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Domestic
Resource
Mobilisation
Lyla Latif
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SECTION’S TITLE
Of course you want more
revenue, but what good is it
if it isn’t predicle?
Aaron Ross
© Tax Justice Network Africa (TJNA)
Context Setting
•Why is DRM important for/to the state?
•What determines DRM priority?
•Is it really necessary to consider DRM
when the focus should be towards closing
tax loopholes, reducing wage bill,
combatting corruption and IFF?
•What does DRM mean to you? Is it only in
reference to mobilising sources of
revenue through broadening the tax base
and identifying additional tax bases? Or is
it more than that?
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© Tax Justice Network Africa (TJNA)
01
Introducing DRM
How is it understood? What does it
mean?
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© Tax Justice Network Africa (TJNA)
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© Tax Justice Network Africa (TJNA)
DRM –the tax
bargain?
•DRM is apolitical process of
contestation and bargaining
over who pays and who
benefits.
•What has been the role of
the citizens in defining DRM?
•Do they participate in DRM
decision making (policy and
law)?
•How is priority determined?
•Who is consulted?
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© Tax Justice Network Africa (TJNA)
•DRM concerns mobilising sources of revenue through:
•Broadening the tax base
•Identifying additional tax/revenue streams
•Combatting corruption and IFF
•Closing tax loopholes
•Caving in on (aggressive) tax avoidance and evasion
•Strengthening tax compliance and administration
•Re-appraising the efficacy of tax incentives and
exemptions
•(Re)negotiating tax treaties
Broad view on DRM
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© Tax Justice Network Africa (TJNA)
•Addis Ababa Action Agenda
•SDGs
•Agenda 2063
•Attracting, leveraging and mobilising revenue in
investments of all kinds:public and private, national and
global
•Strengthening local financial and capital markets –NIFC
•AfCFTA
DRM Priorities
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© Tax Justice Network Africa (TJNA)
•Role of MDBs /IMF and exposure exchange agreements
•Subsidies
•Tax incentives
Attracting and Directing Public and Private
Investments to Areas that Support the
Achievement of DRM
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© Tax Justice Network Africa (TJNA)
•Political
•Legal
•Societal
•Financial
Enabling Environments Provided by National
Governments for DRM
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© Tax Justice Network Africa (TJNA)
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© Tax Justice Network Africa (TJNA)
02
DRM Strategies and Challenges
Importance of DRM in Global,
Continental and Domestic Policies
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© Tax Justice Network Africa (TJNA)
DRM linked to Addis Ababa Action Agenda, AU
2063 and the Agenda2030 on SDGs
•Commitment to mobilize funding at global and national levels to
finance anew social compact and deliver “social protection and
essential public services for all”.
•Recommends abroad set of financing instruments such as public
finance, international development cooperation, trade and debt,
while recognizing related policy and governance challenges, such as
illicit financial flows, tax evasion and lack of affordable credit and
productive investment.
© Tax Justice Network Africa (TJNA)
DRM linked to Addis Ababa Action Agenda, AU 2063
and the Agenda2030 on SDGs
•Commitment to mobilize funding at global
and national levels to finance a new social
compact and deliver “social protection and
essential public services for all”.It
recommends a broad set of financing
instruments such as public finance,
international development cooperation,
trade and debt, while recognizing related
policy and governance challenges, such as
illicit financial flows, tax evasion and lack of
affordable credit and productive
investment.
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© Tax Justice Network Africa (TJNA)
The Financing Challenge
•Financing the 2030 Agenda requires “trillions, not billions”, to cover
global financing gaps of between USD 1.5 trillion per year to USD 2.5
trillion or more.This amounts to 2to 3percent of GNI, the costs of
implementing the 2030 Agenda in proportion to the GNI of
developing countries (low-and middle income) are far higher.
•The magnitude of financing requirements at the national level can be
illustrated by looking at asubset of the goals related to social
protection as defined by each country.
