Finance

Background

The role of the IMF in domestic and international taxation

19 April 2017 | Minutes

Panelists
Victoria Perry – IMF Fiscal Affairs Department
Susan Ruiz Rodriguez – Oxfam International
Juan Toro – IMF Fiscal Affairs Department

Victoria Perry

Direct technical assistance (TA) is the core of our work in domestic resource mobilisation and this work is increasing. Two topical trust funds provided by multilateral donors have entered phase 2 to support this work for example. We are now also entering into much more intensive engagement aimed at certain countries on this issue. In general, TA money has doubled in recent years. Following on from core work, the MD has asked the Fiscal Affairs department to pilot mainstreaming this work, looking at Article IV reports for lower income countries and do a deep focus on this issue. There will be 24 of these. Part of the idea is to create synergies between core TA and surveillance reports. The issue of lacking transparency in TA is a long-standing problem in our efforts to letting CSOs know what the IMF does. We are also working with the UN on a monitoring report of the Addis agenda, led by the UN but the IMF and World Bank are leading supporting organisations.

We are also now working with the World Bank on an assessment framework on tax policy. It is a difficult issue and we are working on what are the right questions to ask.

Finally, the IMF is deeply engaged on the tax collaboration platform, which allows us to collaborate and exchange ideas with the World Bank, OECD and UN. On this platform a paper was recently published on capacity development in low income countries for domestic revenue mobilisation. That paper is now online on the platform’s new website.

Susana Ruiz Rodriguez

Fair taxation is still key to reducing inequality. We at Oxfam are happy to see these plans and that they are not just TA, but that they are more political, so also include Article IVs, lending, and analysis.

Oxfam has real concerns on corporate tax, in particular on the race to the bottom in corporate taxation. This issue has not been so clearly on the agenda and is being very unequally addressed by countries. There is no global or regional conversation on corporate tax competition. If we leave that to only a country-based analysis, we will never achieve the solution. The IMF has to take this on and be a leading voice on this issue at the international level. It is part of the core mission of the Fund. This is probably one of the elements where the IMF should do more, because the global decline of corporate income tax rates is a critical problem.

Oxfam’s perspective is that what we are seeing in the critical decline of corporate income tax rates is led by the West, but will have a serious domino affect. Impacts on developing countries will become very clear very soon.

We at Oxfam want to know what the Fund’s position is on this race to bottom.

It is important for the Fund to have a clear and strong voice on this issue. This decline is going to get worse. Unless this is addressed, the burden of national tax will continue to fall disproportionately on consumption and labour.

On the assessment framework on tax policy Vicky brought up, we would like to know whether it will assess fairness, not just efficiency.

We also see a lot of differences between Article IV analysis amongst each other, and recommendations don’t always match the analysis.

On wealth and property taxation, it does not seem so present on the agenda. Can this be incorporated more, for example in TA, recognising it is not easy for developing countries to do?

On the Tax Collaboration Platform, we were encouraged by the idea. From a CSO perspective, governance of international taxation is as important as the agenda itself. Unless we have more participation of developing countries on this agenda, we will not see the transformative reforms we need. The fact that it was more inclusive was good about the platform, but it is still not exactly open to civil society, nor very transparent. We would therefore like to see broader and more stable civil society participation in the platform. The issue of tax incentives is still presented as just technical while they are political.

Finally, we are concerned the momentum of last year on equality might diminish a little, with new concerns on the agenda. We want this back on top of the agenda.

Victoria Perry

Do not worry equality is not as central this year as last year. It is perhaps more so, certainly at the broad macro Fund level, but it is good to be reminded not to let the focus slip.

On tax competition, your comments are completely right. This upcoming Monday we are hosting a conference about tax competition among low income countries, aimed at following up on the toolkit we developed to keep countries focused on this. You are right that it is political. It requires political agreement between countries not to do it. We at the Fund have been saying for 50 years this is not productive for them to do, but this has stalled before at the political level. Countries are sovereign over their tax systems. Tax is the highest expression of sovereignty.

