Remarks by Angel Gurría, OECD Secretary-General
New York, Monday 20 September
Ladies and Gentlemen:
It is a great pleasure for me to participate in this event, in particular given the importance and timeliness of this topic.
Let me begin by saying that I strongly concur with President Kaberuka’s vision of a more prosperous Africa. Indeed, improved domestic resource mobilisation should be an integral component of a sustained growth agenda.
The role of taxation in securing domestic funding for development
Equitable and efficient tax systems and administrations have an important role to play in securing domestic funding for development. It is with this goal in sight that African policy makers need to reform tax systems and generate revenues, to complement external sources of financing, such as official development assistance, remittances and foreign direct investment.
Their focus should be on low, simple taxes: they are easier to collect and more effective in stimulating the development of the private sector. This means flatter rates, fewer exemptions and a broader tax base. The African Economic Outlook, prepared jointly by the OECD and the African Development Bank provides evidence that this approach works.
But let’s make no mistake: we should be careful who we target when trying to deepen the tax base. Chasing the small enterprises in the informal sector, or the self-employed and the micro-shops may often cost more than it generates in tax revenues. In addition, many informal entrepreneurs already contribute to tax revenues as they pay VAT on the inputs they purchase from retailers.
Neither should small and medium enterprises (SMEs) in the formal sector be the target of choice to extract more tax revenues: African SMEs are the ‘missing middle’ that are desperately needed to create jobs. Too visible to escape taxation and not big enough to obtain exemptions, they are not only subject to some of the highest nominal corporate tax rates in the world, they are in some cases, victims of abusive practices by tax administrations. It is important to bring SMEs within the formal tax structure, but special care should be taken to make their tax burden manageable and predictable.
In addition, the appropriate taxation of the big economic players, including multinatinals, can provide a secure platform for development.
Multilateral tax cooperation and development
The efficient and fair mobilisation of domestic resources in Africa depends also on enhanced international cooperation in tax matters, as some of the challenges faced by African tax administrators can only be tackled internationally.
The OECD has a long history of partnering with developing countries on some of the most difficult issues that tax administrations face.
Our Global Forum on Transparency and Exchange of Information for Tax Purposes includes 95 economies working together to counter offshore non-compliance.
The Global Forum on Tax Treaties and Transfer Pricing, bringing together representatives of over 100 countries, is meeting in Paris this week.
Last week our Forum on Tax Administration, gathered 44 countries in Istanbul to address common challenges and to see how we can put the experience of these countries at the disposal of the new African Tax Administration Forum (ATAF).
These are but a few of the initiatives we have taken to help developing countries strengthen their tax administrations. But working within the sphere of tax experts is not enough. We recognized that the development and tax communities need to be brought together.
Last May, our Ministers launched a programme on “Tax and Development”. A Task Force, bringing together all the stake holders - LDCs, OECD countries, international organizations, civil society groups and business, is co-chaired by the Netherlands and South Africa, also representing the ATAF. Through its Tax and Development Programme, the OECD is committed to working with ATAF and others to address these problems in developing countries.
The way forward
In addition to these important achievements, several other initiatives promote international action on taxation. Take, for example, the International Tax Dialogue: it involves the OECD, the IMF, the World Bank, the EU and other development partners, such as the German-inspired International Tax Compact. At the same time, this year, tax and development has been announced as a key priority by the Spanish Presidency of the EU, as well as the Korean Presidency of the G20.
How should the international community take international co-operation forward? What should we expect from the MDG Summit this week?
There have been some recent suggestions that addressing global tax issues requires a “World Tax Organisation.” I believe the successful instances of variable geometry we mentioned above are the way to go. Some of the most challenging tax issues are being thus addressed without creating a new international bureaucracy.
My message today, both to countries and to international organizations is that we need to work more effectively with the existing institutions to address global tax issues. We have the architecture in place: the International Tax Dialogue, which brings together the EU, IMF, WB, OECD and regional Development Banks. If the UN members feel it has to engage in the Tax and Development Debate, all it has to do is join this initiative. This is how we can achieve better coordination. This is how scarce resources can be used more effectively. It would avoid duplication and avoid unnecessary complexity while mutually reinforcing each institution’s mandate.
Ladies and Gentlemen:
Making taxes work for development and the achievement of the MDGs is a shared responsibility.
Today we see a historical convergence of interests and we should continue to work together to move the international tax agenda forward and make taxes a powerful tool to promote development. The OECD stands ready to do its share in this common endeavour.