Strengthening revenue collection to help finance economic growth, poverty reduction

Calma Arcala used a small loan to start a mushroom growing business and today employs five people in the Philippines. Photo by: Opportunity International / DFAT

Improving governance — including the rule of law — and supporting stable investment and taxation environments are critical to economic growth and poverty alleviation. Countries need less aid when they can raise adequate revenue themselves to meet development goals.

Global Financial Integrity estimates that outflows from developing countries due to tax avoidance and illicit financial flows amount to around $1 trillion each year, which dwarfs global aid flows of $134 billion.

Australia is committed to strengthening efforts to build revenue capacity and effective tax, governance and anti-corruption systems in developing countries. As part of this, we are building institutional linkages through our Treasury and Taxation Office and their counterpart authorities, with a focus on the Indo-Pacific region.

Australia’s support is focused on long-term outcomes through strong and collaborative government-to-government partnerships, as this must extend beyond aid.

This was one of the issues where good progress was made at the first High-Level Meeting of the Global Partnership for Effective Development Cooperation in Mexico last April.  

For example, Australia is working with Papua New Guinea to build institutional tax capacity, implement new automated tax systems, increase tax compliance and strengthen audit capacity. This includes assistance through the Australian Treasury, in partnership with Papua New Guinea, to undertake a general tax review this year.

During Australia’s presidency in 2014, the G-20 has continued to pursue reforms to make the international tax system more coherent and transparent, and to ensure tax is paid where economic activity occurs and value is created.

In 2014, to assist developing countries to reap the benefits of these reforms, the G-20 has:

● Strengthened our understanding of the impact of base erosion and profit-shifting in low-income countries or those with limited capacity.

● Developed a roadmap on steps developing countries can take to access information on profits and income held offshore by their taxpayers.

● Agreed on a multiyear agenda for the G-20 to assist developing countries to address international tax avoidance and evasion, and strengthen their tax systems.

In addition, the G-20 is contributing to global efforts to fight corruption, which undermines a government’s ability to mobilize domestic resources for development. For example, the G-20 has developed high-level principles to improve the transparency of information on who owns and controls companies and other legal structures (known as beneficial ownership transparency). This will help prevent the illegal use of companies for money laundering, tax evasion or other illicit purposes.

Beyond 2014, the G-20 will work with international and regional organizations to develop toolkits that provide tailored approaches for developing countries to effectively implement reforms to combat profit-shifting and tax avoidance. We will undertake additional work on related tax issues that developing countries raised as priorities during consultations, such as the effective use of tax incentives to attract investment.

To help developing countries access more and better information about their taxpayers’ profits and income being held offshore, the G-20 will also support developing country pilots on arrangements to automatically exchange tax information with other jurisdictions. The G-20 will further strengthen these efforts to promote international tax transparency by identifying steps and taking concrete actions to implement the G-20 High-level Principles on Beneficial Ownership Transparency.

I look forward to continuing to work with the G-20, the GPEDC and our developing country partners on these crucial reforms. These form part of a broader package of support Australia will invest to help developing countries participate in — and benefit from — the G-20 international tax agenda.

This article is published in cooperation with the Global Partnership for Effective Development Cooperation. Read more expert comment at http://devcooperation.org.

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About the author

  • Bishop portrait1

    Julie Bishop

    Julie Bishop is the Australian minister for foreign affairs, responsible over the country’s foreign aid programs. She is also the deputy leader of the Liberal Party, a member of the coalition government led by Prime Minister Tony Abbott, and has served as a member of the parliament since 1998.