Tax is the most stable source of revenue for developing countries

14 May 2012

Tax is the most stable source of revenue for developing countries, Professor Mick Moore and Dr. Odd-Helge Fjeldstad told UK parliamentarians in two recent hearings. In evidence to the UK Parliament's international development select committee, the two researchers argued that weak tax policies in developing countries need to be addressed in order to promote better governance.

Professor Mick Moore is Chief Executive of the International Centre for Tax and Development (ICTD) and Professorial Fellow at IDS. Dr. Odd-Helge Fjeldstad is Research Director of ICTD and Senior Researcher at Chr. Michelsen Institute, Norway. The International Centre for Tax and Development is a global policy research network which aims to mobilise knowledge that will help make taxation policies more conducive to pro-poor economic growth and good governance.

Promoting broader engagement with taxation issues

Policymakers and NGOs have recently called for extractive industries and multinational companies to be more transparent in their dealings with taxation systems in developing countries.

Professor Moore and Dr Fjeldstad welcomed these efforts, but urged that they should not distract from promoting broader engagement with taxation issues. In his evidence to the committee, Dr Fjeldstad stated that a lack of research and policy analyses on taxation issues in developing countries was in part responsible for the limited nature of wider public debate.

In written evidence to the committee, ICTD researchers called for efforts to build broader citizen engagement with taxation. Tax is central to building better relationships between citizens and the state, the researchers argued. They also suggested that many current challenges are rooted in politics rather than in a lack of knowledge or funding.

Improving coordination and cooperation key to better systems of taxation

Professor Moore and Dr Fjeldstad recognised that the UK Department for International Development (DFID) has a crucial role to play in helping developing countries to overcome political challenges. They emphasised how DFID's support has been instrumental in improving the capacity of tax administration systems in many countries.

Donors have become more active on taxation as a growing number of agencies and governments have acknowledged the importance of taxation in development.

Professor Moore and Dr Fjeldstad stressed the need for better cooperation between donors. DFID, they argued, is well placed to coordinate these efforts. UK government departments, including the Treasury and HMRC, also need to work closely with DFID, the researchers emphasised.

ICTD evidence also underlined the importance of including Southern countries and networks such as the African Tax Administration Forum and CIAT (the Latin American regional organisation for tax specialists) as full partners in any new UK initiatives on tax and development.