Tax for Development
The Norwegian experience of developing a fair and effective tax system, including taxation of natural resources, and an efficient tax administration, is valuable in this work. However, it must be recognised that each country is different, and the Norwegian model cannot be directly transferred to other countries.
The Tax for Development program is organised as a portfolio under the auspices of the Section for International Development Policy at the Ministry of Foreign Affairs. The secretariat is placed in Norad and serves as a focal point for coordination, program development and quality control.
The current phase of the Tax for Development program was launched in 2018, building on the experiences of the first phase (2011- 2017) and responds to international commitments.
Tax for Development promotes effective mobilisation of public revenue principally through improved tax systems in a way that fosters development. Our strategy is to combine broad multilateral action for new tax norms and targeted capacity building, with deep long-term bilateral cooperation with a select number of partners. The program is built on the assumption that tax policy and tax system reform stimulates economic growth and be a key determinant of reducing inequality and poverty.
Challenges of tax and development
Due to tax exemptions, aggressive avoidance and evasion, the tax contribution of many companies and individuals is close to negligible. This means that entire societies lose out on vast revenues which could have been used in areas such as infrastructure, education and health care.
The sustainable development goals and the financing of these goals represent a unique alliance and possibility for global cooperation between countries. Broad social and economic development in any society requires access to finance, and we know that it is primarily access to and effective use of domestic finance that, over time, decide the success or failure of development.
A broader tax system alongside more awareness around issues of taxation can foster stronger political engagement by the general public. It also builds a social contract where people who pay taxes place demands on the authorities for equitable taxation, and for greater transparency with regard to who the tax contributors are and how the revenues are spent.
An open dialogue around tax issues combined with stronger impartiality institutions, could therefore act as a catalyst towards more accountable politicians.
Domestic Resource Mobilisation
Mobilising domestic resources for financing of expenditure and investment is central for economic growth and development. It leads to improved agencies and often improvement in, policies and practices. It also has positive impacts on state-citizen relations.
Domestic resource mobilisation can in principle take place both within and by the public and the private sector and the exact balance will depend on how the economy is organised and selection of a model of development. The objective of Norad’s Tax for Development program is supporting domestic resource mobilisation and reform of the tax system towards more predictability, transparency, fairness and progressivity of the tax system.
The international commitment on Financing for Development agreed in Addis Ababa 2015 underlined the importance of domestic resource mobilisation and taxation. As a result, Norway together with other countries came together to further advance tax related development aid as part of the Addis Tax Initiative (ATI).
An important background for the ATI commitment and focus is that aid still accounts for more than 10 per cent of GDP in almost half of the low-income countries globally, and more than one-third of total public revenues in an expanded group of both low- and low-middle income countries (26 countries). In order to reach the SDGs, a significant increase in financing is needed both in private and public sources.
Adjusted for the structural differences between the economies (including levels of income) and governance, even low- and low-middle income countries have a potential of increased tax collection of between 3-10 per cent of GDP in the medium to longer term. Despite this, as well as strong indications of the cost-effectiveness of tax aid, international cooperation on tax has long been an area that has not been highly prioritised. The level was at approximately 0.13 per cent of ODA in 2015.
What we do
The purpose of the Tax for Development program is to contribute to improved tax systems and increased tax revenues in developing countries.
The program focuses on four areas:
Country capacity building
Improving tax systems and strengthening tax authorities in partner countries is central to improved domestic resource mobilisation. Through cooperation with the Norwegian tax administration and selected countries’ national revenue authorities we focus on long term capacity development.
It currently includes cooperation with Rwanda, Nepal and Tanzania while other countries are also being considered.
Phase one of the program (2011- 2017) targeted Mozambique, Tanzania and Zambia with some very positive results.
Knowledge generation and dissemination
Improving the knowledge base is essential to improve impact of development cooperation. For Tax for development the focus is on applied research on taxation and to advance cooperation with south based research environments. Empowering the use of local data and research capacity is also part of building national constituency that can participate in national debates on tax policy, enforcement and transparency.
Norway supports international cooperation on tax issues for developing countries through the main multilateral organisations on tax; the World Bank, OECD, IMF and the UN. Strengthening representation and participation of developing countries in international tax collaboration and standard setting processes is central to the support. Better representation leads to tax systems that benefit the needs of developing countries for domestic resource mobilisation and the need to curb illicit financial flows.
Partnerships with multilateral organisations makes the program reach more countries and to target more fragile countries. Current agreements with IMF, the World Bank and the United Nations focus on channelling more support to country level to ensure tax reform is an integrated part of stabilisation and public sector reforms.
Support to civil society
Tax for Development supports a number of organisations that focus on strengthening popular engagement in and public debate on taxation and capital flight issues at global and national levels. Scaling up of the support to civil society is a testament to the impact that civil society have had in advancing the agenda of transparency and accountability.
In many countries civil society organisations are experiencing shrinking spaces that limit their ability to shed light on illegal and unethical behaviour. Norway continues to support and promote the civil society organisations in global and national debates on tax and transparency.
The Tax for Development program has a clear ambition to increase south-south cooperation as well as triangular cooperation with partners from the South and the North. This is in line with the goal of the Knowledge Bank at Norad and good practices sustainability in capacity development.