Juan Toro

Ultimately strong revenue collection institutions are key in having developing countries able to have strong domestic resource mobilisation, in particular to deal with non-compliance. We spend our life trying to support countries doing this. But it is incredibly complex because we are talking about major institutions. Revenue administration is charged with collecting a huge amount of money. It is taken for granted these institutions have to do this job but they do not have or are not given the tools to do so. Changing heads of tax institutions often for example is very common. You have institutions that have many local offices, but are too large to manage, or paper-based systems, etc.

Political will to build this capacity is therefore a pre-requisite.

These are also sensitive issues. For example in fairness, how do we deal with high-income earners? This requires special skills and capabilities inside the tax administration institution.

We want to ask countries what their plan is for the next few years from a tax policy and revenue administration perspective. Political will is critical, but we need concrete expressions of commitments, allocation of resources, prioritisation, etc. then a medium-term perspective is crucial, instead of a ‘we-just-need-more-money-now’ mentality.

Discussion

Citizens Climate Lobby: What is the IMF’s position on carbon taxes?

Victoria Perry: The IMF is very much on record in favour of carbon taxes as being most effective to reduce carbon emissions and address costs of externalities. They are much more effective than cap and trade.

Indonesian CSO: I agree CSOs must be involved with the Tax Platform. Based on Indonesian experience, the question is how to deal with high net-worth individuals. How can the international system support countries to stop tax evasion by high net-worth individuals. The relative ‘good taxpayer’ is the middle class. Non-compliance is much higher with high net-worth groups.

Victoria Perry: I agree on CSO engagement. To support that we host sessions like this, and for the  Platform conference we very much hope to have CSO involvement. We also look for comments and consult when we produce toolkits. Part of the medium-term plans we help countries design is also to get citizen engagement on board.

Juan Toro: When we emphasize medium-term plans have to be country owned, the idea is to have broad civil society engagement. We do not just mean by the government. On high net-worth groups, we are providing increasing TA. We just published a technical note on high-income individual compliance. It is a public document.

Mozambique CSO: How does the IMF work with governments to make sure they have tax systems that ensure justice for vulnerable groups in a financial crisis. When food prices are rising, etc. how are you protecting the vulnerable?

Victoria Perry: That issue is mostly not solvable through the tax system. Most important for those groups is to provide well targeted support to the most vulnerable. In a real-post chaos situation, like Afghanistan, we have done lots of work on trying to rebuild tax systems from scratch. There is some type of outline of methodology on how to do that. Starting with border tax, then excise taxes, etc, but generally protecting the most vulnerable is not really part of tax issues.

Mae Buenaventura; Asia Peoples’ Movement on Debt and Development: On tax competition, one important vehicle of tax incentives is big trade agreements. So while there are some small pushes here and there on reducing tax competition policies, the IMF does support these major trade agreements that still push corporate tax competition in a big way.

Victoria Perry: The IMF basically opposes free tax zones. While we might not be able to get rid of all tax incentives, if they must exist all these zones should allow is importing components, producing and exporting without physical taxes. Rarely is that advice totally heeded. It is very important to impose domestic taxes on income, and not let goods move out of the domestic economy without taxation if you are going to have free trade zones. A better tax incentive is to provide an immediate incentive for direct investment, not give breaks for future income, tax holidays, or a break on social tax or social security.

Ugandan CSO: I am missing transparency. Is transparency part of the TA the IMF gives on tax?

Victoria Perry: Yes, we think transparency is incredibly important, especially in incentive grants. These grants tend to be non-transparent, but transparency is key in these processes.

Juan Toro: From an administrative perspective transparency is crucial in several dimensions. For one, tax payers need information on what their taxes are going to and how to pay taxes. All this information has to be there for them. This might seem obvious but actually it does not happen that frequently.

Another dimension is about the legitimacy of collecting tax and letting people know what happened to the money? This is also often forgotten. So transparency on expenditure side is very important.

Also transparency on how the administration operates, like how they do audits, what is the policy behind that? is crucial in building legitimacy and trust.

