Domestic Resource Mobilization Underpinning Sustainable Development Kenneth A. Lanza Director Grant Thornton, LLC December 6, 2016
I. DRM Defined II. Development Priorities III. Funding the SDGs IV. Role of Donors V. Moving Forward 2
I. DRM Defined • What it is: • What it is not: 1. Is a mix of Tax Systems. 1. Not singularly about increasing rates. 2. Is Focused on increased capture of domestic 2. Not the only solution to revenue sources-including enhancing state revenue debt—either through for social investment. efficiency gains, raising 3. Not simple or easy to rates, or expanding the implement. base. 3. Is accountable, efficient and transparent processes . 3
II. Development Priorities Sustainable Development Goals (SDGs) 4
II. Development Priorities A Different Perspective Source: Global Poverty Research Centre 2008-2009 5
III. Funding – Official Development Assistance Country Program Assistance (CPA) CPA Actual CPA Planned 2014 2015 2016 2017 2018 Region Constant 2013 USD million Europe $ 5,543 $ 4,501 $ 4,723 $ 4,800 $ 4,648 Africa $ 45,942 $ 47,068 $ 48,243 $ 47,910 $ 47,599 America $ 8,681 $ 7,964 $ 8,143 $ 8,083 $ 7,883 Asia $ 43,294 $ 44,866 $ 45,314 $ 45,648 $ 45,347 Middle East $ 9,970 $ 10,203 $ 10,021 $ 10,106 $ 10,096 South and Central Asia $ 21,022 $ 22,255 $ 22,664 $ 22,769 $ 22,593 Far East Asia $ 11,518 $ 11,456 $ 11,634 $ 11,758 $ 11,611 Asia, regional $ 784 $ 952 $ 995 $ 1,015 $ 1,047 Oceania $ 1,820 $ 1,883 $ 1,912 $ 1,935 $ 1,964 Thematic assistance $ - $ 1,721 $ 1,770 $ 1,800 $ 1,534 Total $ 105,280 $ 108,003 $ 110,104 $ 110,176 $ 108,975 Source: OECD 2015 6
III. Funding – Official Development Assistance Total 2014 Net ODA Flows from Donor Countries Source: OECD 2015 7
III. Funding – Official Development Assistance Financing the SDG Gap: Annual Funding Requirements (billions of 2013 US$) Source: UN Sustainable Development 2015 8
III. Funding – Official Development Assistance Financing the SDG Gap: Annual Funding Requirements (billions of 2013 US$) 9
III. Funding – DRM Donors Source: 2014, Development Initiatives, OECD DAC Data 10
III. Funding – DRM Donors Source: 2014, Development Initiatives, OECD DAC Data 11
IV. Role of Donors Key DRM Objectives 1. Broaden the Tax Base 2. Develop Institutional Capacity 3. Address Corruption-Efficiency 4. Manage the Political Economy of Reform 5. Increase Growth-Competitiveness 12
IV. Role of Donors Broaden the Tax Base With gradual and incremental changes in tax laws in pursuit of higher tax revenues,tax structures often become complex in nature. Sometimes governments go for minor taxes and fees that are costly to comply with and administer. 13
IV. Role of Donors Broaden the Tax Base Some countries with a VAT continue to have the old mindset. . 14
IV. Role of Donors Broaden the Tax Base The Personal Income Tax (PIT) is generally weak and poorly managed. In developing countries, there is always a pressure on government for granting exemptions by interest groups under all taxes. 15
IV. Role of Donors Broaden the Tax Base The corporate income tax (CIT) often has a narrow base focusing on foreign and large domestic companies. CIT on multinationals is always a concern as they have greater avenues for profit-shifting, transfer pricing and tax avoidance. 16
IV. Role of Donors Broaden the Tax Base: Medium rates of taxation by country income Group 17
IV. Role of Donors Develop Institutional Capacity 18
IV. Role of Donors Develop Institutional Capacity 19
IV. Role of Donors Efficiency – Addressing Corruption 20
IV. Role of Donors The Political Economy of DRM 21
IV. Role of Donors 12. Innovation Innovation Economy Competitive 11. Business Economic Sophistication Growth 10. Openness and Market Size 9. Technological Readiness Investment 8. Financial Market Economy Efficiency 7. Labor Market Efficiency 6. Goods Market Efficiency 5. Human Capital 4. Infrastructure Factor Economy 3. Institutions 2. Macroeconomic Stability 1. Personal Security 22
IV. Role of Donors Innovation Economy: Innovation GDP P/C= >$17,000 Economy Competitive 37 countries Economic Growth Investment Economy: Investment GDP P/C=$3000-17,000 Economy 49 countries (19 in transition) Factor Economy: Factor GDP P/C=$2000-2,999 Economy 52 countries (17 in transition) 2016-2017 Global Competitiveness Report, World Economic Forum 23
IV. Role of Donors Competitive Economic Growth 24
V. Moving Forward 10 Lessons Learned for Donors Engagement in DRM 1. Focus on basics before tacking more difficult reforms. 2. DRM will contribute to the SDG funding gap. 3. Broad-based, sustainable, economic growth is the only way to increase and sustain a tax base 4. Countries that have demonstrated the political will for DRM reforms should be prioritized. 5. Donors should follow government leadership 6. Programs should balance revenue collection with fairness, equity and governance considerations. 7. Transparency and broad-based dialogue should characterize all aspect of DRM programs 8. Reforming and sustaining revenue collection institutions. 9. Programs should strengthen linkages between revenue and expenditures 10. Take account of the international aspects of taxation. 25
International Development Organizations Team Scott King Managing Principal, IDO T: +1 210.881.1802 E:Scott.King@us.gt.comscott.king2 @us.gt.com Ken Lanza Director, Global USAID Account, IDO T: +1 703 637 3090 E: Ken.Lanza@us.gt.com en.lanza@us.gt.com Melanie Douds Veronique Duchez-Pazhwak Manager, IDO Manager, IDO T: +1 703.562.5912 T: +1 703.637.2781 E: Melanie.Douds@us.gt.com E: Veronique.Duchez-Pazhwak@us.gt.com melanie.douds@us.gt.com veronique.duchez-pazhwak@us.gt.com 26
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