Tax and Development: Donor Support to Strengthen Tax Systems in Developing Countries

Abstract

SUMMARYRecent years have seen a growing interest among donors on taxation in developing countries. This reflects a concern for domestic revenue mobilisation to finance public goods and services, as well as recognition of the centrality of taxation for growth and redistribution. The global financial crisis has also led many donor countries to pay more attention to the extent and effectiveness of the aid they provide and to ensuring that they support rather than discourage developing countries' own revenue-raising efforts. This article reviews the state of knowledge on aid and tax reform in developing countries, with a particular focus on Sub-Saharan Africa. The article argues that considerable and sustained efforts are required before the tax systems in most low-income countries will be significantly broadened and perceived as legitimate by the majority of citizens. Thus, donors should complement the traditional 'technical' approach to tax reform with measures that encourage constructive engagement between governments and citizens over tax issues. Finally, the article cautions against potential problems of donor duplication and fragmentation, which may weaken reform efforts by diverting local capacities, reducing local ownership and undermining the coherence of reform programmes.

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