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© Tax Justice Network Africa (TJNA)
2000-2014
Financing Trends in Developing
Countries
Data Sources:
ODI et al 2015;World Bank 2016;OECD 2016;
IMF 2016;ICTD and UNU-Wider 2016
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© Tax Justice Network Africa (TJNA)
Public Domestic Resources
•2types of public domestic resources:taxation and revenues from
extractive industries, presenting different challenges and opportunities
with regard to sustainability and transformative change.
•Public domestic resources have various social, economic and political
benefits if compared to private or external funds.Among these are:
•their linkages with domestic policy making and policy space,
•their potential for impacting positively on institution building and accountability,
•their ability to redistribute income and stabilize the economy, and
•their capacity to make production and consumption more sustainable in
environmental, economic and social terms.
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© Tax Justice Network Africa (TJNA)
Greater Focus Towards Public DRM
•Public domestic resources are more likely than external
resources to trigger transformative structural change of
the economy and redistribution, leading to higher
equality, inclusion and social protection, in particular in
the case of taxation and social contributions.
•This relates to the links with social policy,
democratization and rights that emerge from revenue
bargains between citizens and states.
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© Tax Justice Network Africa (TJNA)
Greater Focus Towards Public DRM
•For most countries, tax income is the most important
national revenue source, accounting for 85 percent of
government revenues in high-income countries of the
OECD, and around 70 percent in developing countries.
•However, for anumber of countries, in particular LDCs,
other revenues such as ODA are equally or even more
important, with aid exceeding tax revenue in countries
such as Liberia and Malawi.
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© Tax Justice Network Africa (TJNA)
Source:
World Bank, 2015 From Billions to Trillions
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© Tax Justice Network Africa (TJNA)
Leave No One Behind Principle
•To advance the required policy reforms which will “leave no one
behind”, countries will need to design their own financing
strategies according to their economic and political structures
and specific needs.
•While aid will continue to be crucial, scaling up domestic public
revenues will make the difference.
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© Tax Justice Network Africa (TJNA)
Role of Private Sector and
Local Communities?
•Boost savings. Savings rates
in SSA are lowest
•Remittances –important
inflow of resources yet
development potential
remains untapped
•SACCOs
•Harnessing technology and
digital business models
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© Tax Justice Network Africa (TJNA)
Effectiveness of DRM as a Development Tool to
work following a Bespoke DRM Design
•The combination of sources and instruments—external and domestic,
public and private—as well as their weights in the overall financing mix
will differ between countries.
•Some will be able to attract greater amounts of private investment
(such as upper middle income countries/UMICs), others will rely more
on aid transfers, foreign debt, resource rents and remittances (least
developed countries/LDCs and lower middle-income countries/LMICs),
and others—mostly middle-income countries (MICs) and high-income
countries (HICs)—will be able to finance alarger part of their budgets
with proceeds from domestic tax systems and national capital markets.
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© Tax Justice Network Africa (TJNA)
Challenges
1/5
•Wealth and property are forms of DRM, what is the poverty level?
Who are buying properties? What kind of properties? Should
affordable housing be subject to the tax next? High net, what is high
net in acountry that does not earning power as the OECD, should
high net have adifferent criteria? Anyone earning over 3000?
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© Tax Justice Network Africa (TJNA)
Challenges
2/5
•What constraints can you identify with regard to DRM in your
country?
•insufficient growth performance,
•informality and unemployment,
•tax losses due to tax optimization,
•low national savings rate,
•lack of accessible and affordable banking systems and underdeveloped capital
markets,
•financial crises, per capita income level, sector specific economy, MNC tax
avoidance (IFF-Rwanda 2008-2012,IFF outflows 20.4% of country’s GDP)
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© Tax Justice Network Africa (TJNA)
Challenges
3/5
•Increase tax base – export taxes?
•Think of DRM –environmental taxes, PPP, global funds –
implementation has been either slow or fraught with problems
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© Tax Justice Network Africa (TJNA)
Challenges
4/5
•How can countries increase DRM?
•fair tax system? Progressive tax system?
