Taxation
is about far more than revenue-raising: it is pivotal in enhancing
accountability and participation in young states through the bargaining process
between a government and its citizens. However taxes are international and
sometimes unpredictable in their influence on behaviour. This means that rules
designed with a domestic agenda in mind can have unexpected consequences
internationally, particularly for vulnerable economies in the global South.
The
ability to collect tax is particularly important for Southern countries, for which
it represents a far more sustainable solution to poverty than international
aid. But Southern countries face particular challenges in this area. On a
domestic level, there is the problem of how to tax a vast informal economy with
little financial infrastructure. Southern taxing authorities struggle to
collect revenue in the face of post-colonial attitudes resulting in poor tax
compliance, relative tax complexity and poor taxpayer education, major gaps in
their capacity, shifting tax structures often driven by IMF or World Bank
lending, trade liberalisation, corruption and a deficient rule of law.
On
an international level, tax challenges for Southern countries include capital
flight, a lack of relative power in negotiations around foreign direct
investment (FDI), tax competition, transfer pricing abuse by multinational
firms, secrecy in some tax haven jurisdictions, and isolation through a thin
network of tax treaties.
Using cases on Mozambique and Ireland, this report analyses the issues above