The only way to ensure sustainable economic development was through taxation, Babatunde Fowler, Executive Chairman of the Federal Inland Revenue Services of Nigeria, told the Economic and Social Council today as it held its special meeting on international cooperation in tax matters.
Mr. Fowler, in his keynote address, outlined various taxation challenges facing his country and the overall continent. Africa was said to have 30 per cent of the world’s natural resources, and yet remained the poorest continent. In the 1970s, Nigeria discovered that while it had generated a significant amount of money selling oil, it had little to do with controlling the price. Having exported its resources in crude form, Nigeria later learned that they were resold for much more. Gold and other metals and minerals used to create jewellery only accounted for 20 per cent of the price of the final product. He expressed concern that most developing countries were consuming economies rather than manufacturing ones.
He noted that other tax challenges included large informal sectors, poor tax culture, lack of tax knowledge and poor legislation. Another significant challenge to Africa was the issue of illicit financial flows involving multinational corporations, which were involved in profit shifting from the African continent to the developed world. That called for global attention and a global solution. “Donor aid will not be there forever, assistance will not be there forever,” he added, reiterating that the only way for future economic and social development was through taxation.
To keep up with digital trends, Nigeria had adopted the strategy of “digitalized taxation” to assist in tracking and taxing transactions conducted online and in real time, he said. In Nigeria, the introduction of an end‑to‑end tax administration platform as well as various compliance and payment platforms contributed to the registration of more than 800,000 new corporate taxpayers in the last year. That had increased the tax database over 50 per cent and corresponding tax revenue growth in the non‑oil sector between 2015 and 2017 to an average of 64.3 per cent from 42.8 per cent.
Due to the absence of a universally agreed taxing approach, countries were adopting unilateral measures, he continued, noting the goals of the Addis Ababa Action Agenda which included mobilizing domestic public finances and facilitating development cooperation to support the implementation of the Agenda, particularly in plugging funding gaps.
Mahmadamin Mahmadaminov (Tajikistan), Vice‑President of the Economic and Social Council, in opening remarks, said that strengthening the mobilization of domestic resources would be crucial to ensuring that countries had the financial means to achieve sustainable development. Today’s meeting provided an opportunity to discuss a range of key issues for international cooperation in tax matters.
Taxation had been featured prominently in the Economic and Social Council forum on financing for development follow‑up, where participants urged additional international efforts to ensure that the views of developing countries were fully reflected in all decision‑making processes, he continued. Participants had called for greater efforts to increase capacity‑building efforts to enable countries to address the emerging challenges linked to taxation in the digitalized economy. While Member States had agreed to consider not requesting tax exemptions on goods and services delivered as Government‑to‑Government aid, some had requested tax exemptions for their official development assistance (ODA)‑funded projects, which could result in notable consequences for recipient countries.
The Addis Agenda gave a mandate to increase the engagement of the Committee of Experts on International Cooperation in Tax Matters with the Council to enhance intergovernmental consideration of tax issues at the United Nations. During the last four days, new members of the Committee convened for the first time in New York. The Committee looked forward to working with the Council on two major topics: “Taxation and the Digitalization of the Economy” and “Taxation of ODA‑funded Projects”.
Elliot Harris, Assistant Secretary‑General for Economic Development and Chief Economist, said taxation provided a critical source of finance to Governments for the provision of public services that would be vital for sustainable development. International cooperation on tax matters was a key enabler for ensuring that countries could collect their appropriate share of taxes, while minimizing the negative impacts on other economies. Stressing that there was a need to adapt national and international tax rules according to new business models made possible by digital technology, he noted that overall progress in that area had been incremental.
Many developing countries had not adopted the necessary laws or amended their administrative practices, he said, calling attention to slow progress in the area of corporate taxes. A new sense of urgency had emerged among many developed and developing countries and some had already taken, or were considering, unilateral actions. Some donors of ODA continued to request wide exemptions, which could represent as much as 3 per cent of gross domestic product (GDP) in some countries. Requesting tax exemptions from developing countries for ODA projects led to several challenges, he continued, suggesting that the Committee consider updating and strengthening the guidelines at the technical level to capture relevant developments from the past decade.
