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Development Account Projects

Strengthening capacity of National Tax Administrations of developing countries in Latin America to reduce Tax Transaction Costs

Background:

The Monterrey Consensus noted that an effective, efficient, transparent and accountable system for mobilising public resources and managing their use by Governments is essential to the development process. It also recognized the need to secure fiscal sustainability, along with equitable and efficient tax systems and administration. In the "Road Map" towards the implementation of the United Nations Millennium Declaration, the mobilization of domestic resources is clearly indicated as the foundation for self-sustaining development. Domestic resources finance domestic investment and social programs which are essential for economic growth and for achieving the Millennium Development Goals.

In this connection, there is an increasing pressure to implement measures in National Tax Administrations (NTAs) to rationalize the management and simplify the operation of the tax system in order to increase countries' tax revenues. This is compounded by the negative impact of the recent financial and economic crisis on fiscal situation of many developing countries. Increases in deficits and public debt have led to heavy demands on the NTAs at a time when lower pace of economic growth and the slowdown in international trade have impacted adversely on all sectors of the tax-paying community with consequent effects on tax revenues. The creation of the necessary fiscal space for countries (and therefore broader policy space) therefore has become dependent on, among other factors, the reduction of tax evasion, productivity gains of the tax base and reductions in tax transaction costs (TTCs).

The project seeks to identify, build and develop a methodology of key indicators of TTCs that can be estimated by taxation authorities on an ongoing basis in order to assess progress towards reducing TTCs. Given the exploratory and experimental part of this project component the proposal is to work with a limited number of bases of direct taxation (e.g. income tax of natural persons and legal entities) and indirect taxes (eg VAT). These are the key taxes bearing upon taxpayer compliance and the administration's collection costs.

The project will further the implementation of DESA's Strategic Framework for the period 2010-2011, in particular its subprogramme 10 (Financing for Development) because it will contribute to fuller engagement of Governments and greater cooperation and interaction among all institutional and non-institutional stakeholders involved in the financing for development process to ensure proper follow-up to the implementation of agreements and commitments reached at the Monterrey and Doha Conferences. This project is founded on the recognition, including, by the Monterrey Consensus and confirmed by the Doha Declaration on Financing for Development, that an effective, efficient, transparent and accountable system for mobilising public resources and managing their use by Governments is essential to the development process. These Conference outcomes also recognized the need to secure fiscal sustainability, along with equitable and efficient tax systems and administration, and the role of regional and global approaches in achieving this. In the "Road Map" towards the implementation of the United Nations Millennium Declaration, the mobilization of domestic resources is clearly indicated as the foundation for self-sustaining development. Domestic resources finance domestic investment and social programs which are essential for economic growth and for eradicating poverty, as well as for promoting development more generally to meet internationally agreed development goals, including the MDGs.

The project is in consonance with the guidance provided by the Triennial Comprehensive Policy Review of operational activities for development, as established in A/RES/62/208, section III, especially in reference to national capacity-building activities.

Objective:

To strengthen capacity of National Tax Administrations (NTAs) of developing countries in Latin America to reduce Tax Transaction Costs and thereby maximize their tax revenues.

Expected Accomplishments:

  • Strengthened capacity of NTAs in at least 3 developing countries in Latin America to maximize their tax revenue through reducing the costs of collection of such revenue.
  • Strengthened capacity of NTAs in at least 3 developing countries in Latin America to reduce the compliance costs for taxpayers, including investors in their economies, without increasing susceptibility to tax evasion or raising the costs of collection for government.
  • Recognition among business in at least 3 developing countries in Latin America, that the Model encourages reduction of unnecessary compliance costs, and support for the Model among such groups.
  • Wider interest and commitment to implementing the TTC model in at least 10 CIAT member countries including support at governmental and taxpayer level.

Implementation Status:

In progress