambiguous and does not always apply to comparable realities. Not only do developing countries appear to be at different stages of development: they also have diverse legal systems, or very different economic structures. Consequently, statements such as “the needs of developing countries” or “the preferences of developing countries” in international taxation should be dealt with cautiously. A case in point would be China, a state that has often been (and sometimes continues to be) treated as a developing country  for purposes of international taxation — although this attitude is, to say the least, debateable.

In short, the debate surrounding tax and development is constantly growing, and several initiatives are expected to flourish in the coming years. The diversity of opinions and solutions presented in Bruges is just a small example of the quality and depth of the work being carried out in this field, which could evolve over time into an alternative to the dominant narrative of the OECD in international tax policy. It will be a challenging task for the different actors mentioned in this post to refine development efforts in the area of taxation:  we believe that, for starters, the analysis of the aforementioned topics will surely contribute to it.