Providing an update on the work of the Committee of Experts on International Cooperation in Tax Matters were its Co‑Chairs, Eric Nii Yarboi Mensah, who also serves as Assistant Commissioner of the Revenue Authority of Ghana; and Carmel Peters, also Policy Manager of Inland Revenue of New Zealand.
Mr. Mensah said the current Committee membership was appointed in July 2017 and had a four‑year mandate, with its term ending in June 2021. The Secretary‑General appointed members of the Committee and they served in their personal capacity. He recalled that in its first meeting, for the first time in its history, the Committee had appointed two members to serve as Co‑Chairs. Ms. Peters pointed out that the Committee was in the initial stages of its four‑year cycle. The Committee would carry out four‑day meetings in Geneva and New York, although much of the work was being carried out by various subcommittees. Ms. Peters and Mr. Mensah also went on to detail the recent work of the subcommittees.
Throughout the day, the Council held three panels on tax matters which included: “Taxation and the Digitization of the Economy”; “Taxation of ODA‑Funded Projects”; and “Strengthening Tax Capacity in Developing Countries: Inter‑Agency Platform for Collaboration on Tax”.
Following the panel sessions, a general discussion was held where Member States stressed the need for ensuring developing countries’ participation in tax‑related initiatives and for continued dialogue on tax matters.
Expressing deep concern that there was still no single global inclusive forum for international tax cooperation at the intergovernmental level, the representative of Egypt, speaking on behalf of the “Group of 77” developing countries and China, stressed “the lack of a global, transparent process on setting the norms and standards of international tax regime continues to be problematic with the agenda and design of the ongoing tax reforms”.
That view was shared by the representative of Nigeria, who spoke on behalf of the African Group, and stressed the need for greater international tax cooperation which would allow all countries to participate on a truly equal footing, with a view towards delivering on a legally binding convention.
Bulgaria’s representative, speaking on behalf of the European Union, said that enhancing domestic resource mobilization was key to all Governments’ efforts to achieve inclusive growth, poverty eradication and sustainable development. She underscored that the Union and its member States would work with partner countries to promote progressive taxation, anti‑corruption measures and redistributive public expenditures policies.
At a time when international taxation norms and standards were undergoing rapid transformations, developing countries needed to be fully integrated and active participants in those discussions, warned the representative of Brazil, pointing to the digitalization of the world economy as a serious threat to the revenues of many developing countries.
On that point, the representative of Thailand stressed that national efforts alone would not be enough; calling for a revision of international tax practices that moved away from conventional income tax collection practices.
Mexico’s delegate said technology had a key role to play in bolstering tax administration by making tax collection more efficient, helping in the fight against tax evasion and avoidance, while also combating illicit financial flows.
In closing remarks, Mr. Mahmadaminov welcomed today’s discussion, specifically regarding the Tax Committee’s ambitious work programme in areas such as double tax treaties, transfer pricing, extractive industries taxation and tax consequences of the digitalized economy. The Council also heard about taxation and the digitalized economy, with speakers elaborating on the need for concerted action to ensure that established principles of international taxation could be adapted to the evolving global market for digital goods and services. Today’s discussions also centred on challenges that arose for ODA‑receipt countries from the requests for tax exemptions by donor countries.
He welcomed the plan to further strengthen support to developing countries to increase their tax revenues for investment in sustainable development. Today’s meeting demonstrated that much work was still needed to build a global tax architecture, he said, calling on Council members to identify the topics and areas of work where it was possible to promote real progress in international tax cooperation. The Council must make full use of its platforms to work towards concrete results that strengthened international tax cooperation.
Also delivering statements today were the representatives of South Africa, India, Colombia and Ecuador.
The Economic and Social Council will meet again at 9 a.m. on Monday, 21 May, for the 2018 high‑level meeting of the Development Cooperation Forum.