1 Introduction
1. Tax is an issue of fundamental importance for
development. If developing countries are to escape from aid dependency,
and from poverty more broadly, it is imperative that their revenue
authorities are able to collect taxes effectively. Tax revenues
represent a more predictable and sustainable source of revenue
than aid flows ever can.[1]
In addition, the ability to collect taxes also has implications
for the quality of governance. Taxpayers have a legitimate right
to expect something in return— namely a functioning state—so
are more likely to hold their governments to account if they underperform.
Citizens or companies which fall outside the tax 'net' are much
less likely to do this.[2]
Country-level tax profiles
2. The position of tax revenues within the wider
economy varies widely between countries. In developing countries,
tax revenues as a percentage of GDP are generally significantly
lower than in developed countries. Table 1 illustrates this:Table
1: tax revenues by country category
| Country category
| Average tax revenues (% of GDP)
|
| Low Income Countries (LICs)
| 13.0 |
| Lower Middle Income Countries (LMICs)
| 17.7 |
| Upper Middle Income Countries (UMICs)
| 20.7 |
| High Income Countries (HICs) / OECD members
| 35.4 |
Data source: Ev w85
3. Moreover, the forms of taxation which predominate
tend to be very different in developing countries vis-a-vis
developed countries. Personal income taxation tends to constitute
only a very small proportion of the tax take in developing countries,
whilst customs duties and other forms of trade-based taxation
constitute a much more significant share.[3]
Furthermore, as we were told by Dr Jonathan Di John, Senior Lecturer
in Political Economy at the School of Oriental and African Studies
(SOAS), local property taxation is "a very important tax
because it would be the main source of funding for local government,
and it is negligible in even middle-income countries, let alone
poor ones."[4]
4. Our Report begins (Chapter 2) with a consideration
of how the policies of developing country governments affect their
ability to collect tax revenues. In Chapter 3, we consider how
developing countries' tax revenues are affected by legislation
enacted beyond their borders. We make recommendations to the Government,
both on measures it could take unilaterally, and on measures which
need to be taken at intergovernmental level, and for which it
should advocate. In Chpater 4, we assess the work which the UK
Government is presently conducting on tax in developing countries,
and make recommendations as to how this could be improved.
5. As part of our inquiry, we conducted a case study
of Zambia. Our reasons for choosing Zambia were various. Firstly,
as illustrated by Table 2, it is a country whose economy is heavily
dependent on copper mining:Table 2: exports
of fuels and mining products from Zambia
| Year | 2006
| 2007 | 2008
| 2009 | 2010
|
| Exports of fuels and mining products (% of GDP)
| 29 | 31
| 28 | 27
| 37 |
Data source: adapted from WTO, World Bank
The size of the mining sector makes it a highly relevant
case study, not only because a number of major multinational mining
companies operate in Zambia, but also because resource-rich countries
tend to face particular challenges in respect of taxation.[5]
Moreover, Zambia is no longer a Low Income Country (LIC), having
been re-classified as a Lower Middle Income Country (LMIC) in
2011[6]—so attention
will naturally turn to the question of its graduation from aid,
and the role taxation can play in this. Finally, it has a large
DFID programme, including the provision of technical assistance
to the Zambia Revenue Authority (ZRA).[7]
6. We received 37 pieces of written evidence from
a wide range of organisations, and also held three oral evidence
sessions. Witnesses at the oral evidence sessions included the
Business and Industry Advisory Committee to the Organisation for
Economic Co-operation and Development (OECD); leading academics
from the London School of Economics (LSE), SOAS, and the Institute
of Development Studies (IDS); as well as NGOs, corporations, DFID,
HM Revenue & Customs (HMRC) and the Treasury. Finally, we
visited Zambia in March 2012, holding meetings with the Ministry
of Finance and the ZRA, and visiting the Copperbelt.
1 Q 41 Back
2
Ev w86 Back
3
Ev w85 Back
4
Q 51 Back
5
Paul Collier, The Plundered Planet (London, 2010), p 51-52. Back
6
"Changes in Country Classifications", World Bank,
1 July 2011, data.worldbank.org Back
7
Ev 93; DFID Zambia, Operational Plan 2011-2015 (updated June 2012) Back
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