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Tax and Development

Aid Modalities for Strengthening Tax Systems

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Tax revenues provide governments with funds to invest in development, relieve poverty, deliver public services and build the physical and social infrastructure for long-term growth. Moreover, there are mutually beneficial links between taxation and good governance. Tax and Development: Aid Modalities for Strengthening Tax Systems highlights how taxation can have a positive effect on the quality of governance and a government’s relationship with citizens and, in turn, how good governance can have a positive effect on compliance and revenue mobilisation.

How can international assistance providers, including OECD members, international and regional organisations, support the development of tax systems in developing countries? Tax and Development: Aid Modalities for Strengthening Tax Systems provides practical guidance for policy makers and practitioners based on the results of an extensive literature review, a survey of aid agency officials and six country case studies (Ghana, Guatemala, Liberia, Mali, Mozambique, and Tanzania). It examines the aid instruments that donors use to assist developing countries including general and sector budget support, basket financing, stand-alone bilateral aid and funding South-South organisations. The strengths and weaknesses of each modality for supporting tax systems are identified, and some 50 recommendations to support the development of effective, efficient and growth-oriented tax systems in developing countries are provided.

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Technical assistance and cross-cutting issues

While Chapter 3 looked separately at seven aid modalities, assessing their individual strengths, weaknesses, and applicability, this chapter examines what they have in common. It first discusses two broad categories of aid that are central planks of any aid programme to strengthen and modernise tax systems and improve the efficiency of revenue collection: technical assistance and training and information technology (IT). The chapter then broadens its sweep to five concerns that cut across all aid modalities: programmatic priorities; diagnostic tools; tax-related indicators; the division of labour among donors; and conditions for donor exit. It rounds off its consideration of technical assistance and IT with a series of recommendations and does the same again for the cross-cutting issues it has identified.

English

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