 

 

More background on this issue

Finance

Background

19 April 2017 | Minutes

Making Tax Work for Women's Rights

Notes from a 2017 Spring Meetings event of BWP on Making Tax Work for Women's Rights, 19 April

IFI governance

Background

17 April 2016 | Minutes

IMF Fiscal Forum - International Taxation: Opportunities & Risks

Finance

Background

19 April 2017 | Minutes

The role of the IMF in domestic and international taxation

Notes from the 2017 World Bank and IMF Spring Meetings session on Domestic and International Taxation, 19 April.

IFI governance

Background

6 October 2016 | Minutes

The role of IFIs in assessing the impact of tax incentives and tax competition on inequality

Notes from a side event at the IMF/World Bank 2016 annual meetings exploring the link between tax incentives, reduced revenue mobilization and inequality, as well as addressing tax capacity building efforts.

Finance

Background

16 April 2016 | Minutes

The Role of The World Bank and IMF in responsible and progressive taxation

Knowledge

Background

7 October 2015 | Minutes

Lurking behind plummeting oil prices: Advancing structural adjustment

Notes from a meeting at the IMF/World Bank CSO Forum at the 2015 Annual meetings, focusing on macroeconomic challenges for the MENA region.

Finance

Background

10 April 2014

The IMF's work on tax spillovers and developing countries

IFI governance

Background

13 October 2013 | Minutes

Subsidy reform in Arab countries: Reflection on IMF recommendations

New America Foundation civil society event on subsidy reform in Arab countries, held in the civil society forum of the 2013 IMF/World Bank annual meetings

Latest articles on this issue

Rights

Analysis

Civil society still waiting for ‘IMF Spring’ to blossom

Civil society was out in full force during annual meetings challenging the IMF’s claims that it is reducing economic and gender inequality.

7 December 2017

Finance

News

IMF and Bank “intensifying” tax work: Possible progress or consolidating control?

The World Bank and IMF are intensifying their work on tax under the Platform for Collaboration on Tax, yet civil society is cautious about embracing tax policy advice coming from the Bretton Woods Institutions.

6 December 2017

Finance

News

IEG report finds Bank’s tax work lacks equity focus

IEG report on the World Bank’s domestic resource mobilisation work finds ad hoc approach focused on creating an enabling business environment while doing little to address equity issues.

27 September 2017

Finance

Background

Making Tax Work for Women's Rights

Notes from a 2017 Spring Meetings event of BWP on Making Tax Work for Women's Rights, 19 April

19 April 2017 | Minutes

Finance

Background

The role of the IMF in domestic and international taxation

Notes from the 2017 World Bank and IMF Spring Meetings session on Domestic and International Taxation, 19 April.

19 April 2017 | Minutes

IFI governance

Background

The role of IFIs in assessing the impact of tax incentives and tax competition on inequality

Notes from a side event at the IMF/World Bank 2016 annual meetings exploring the link between tax incentives, reduced revenue mobilization and inequality, as well as addressing tax capacity building efforts.

6 October 2016 | Minutes

Finance

Analysis

IFC investment in Stora Enso: the need for a responsible IFC tax policy

The International Finance Corporation praises the pulp and paper company Stora Enso as an industry leader in environmental and social standards, but questions about Stora Enso’s Dutch tax arrangement remain unresolved.

31 January 2017 | Guest analysis

Finance

Analysis

Development finance institutions and responsible corporate tax behaviour

Report finds Development Finance Institutions (DFIs) are not doing enough to eliminate the risk of public money being complicit in tax avoidance schemes.

10 November 2016 | Report

Finance

News

IFC's (ir-)responsible tax investment policy

Civil society organisations have demanded that the IFC develop a responsible tax policy that ensures that IFC investments are consistent with its development mandate and do not support companies utilising aggressive or abusive tax practices.

23 September 2016

Finance

Analysis

World Bank and IMF: Where do they stand on progressive and responsible taxation?

The IMF and the World Bank are increasingly engaged with the challenge of addressing how tax avoidance and evasion affect developing countries, but need to address the role played by multinational enterprises and tax havens in exacerbating inequality and undermining countries’ domestic revenues.

5 August 2016 | At Issue