Tax in Developing Countries: Increasing Resources for Development

Written evidence submitted by The Institute of Chartered Accountants in England and Wales (ICAEW)

Tax in developing countries: the need for professional and institutional strengthening

As a leading global accountancy body, we are pleased that your Committee is considering issues of taxation in developing countries, and in particular the need for support to improve revenue collection and the use of tax revenues responsibly. We would like to highlight an important prerequisite for successful revenue collection, namely the need to build professional and institutional capacity in developing countries.

Over the past five years ICAEW has been involved with the World Bank in ten large projects in Asia and Africa. These are all intended to strengthen accounting and auditing in the public and private sectors. The rationale is that strong professional and institutional capacity enables government departments, agencies and businesses to operate in an environment with greater effectiveness, transparency and confidence. It also raises awareness of intern ational standards of ethical norms and integrity and helps to ensure that these are observed.

In our experience, where the public sector is lacking professional capacity, it is more difficult for government departments and their agencies to implement international practices, standards, benchmarks. This will have important implications for effective revenue collection, public finance management and public services.

Recommendations

· DFID should focus more on professional and institutional capacity building. A joint report from the IMF, OECD, UN and World Bank to the G20 last November, Supporting the Development of More Effective Tax Systems, noted that only about 0.1% of Overseas Development Aid (ODA) goes to direct support for revenue and customs sectors. Giving greater assistance to professional and institutional strengthening would much increase the prospect of success in revenue collection.

· Appropriate engagement by DFID with key international initiatives is crucial. These include Extractive Industries Transparency Initiative (EITI); the OECD through its Forum on Transparency and Exchange of Information for Tax Purposes and its informal task force on tax and development; and the United Nations with its Committee of Experts on International Co-operation in Tax Matters.

· Any tax administration should have rigorous anti-corruption mechanisms in place. ICAEW has expertise in international law and practice relating to corruption and money laundering, developed from the need to advise our members practising throughout the world on their ethical and legal obligations.

· There should be greater coordination between DFID and other government departments such as HM Revenue and Customs (HMRC) who are already working with the tax administrations of developing countries. This will increase the level of momentum in this area.