The financing of development expenditures in most developing countries was heavily reliant on taxes, a challenge to those lacking the capacity to collect enough revenue, the Economic and Social Council heard today as it held its annual meeting on taxes.
Patience T. Rubagumya of Uganda's Revenue Authority, in her keynote address to the Special Meeting on International Cooperation in Tax Matters, said that in her country's case 70 per cent of the structure of budget financing was collected from domestic resources with the rest coming from grants and loans.
"We are not very comfortable with that and would like to get to the point where we can fund 100 per cent of our budget," she said, adding that the mobilization of domestic resources was vital to transforming any country.
Some policies were outdated and did not meet most current challenges, she continued, underscoring the need to look at domestic laws where amendments were needed to meet targets. Treaties, often abused based on how industries were structured, were negotiated "way back" and did not include recent work done by the United Nations and Organisation for Economic Cooperation and Development (OECD).
A lack of information about worldwide activities and the operations of multinational entities was also concerning, she said, adding that there was little data and analysis that could be used for transfer pricing. Some entities had also created cash boxes in preferential tax regimes. That eroded the tax base of developing countries through the payment of royalties and interest without substantial presence and value creation in those jurisdictions. In addition, local staff did not have the experience or resources to deal with complex tax matters.
"It takes a lot of years to build expertize of staff who can handle international taxation matters," she continued, underscoring the need to invest in building up the capacity of staff.
Uganda had just discovered oil and gas which brought with it a number of new challenges it was not used to in the past, she said. It was important to change laws which were not clear on taxing. On Internet transactions, she said current laws were unable to target those business entities. There were still a lot of gaps, she said, calling for increased dialogue between countries and a balance between collecting revenue and creating an environment still attractive to investors.
Wu Hongbo, Under-Secretary-General for Economic and Social Affairs, said today's deliberations served to bring Member States up to date on the most recent developments in international cooperation in tax matters. Convened immediately after the last session of the current membership of the Committee of Experts on International Cooperation in Tax Matters, today's meeting offered an opportunity to reflect on major achievements and to look to future contributions.
The Committee had already reviewed and updated the United Nations Model Double Taxation Convention between Developed and Developing Countries. To complement that, the Committee had produced a Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries. That training tool sought to provide guidance to tax treaty negotiators in developing countries, in particular those who negotiate based on the United Nations model. It also dealt with all the basic aspects of tax treaty negotiation and focused on the realities and stages of capacity development of developing countries.
Taxation of natural resource extraction had a strong effect on countries' ability to mobilize domestic resources, he continued, adding that the Handbook on Taxation of the Extractive Industries in Developing Countries, containing guidelines, would be launched in October. The Handbook would continue to serve the purpose of correcting the asymmetry in specialist information and expertise between multinational companies and developing countries.
National tax authorities and ministries of finance in developing countries must develop more effective and efficient tax systems, he continued. The United Nations programme of capacity development was carried out through the collaborative engagement of tax officials from developing countries, members of the Committee, other world-renowned experts, and relevant organizations and regional organizations. It featured training courses, publications and other capacity development tools, with the focus on three main areas: double tax treaties; transfer pricing; and tax base protection for developing countries.
Frederick Musiiwa Makamure Shava (Zimbabwe), President of the Economic and Social Council, recalled that the Addis Ababa Action Agenda provided a holistic and coherent framework for financing the 2030 Agenda for Sustainable Development. It had acknowledged that taxation was among the most important ways in which developing countries could mobilize resources for investment in sustainable development and recognized the globalized nature of business and finance. There were limits to what countries could do on their own through domestic policies, so the Addis Agenda also emphasized the importance of international tax cooperation and the need to combat illicit financial flows.
Taxation was one of the most important ways in which developing countries could mobilize resources for investment in sustainable development and meet the ambition of the 2030 Agenda. However, while strong development-oriented tax policies, modernized tax systems and efficient tax collection procedure were essential at the national level, they must be strengthened through international tax cooperation and efforts to combat illicit financial flows.
The Economic and Social Council and the Committee of Experts on International Cooperation in Tax Matters also held five interactive dialogues including: "United Nations Model Double Taxation Convention between Developed and Developing Countries"; "United Nations Practical Manual on Transfer Pricing for Developing Countries"; "Handbook on the taxation of extractive industries in developing countries"; Promotion of international cooperation to combat illicit financial flows to foster sustainable development"; and "Strengthening Tax Capacity in Developing Countries".
During a general discussion, speakers highlighted national and international projects and made suggestions for further improvements, including efforts to combat tax evasion, mobilizing domestic resources, ensuring developing countries' participation in tax-related initiatives and a need for continued dialogue on tax matters.
Initiatives to eliminate financial havens to stem tax evasion and illicit financial flows would target those and related actions that were negatively affecting development, said Maria Carola IAiguez Zambrano (Ecuador), speaking on behalf of the "Group of 77" developing countries and China. Calling upon States, organizations and other stakeholders to contribute to those efforts, she said mobilizing domestic resources could help countries to achieve the 2030 Agenda.
Indeed, there was a need for informed discussions on tax matters in the context of sustainable development, said Lois Michele Young (Belize), speaking on behalf of the Caribbean Community (CARICOM). Her region boasted well-regulated financial centres and was committed to participating in tax-related initiatives. However, much work remained to be done to assist developing countries so they could participate in those endeavours.
In every initiative, said Stefanie Ulrike Schmid-Luebbert (Germany), speaking on behalf of the European Union, all countries must have an equal voice. Welcoming recent proposed initiatives, she provided a summary of the bloc's efforts and the holistic approaches it was taking to tackle tax evasion and other matters.
Echoing a common thread, Ephraim Leshala Mminele (South Africa) expressed appreciation for the 2016 Council decision to hold such meetings on tax matters with a view to developing an intergovernmental mechanism. However, he said, it was disappointing that obstacles that had appeared during the implementation of related initiatives had not been met effectively. With regard to Africa, the estimated annual $50 billion of illicit financial flows could better be used for advancing development, he said, underlining the importance of closing loopholes and ending tax evasion. When focusing on implementing the 2030 Agenda and the Addis Ababa Agenda, there was a clear need to swiftly update relevant policies and systems.
Also delivering statements were representatives of Egypt, Mexico, Paraguay, Brazil, United Kingdom and India.
Source: United Nations