The World Bank is an organization dedicated to providing financing advice, and research to developing nations to aid in their economic advancement. In its 110 page Global Progress report it states ” The recent IMF/WBG Annual Meetings was aptly titled Development in Crisis highlighting the fact that today’s crises are happening all at once, and their negative repercussions are compounded by climate change. The war in Ukraine and aftershocks from the COVID-19 pandemic triggered a steep rise in food, fertilizer,and energy prices, and interest rates. Many developing countries are experiencing historically high inflation,and more than half of IDA countries are at high risk of debt distress or already in debt distress, seriously limiting fiscal space available for many developing countries to alleviate the burden on their populations with spending measures.

In all these crises, the poor and vulnerable are the hardest hit. The recently published World Bank’s Poverty and Shared Prosperity Report finds that COVID-19 dealt the biggest setback to global poverty-reduction efforts: it’s estimated that about 70 million people were pushed into extreme poverty in 2020, the largest one-year increase since global poverty monitoring began in 1990. This period also dealt the worst blow to progress on education and learning— learning poverty has increased by a third in low- and middle-income countries—which may further worsen poverty in the future.

To respond to these multiple crises, many developing economies need to spend more to protect the poor and vulnerable households, to service their debt, to reverse the learning losses and to invest in climate change mitigation and adaptation. At the same time, these countries are experiencing slower revenue recovery as their economic growth slows. Global tax revenues in 2020 declined by 12 percent in real terms, a steeper 15 percent decline in low-and middle-income countries.

It is expected that the year ahead will come with its own additional challenges for DRM, especially in terms of reversing some of the temporary measures which may have exacerbated these steep revenue reductions. The recent IMF Fiscal Monitor review of measures recently taken across the world in response to high energy and food prices finds that reducing consumption taxes ranked as number 1 (125 measures); and changes in income taxes measures as number 3 (48 measures). The recent report by the World Bank’s Fiscal Policy and Sustainable Growth Unit explains that broad based reductions in tax rates or tax exemptions are typically difficult to target. While increases in taxes are quickly reflected in higher consumer prices, a reduction in taxes
does not lower prices (unless administrative capacity is very high). Moreover, once a tax rate is reduced, political economy constraints make it difficult to reverse, even if the rate reduction is announced as temporary.

In this challenging context, the support to developing countries on DRM is more relevant than ever. The Global Tax Program, one of the key vehicles of the World Bank support in this area. Our projects’ support authorities take actions such as:
Broaden the tax base and enhance fairness and equity. Many of the projects funded by the Global Tax Program focus on helping authorities build their capabilities along these lines for instance taxing digital transactions (e.g., Digital VAT Guidelines project), property (e.g., Property Tax project), wealth, and other often undertaxed sources; rationalizing tax expenditures (e.g., Tax Incentives Reform project); and increase overall efficiency and fairness of tax system with tax policy reforms (e.g. Ethiopia Tax Policy, Nigeria Tax and Customs, and Malaysia Tax Policy Reform projects).

Address negative externalities and reduce future costs to economy, environment and society. Several TP projects support work on environmental (e.g., CPAT, Environmental Taxes projects) and health taxes which are another source to enhance revenue while ensuring healthier environment and societies.

Strengthen capacity in international taxation and introduce tax transparency practices. One of the largest projects in GTP, the International Tax project provides comprehensive support in this area. Other examples of projects providing support on international taxation are Peru International Tax, Vietnam Tax Reform, and Senegal MTRS and Customs. In addition, the National Risk Assessment (NRA) and the East AfricanCommunity (EAC) Tax Evasion projects help build countries’ capacities to fight against illegal tax evasion.

Strengthen and modernize tax and customs administration. This is a strong area of focus for GTP where several project teams support authorities in their efforts to optimize tax collections while minimizing the burden on taxpayers to comply with tax laws with tax administration reforms (e.g., Tax Reform in Uzbekistan, Tajikistan Tax Policy and Administration, State Tax Service Kyrgyz Republic Technical Assistance) and customs administration (e.g., Somalia Customs, Niger Customs, Nigeria Tax and Customs). In addition, through the country pilots, GTP projects such as the Innovations in Tax Compliance and Gender and Taxation identify actions that can be embedded in Bank operational support to improve taxpayer services and to increase voluntary compliance.

While these are challenging times, the crises also present opportunity for countries to improve their tax systems and enhance the quality of their tax and customs administration. In this Report, we are pleased to present the GTP portfolio and project level progress in FY22, and we look forward to support developing countries’ DRM efforts in the year ahead.

Download 110 Page Report From World Bank

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