Tax revenues in many developing countries remain far below the levels needed to provide citizens with basic services or fund extra spending to minimise the impact of COVID-19, says a new World Bank report. Governments looking for ways to strengthen tax collection systems must take a holistic approach to tax reform that includes building citizens’ trust.
The report, titled ‘Innovations in Tax Compliance: Building Trust, Navigating Politics and Tailoring Reforms’, sets out a novel, integrated framework for improving tax systems based on three core pillars: enforcement, facilitation and trust. The report was supported by the Bill & Melinda Gates Foundation and the World Bank’s Global Tax Programme.
According to the report, when implemented alongside reforms to boost enforcement and improve facilitation, strategies to increase trust between taxpayers and tax administrations can lead to higher rates of compliance and build a foundation of public support for more effective taxation.
“The report offers feasible, clear-cut paths to putting trust building into practice,” said Director of the World Bank’s Governance Global Practice Edward Olowo-Okere. “With detailed information on successful initiatives, it urges reformers to focus on how to more effectively tailor strategies to local contexts and constraints. In Freetown, Sierra Leone, for example, successful property tax reform followed significant public education programmes and new forums for engagement between taxpayers and the city.”
Tax reforms have leaned heavily toward strengthening tax enforcement and facilitating compliance, with sanctions for citizens and corporations that avoid paying their obligations and mechanisms that make it as easy as possible for taxpayers to find out what they owe and make payments.
Despite important successes, these efforts have not been sufficient to consistently deliver more effective, equitable, and accountable tax systems. In fact, taxation of the wealthy remains highly ineffective in many countries. Weak taxation in many places appears rooted in political resistance to more effective taxation, low trust and compliance, and the difficulties posed by wealth held offshore.
Recent research has shown that a lack of trust in the state’s role as both tax collector and service provider remains an important deterrent for many would-be taxpayers to enter the formal economy or pay their full taxes – and undermines broader political support for reform efforts.