Friday, 16 November 2012

Better coordination key to more tax and less aid

By Mick Moore

In August of this year, the UK Parliament’s International Development Select Committee published a report on its investigations into DFID's work on tax and development. The process was in some ways impressive. A number of MPs on the Committee showed a real interest in the topic. A visit to Zambia brought them right up against what some people regard as the scandal of gross under-taxation of foreign-owned mining companies.

The report was notable too for the way in which it addressed what many of us believe are the central tax and development policy issues for the UK government: how do the tax policies and practices of the UK, EU, OECD countries and the UK Crown Dependencies (some of them tax havens) impact positively or negatively on the capacity of the revenue authorities of developing countries to tax transnational business?

The most radical single proposal was that the UK Government should undertake "an analysis of the likely financial impact of the revised Controlled Foreign Companies rules on developing countries. Depending on the results of this analysis, the Government should consider whether to drop its proposals."

UK Government responds to the committee's recommendations


The UK Government has now published its response to the 16 recommendations in the Committee's Report. The general pattern of responses is predictable. Four of the recommendations were for what the governments of developing countries should do – or what the UK Department for International Development (DFID) should urge them to do. The government response is 'Agree' to all four of these recommendations.

The other 12 recommendations were about what the UK Government itself should do – or what it should be encouraging the OECD or the Crown Dependencies to do. Here the response is far less positive: 'Disagree' on 3 points; 'Partially agree' on 5 points; and 'Agree' on 3 points. Of those points of agreement, two are for DFID to spend more money on tax and development issues. And you can guess the response to the suggestion for a review of the impact on developing countries of our revised Controlled Foreign Companies rules.

The outcome is no surprise. The Committee that produced the report is appointed to "examine the expenditure, administration, and policy of the Office of the Secretary of State for International Development." International tax issues are the responsibility of HM Treasury, and the International Development Select Committee has little influence on Treasury policy. So, no big changes, but a brave effort and some useful nudges in the right direction.

Tax and development policy - something for donors to ponder 


One final thought for DFID and other donors in relation to tax and development policy. As I outlined in my evidence to the committee, donor activity and funding in the field of tax and development is on the rise. DFID itself is committed to spending more money in this area. However increased resources must be targeted and coordinated effectively and at the moment this is not happening. An influx of new donors, doing their own thing, means that there is a real danger of fragmentation and that money and efforts are being wasted. If systems of taxation in developing countries are to improve and dependence on overseas aid reduced, donors (and government departments) must work together much more closely.

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