By Godwin Anyebe
The International Monetary Fund (IMF) has said that developing economies and emerging markets, including Nigeria, would need a whopping $3 trillion every year for the next six years (2030) to address their development goals and the climate change obligations.
It said that amount would be equivalent of about seven per cent of these countries’ combined 2022 gross domestic product (GDP), saying raising that money would be an uphill task and poses a formidable challenge, particularly for low-income countries.
The revelation which is the outcome of research findings, indicated that many countries in this bracket, “have the potential to increase their tax-to-GDP ratios,” and that in the long-run, would be enabled to provide critical government services, by as much as nine percentage points through the instrumentality of better tax design and existence stronger public institutions.
The trio of three IMF senior officials – Vitor Gaspar, Mario Mansour and Charles Vellutini, who unveiled the strategy on how countries can grow revenues through taxation, said “making use of this potential would also contribute to financial development and private sector entrepreneurship,” adding that easier financing, together with efficient and well-targeted spending, “would go a long way toward delivering sustainable development.”
They said the concept wasn’t entirely new, saying that some countries, including Brazil, Argentina in South America and others in Eastern Europe, including Georgia, have been remarkably successful in raising revenue of more than five percentage points of GDP.
The trio acknowledged the disparity in progress made so far on raising revenue since the early 1990s, stating that half of emerging market economies and two-thirds of low-income countries had a tax-to-GDP ratio in 2020 that was lower than 15 per cent. They said countries that have upped their tax-to-GDP ratio above that threshold, had been found to have experienced accelerated growth.
They said there is ample room for countries to expand their tax initiatives so as to collect more revenue based on existing tax potentials across board, informing that low-income countries could raise their tax-to-GDP ratio by as much as 6.7 percentage points on the average. The trio said if emerging markets are able to improve on tax collection institutions, “including reducing corruption,” revenues could go up to “an additional 2.3-point increase.”
They said to build tax capacity, governments will need to take a holistic and institution-based approach that focuses on leveraging core domestic tax policies, suggesting among others, improvement in the design and administration of core domestic taxes, such as Value-Added Taxes (VAT), excises, personal income taxes, and corporate income taxes.
VAT revenue in low-income countries, for instance, “could be doubled by limiting preferential treatments and improving compliance without increasing standard tax rates. And the widespread adoption of digital technologies would result in higher revenue collection and narrow compliance gaps,” the stated.
Meanwhile, the World Bank President, Ajay Banga and the IMF Managing Director, Kristalina Georgieva, in a joint statement, said the next Annual Meetings of the group will proceed as planned, despite the unfortunate earthquake that rocked Marrakech, the venue of the gathering.
“Since the devastating earthquake in Morocco on September 8, the World Bank and the IMF staff have worked in close coordination with the Moroccan authorities and a team of experts to thoroughly assess Marrakech’s capacity to host the 2023 Annual Meetings.
In undertaking this assessment, key considerations were that the Meetings would not disrupt vital relief and reconstruction efforts, and that the safety of the participants can be assured. Based on a careful review of the findings, the Managements of the World Bank and IMF, together with the Moroccan authorities, have agreed to proceed with holding the 2023 Annual Meetings in Marrakech from October 9 to 15, adapting the content to the circumstances.
“As we look ahead to the Meetings, it is of utmost importance that we conduct them in a way that does not hamper the relief efforts under way and that is respectful to the victims and the Moroccan people. At this very difficult time, we believe that the Annual Meetings also provide an opportunity for the international community to stand by Morocco and its people, who have once again shown resilience in the face of tragedy. We also remain committed to ensuring the safety of all participants.”