Tax in Developing Countries: Increasing Resources for Development - International Development Committee Contents

4  UK Government's work on tax in developing countries

68. The previous chapter showed how UK policy choices impact on revenue collection in developing countries. In addition, the UK Government also has some more direct involvement with the tax affairs of developing countries. CDC, a development finance institution wholly owned by DFID, is closely affected by the tax policies of developing countries, since its investee companies operate in countries across the developing world. Additionally, both DFID and HMRC provide technical assistance to the national revenue authorities of developing countries. This chapter will examine each of these issues.


69. In our report on CDC, published last year, we recommended that when investing in tax havens, CDC should follow best practice guidelines, which were at that time being developed.[105] The Parliamentary Under-Secretary of State for International Development informed us that there had been significant progress in this respect.[106] We welcome this.

70. We also recommended that the tax payments made by CDC's fund managers and investee companies should be published annually on a country-by-country basis.[107] The Parliamentary Under-Secretary of State was non-committal when we asked him about this.[108]

71. We re-iterate our earlier recommendation, made in our Report on CDC last year, that the tax payments made by CDC's fund managers and investee companies should be published annually on a country-by-country basis. If certain fund managers or investee companies are unwilling to agree to this, CDC should use alternative companies which are willing to be more co-operative.

Technical assistance provided by DFID

72. DFID provides technical assistance to the national revenue authorities of developing countries, with a view to building their capacity and enhancing their ability to collect revenues. This is generally a demand-led process: assistance is provided in response to specific requests from developing countries. DFID spent around 97 million on helping to improve revenue collection between 2006-07 and 2010-11 .[109]

73. Many of these projects have been extremely successful, As an example, DFID supported the Rwanda Revenue Authority over a 10-year period: supporting its foundation, and helping to organise its office building and management systems. Revenues collected increased six-fold during the period of DFID support. DFID tells us that the Authority "reached a point where it was collecting the full £24 million value of DFID's support programme every three weeks."[110] The programme has also been praised by organisations including the Trade Union Congress (TUC) and the Chartered Institute of Taxation (CIOT).[111] We received a number of written submissions which argued that DFID should scale up its technical assistance work with revenue authorities, including a joint submission from the CBI, ActionAid and Christian Aid.[112]

74. In Zambia, DFID had a large-scale project providing technical assistance to the ZRA, beginning in 2000. This came to an end in 2006;[113] presently, the ZRA receives technical assistance from the Norwegian Agency for Development Cooperation (NORAD).[114] Since 2011, however, DFID has re-engaged with ZRA through the Public Expenditure Management and Financial Accountability (PEMFA) programme—a technical assistance programme funded jointly by multiple donors, and to which DFID is providing £2.2 million between 2011 and 2013. The programme is particularly concerned with improving administration at ZRA, with a view to improving the collection of non-mining tax, which has been in decline.[115] Additionally, DFID has contributed £200 000 to a separate pooled fund in support of the Ministry of Mines, with the aim of improving land registries (important for the issue of exploration licences), reviewing legislation, supporting EITI, and supporting the physical inspection of mineral exports.[116]

75. DFID's technical assistance work with developing country revenue authorities has, by and large, been greatly successful. Its work in Rwanda, where it supported the revenue authority for its first decade of operation, is just one example. We recommend that DFID scale up its technical assistance work with the national revenue authorities of developing countries.

Additional tax-related initiatives funded by DFID

76. DFID is funding the International Centre for Tax and Development (ICTD), to the tune of £3.5 million until 2015;[117] additional funding is provided by NORAD.[118] DFID describes ICTD as a research institute which "will generate knowledge to help developing countries to mobilise domestic resources efficiently effectively and equitably, and develop tax systems that promote pro-poor economic growth and good governance."[119]

77. Furthermore, DFID has supported the creation of the African Tax Administrators Forum (ATAF), an umbrella group of national revenue authorities from across Africa.[120] The creation of ATAF is rightly seen as a positive step,[121] and we commend DFID for providing support.

Technical assistance provided by HMRC

78. HM Revenue & Customs (HMRC) also supports projects to enhance the capacity of tax administrations in developing countries, delivering assistance on a bilateral basis and through multilateral forums.[122] These may be funded by DFID, or in the case of smaller projects, from HMRC's own budget.[123] In either case, however, it is recorded as Official Development Assistance (ODA).[124] HMRC told us that it had sufficient capacity to increase its work in this area, if DFID provided the funding.[125]

79. Many organisations have stressed the importance of this work to us, including the CBI, RioTinto, Christian Aid, ICTD, and the Chair of the Business and Industry Advisory Committee to the OECD.[126] In some cases, this assistance is even more successful than that provided by DFID, since HMRC understands the culture of revenue authorities,[127] and is able to impart its own experience and understanding to its developing country counterparts.[128]

80. Given its unique expertise, and its inherent understanding of the culture of revenue authorities, HMRC is an extremely important source of technical assistance for developing country revenue authorities. We recommend that HMRC be provided with additional funding, to allow it to scale up its own technical assistance work with developing country revenue authorities.

81. The UK Government should improve its reporting on its technical assistance on tax and development, reporting cross-departmentally and at a project level on work in this area.

105   International Development Committee, Fifth Report of Session 2010-12, The Future of CDC, HC 607, para 60 Back

106   Q 194 Back

107   International Development Committee, Fifth Report of Session 2010-12, The Future of CDC, HC 607, para 60 Back

108   Q 196 Back

109   Ev 92 Back

110   Ev 92 Back

111   Ev w9; Ev w86 Back

112   Ev 72 Back

113   Ev 102 Back

114   Ev 82 Back

115   Ev 93; Ev 102 Back

116   Ev 110 Back

117   Ev 94 Back

118   Ev 90 Back

119   Ev 94 Back

120   Ev 110 Back

121   Ev w9 Back

122   Ev 93 Back

123   Ev 120; Q 165 Back

124   Ev 120 Back

125   Q 214-215 Back

126   Ev 59; Ev 72; Ev 87; Ev 91; Ev w76 Back

127   Q 61. Back

128   Ev w76 Back

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Prepared 23 August 2012