No taxes – no development!
Why domestic revenue mobilisation is essential for sustainable development, and how German development cooperation supports countries to meet this challenge.
For any state, taxes form the basis for financing its core tasks and functions. The design of tax systems therefore plays a key role in reducing poverty and inequality. At the Third International Conference on Financing for Development, held in Addis Ababa in July 2015, the community of states committed to strengthening revenue mobilisation (i.e. taxes, customs duties and levies) in developing and emerging countries, and to fostering the effective allocation and use of such revenues as a central pillar of development financing. Furthermore, with the Addis Ababa Action Agenda (AAAA), the international community pledged to increase official development assistance (ODA) as a way of catalysing action and, in particular, capacity development. Illicit financial flows, specifically from tax evasion, were identified as a key obstacle to mobilising domestic revenues and therefore feature prominently in the AAAA.
With the Addis Tax Initiative (ATI), Germany has committed to redouble its efforts to strengthen the domestic funding capability of German DC partner countries. However, the call for increasing domestic revenues in developing countries is pointless if, at the same time, the tax base of these countries is being eroded by multinational enterprises (MNEs) shifting profits abroad. This is why Germany, as a member of the G20, is actively supporting greater transparency and fair rules in the international taxation of companies. In Germany’s ‘Marshall Plan with Africa’, strengthening domestic revenue mobilisation and combating corruption and illicit financial flows are central initiatives.
This concept paper describes the current state of the development policy debate on the issue of taxation and development, and outlines areas of action for German DC. No taxes – no development! Why domestic revenue mobilisation is essential for sustainable development, and how German development cooperation (DC) supports countries to meet this challenge.