[财经英语角区] Smart Taxation [推广有奖]

An effective tax policy that ensures adequate domesticrevenue is a crucial determinant of a country’s ability to pursue developmentpolicies. But tax revenues in most developing countries are low, impedingprogress toward more balanced, inclusive, and sustainable economic developmentthat can improve public health and raise standards of living.
Although non-tax revenue may contribute significantly tosome countries’ total GDP, the average tax/GDP ratios in low-income andlower-middle-income countries are roughly 15% and 19%, respectively –significantly lower than the OECD average of more than 35%. To financedevelopment projects, poor and lower-middle-income countries must devise andimplement tax strategies to increase domestic revenue.
This entails abandoning the prevailing dogma that taxes should only be increased whenabsolutely necessary. This stance assumes that lower tax rates raise thetax/GDP ratio by ensuring better compliance withtax laws, and favors indirect taxation (such as value-added taxes) in order tobroaden the tax base to include those with modest incomes.
Meanwhile, direct taxation of corporations and individualshas tended to decline – despite the moot claimthat lower direct taxation ensures investment and growth. As a result, thetax/GDP ratio in most countries in Sub-Saharan Africa and Latin America has stagnated or even fallen.
In many developing countries, total tax revenue is derivedfrom three main sources: domestic taxes on goods and services (sales and excisetaxes), direct taxes (primarily on corporations), and, most important, taxes onforeign trade (import duties). But, as trade liberalization has lowered tariffsand duties, the share of trade taxes has declined, while other sources have notcompensated for falling trade revenue.
By contrast, in high-income countries, income taxes(primarily on individuals) comprise the largest proportion of tax revenue(roughly 36%), while domestic taxes on goods and services and social-securitycontributions each account for slightly more than one-quarter. Moreover, theshare of trade taxes is typically low.
Of course, developing countries should not simply mimicdeveloped economies’ tax systems. After all, no one-size-fits-allapproach exists, even among developing countries. And tax policy must evolvewith changing economic circumstances.
Instead, developing-country leaders must draw on theexperiences of both developed countries and their peers to design tax policiesthat meet the basic requirements of operability,buoyancy, and stability. This can includebroadening the tax base, reducing tax avoidance and evasion, improving taxcollection, and developing new, cooperative international taxation strategies.
In many countries, tax reform has already significantlyincreased the share of direct taxes in overall revenue. Raising tax rates forthe wealthiest citizens in developing a more progressive income tax frameworkwould bolster this progress.
Governments should also work to improve tax compliance andreduce evasion, which requires limiting tax officials’ discretionary authority.Computerizing tax administration, for example, could help to limit corruptionby making it more difficult to tamper with records.
In order to increase personal-income taxes’ share of totalrevenue, developing countries are already improving their tax administrationsin innovative ways, particularly to reach hard-to-tax citizens. More can bedone: Every individual who owns a house or a vehicle, is a member of a club,holds a credit card, passport, driver’s license, or other identity card, orsubscribes to a telephone service can be required to file a tax return.
Moreover, excise taxes are a convenient source of revenuein developing countries, as they are primarily levied on products such asalcohol, tobacco, gas, vehicles, and spare parts, which involve few producers,large sales volumes, relatively inelastic demand, and easy observability.Excise taxes may be levied when goods leave a factory or arrive at a port,simplifying measurement, collection, and monitoring, while ensuring coverageand limiting evasion. But, despite their robust base and low administrativecosts, excise taxes currently amount to less than 2% of low-income countries’GDP, compared to roughly 3% in high-income countries.
Developing countries must also aim to offset theconsequences of globalization. For example, capital mobility increasesopportunities for tax evasion, given that tax authorities’ capacity to monitortheir citizens’ overseas incomes is limited, and some governments and financialinstitutions systematically conceal relevant information. If dividends, interest,royalties, and management fees are not taxed in the country in which they arepaid, they more easily escape notice in the country of residence. Indeed, somecountries – including the United States – impose no taxes on interest fromlarge bank deposits by non-resident aliens.
Globalization may also facilitate legal tax avoidance. Forexample, multinational corporations use methods like transfer pricing(book-keeping of goods, services, and resources transferred between a singlecompany’s branches or subsidiaries) to minimize tax liability on their profitsfrom international operations. Corporate taxpayers take advantage ofdiscrepancies in rules and rates, choosing to do business in countries withmore favorable – or lax – tax regimes.
Finally, international competition for inward foreigndirect investment may lead governments to reduce tax rates and increaseconcessions for foreign investors. With evidence of sudden capital outflows inresponse to certain tax-policy changes, governments are reluctant to raiseincome-tax rates – which have fallen sharply since the late 1970’s – or to taxdividend and interest income, for fear of capital flight. But, as direct-taxconcessions have little or no effect in diverting international investment, letalone in attracting such flows, they constitute an unnecessary loss of revenue.
Beggar-thy-neighbor policies will lead to revenue lossesfor all developing countries, while undermining the possibility of balanced,inclusive, and sustainable development. Developing-country finance ministriesand tax authorities must cooperate with one another and with their OECDcounterparts to close existing loopholes and establish effective tax policiesthat support their shared interests. With rising public debt worldwide placingfiscal constraints (real and imagined) on global economic recovery, such cooperationis more urgent than ever.