Donors Urge Developing Countries to Strengthen Domestic Tax Base

European Commissioner for Development Andris Piebalgs talks with African Development Bank Group President Donald Kaberuka during the high-level plenary meeting of the U.N. General Assembly on the Millennium Development Goals. Photo by: European Commission

Increasing the tax base of developing countries is emerging as a central theme at the United Nations this week – it was the focus of a discussion among top officials hosted by the European Union Monday.

Panelists stressed the need for developing countries to diversify their economies and improve governance and transparency to build trust among the public that taxes are being used properly and, in turn, encourage good corporate governance. Tax evasion poses a challenge, speakers noted, as does the sometimes competing quests to mobilize domestic resources and to boost regional integration by lowering customs tariffs.

The question, then, was: How to increase a country’s tax base, and who to tax?

One panelist from Africa suggested that developing countries should start with low, “simple” taxes but be careful not to “chase” small businesses and entrepreneurs that often already pay value-added tax and other fees, and may quickly get discouraged from growing their business.

One take-away from the session, the EU’s main side event at this High-Level Plenary Meeting on the Millennium Development Goals, was that the relationship between taxation and development is coming to the fore, as one panelist put it.

Domestic resource mobilization is a key point European Commissioner for Development Andris Piebalgs plans to stress in the European Development Consensus, expected to be released next year.

Piebalgs attended the U.N. summit side event together with U.N. Development Program Administrator Helen Clark, African Development Bank Group President Donald Kaberuka, World Bank Managing Director Ngozi Okonjo-Iweala, OECD Secretary-General Angel Gurria, African Union Commission Chairman Jean Ping, as well as Raymond Baker, director of Global Financial Integrity, Daniel Sowa Ablorh-Quarcoo, Internal Revenue Service commissioner in Ghana, and Krister Andersson, chairman of the Tax Policy Group – Business Europe.

The session was declared by its organizers as “on background,” meaning no speaker could be quoted by name.

Devex News – live breaking news coverage of the Millennium Development Goals and the Sept. 20-22 U.N. MDG summit in New York.

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    Rolf Rosenkranz oversees a talented team of in-house journalists, correspondents and guest contributors located around the globe. Since joining Devex in early 2008, Rolf has been instrumental in growing its fledgling news operation into the leading online source for global development news and analysis. Previously, Rolf was managing editor at Inside Health Policy, a subscription-based news service in Washington. He has reported from Africa for the Johannesburg-based Star and its publisher, Independent News & Media, as well as the Westdeutsche Allgemeine Zeitung, a German daily.