•anti trust legislation – breaking up monopolies, remove tax exemptions
•Uganda, tax system relies heavily on asmall number of taxpayers, mostly
MNCs with around 35 top taxpayers accounting for 50%of revenues collected
by URA
•divest natural resource rents out of the hands of the politicians
•decentralisation/devolution of revenue –Kenya county level fiscal autonomy
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© Tax Justice Network Africa (TJNA)
Challenges
5/5
•Do political factors influence resource mobilisation?
•DRM require financial resources that are sustainable in economic,
social, environmental and political terms
•Mandate –tax bargain-fiscal contract
•Negotiation between tax payer and government where the former
agree to comply with tax obligations in exchange for the effective
provision of public services.
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© Tax Justice Network Africa (TJNA)
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© Tax Justice Network Africa (TJNA)
03
Towards Designing a
Principle Based DRM
Strategy
Designing DRM
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© Tax Justice Network Africa (TJNA)
Designing the DRM Strategy –‘Trading
Services for Revenue’
•Important so as to avert aregressive tax system in which poorer
people and women spend ahigher share of their income on
consumption goods (VAT)
•DRM –purpose to finance planned expenditures while honouring
debt obligations
•Ensuring solvency in the medium to long term
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© Tax Justice Network Africa (TJNA)
Designing the DRM Strategy –‘Trading
Services for Revenue’
•Not only about mobilising the necessary quantity of resources or
safeguarding financial stability
•Quality of revenue, measured in terms of their transformative impact
on production and employment, redistribution, gender equality,
sustainable use of natural resources and inclusion
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© Tax Justice Network Africa (TJNA)
Designing the DRM Strategy –‘Trading
Services for Revenue’
•Financing and expenditure policies need to be designed in an
integrated way, based on principles of:
•efficiency, equity, fairness, social justice and human rights while
ensuring political processes related to financial issues are:
•inclusive and participatory.
•Ensure institutional capacity to deliver services and transfers, control
deviation of resources through corruption, clientelism or rent seeking
practices or bottlenecks, bureaucracy.
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© Tax Justice Network Africa (TJNA)
Designing the DRM Strategy –‘Trading
Services for Revenue’
•Look at the economic strategies and economic crises –result in low
growth, increase in inequalities and low employment creation
•Most countries need to mobilize more resources to cover spending
gaps;this leads to the question of how to increase the quantity of
revenues.The quality of revenues in terms of their potential to trigger
transformative change toward greater economic, social, political and
environmental sustainability differs, and the question is how to
increase revenue quality in this broad sense.
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© Tax Justice Network Africa (TJNA)
PROPOSED DESIGN
PUBLIC RESOURCE
MOBILISATION
Smarter use
of ODA to
catalyse other
finance
resources
Revision or
elimination of
subsidies
Improving
public
expenditure
and financial
accountability
Recovery of
Stolen Assets
Raise voice
against
corruption
Combat IFF
Fiscal
autonomy and
engagement
of local
governments
Tax revenue
and tax
administration
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© Tax Justice Network Africa (TJNA)
PROPOSED DESIGN
PRIVATE
RESOURCE
MOBILISATION
Local Savings
Pension
Funds
Public
Private
Partnerships
Sovereign
Wealth
Funds
Asset
Managers
Institutional
Investors
FDI
Capital
Markets
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© Tax Justice Network Africa (TJNA)
In team work silence isn’t golden, it’s deadly
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© Tax Justice Network Africa (TJNA)
Establish a common understanding of what constitutes DRM
Understand what are the structural and political constraints to increasing DRM
Explore what multidimensional measures are best suited to track efficiency and
distributional impact of DRM
Assess the effectiveness of policy advice, financial support and technical
assistance for DRM from multilateral and bilateral financial institutions
Develop an agenda of new ideas and actions to enhance DRM support and
effectiveness
CONCLUSION
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P.O. Box 25112 – 0100 GPO, Nairobi, Kenya - Te le phone: (+254) 20 24 733 73, (+254) 728 279 368
infoafrica@taxjusticeafrica.net @taxjusticeafrica taxjusticeafrica taxjusticeafrica taxjusticeafrica
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