Tax season is over this year in the United States, but efforts on taxes are only gaining speed and attention in many developing nations.
United States Agency for International Development (USAID) Administrator Mark Green has highlighted this as key to helping countries on their “Journey to Self-Reliance.” USAID aims to invest more aid to help developing countries reform their tax policy and administration – referred to as domestic resource mobilization (DRM) – as a way to finance the Sustainable Development Goals (SDGs) and to gradually transition countries so that they no longer need our development assistance, and they remain strong partners to our country.
But the success of U.S. investments in DRM ultimately depends upon trust – specifically, the trust that people in a country have in their government. Will governments fairly collect taxes and will they spend tax revenues in ways that are equitable and help reduce poverty? In this regard, paying taxes is at the heart of the citizen-state compact. When citizens pay taxes they expect to receive quality health and education services, security, and basic infrastructure from their government in return. Citizens want their governments to be accountable for how their tax money is spent.
To guide USAID in assisting partner governments to foster this citizen-state compact and mobilize domestic public revenues for equitable and sustainable development, the Modernizing Foreign Assistance Network (MFAN) created “Principles of Public Sector Domestic Resource Mobilization in Developing Countries.” The principles are as follows:
- Ensure DRM investments are pro-poor, sensitive to gender, and support inclusive economic growth. More tax funding will not magically reduce poverty;
- Align with country priorities. Support an overall country plan to strengthen its DRM systems, and to invest funds in the development priorities of partner countries. For all international assistance – country ownership is key;
- Take a holistic approach to DRM, including by building a transparent and inclusive process for setting national DRM policies, strengthening judicial and audit institutions, and reducing tax evasion and avoidance;
- Engage citizens and other development stakeholders in DRM activities. DRM programs should be highly participatory and democratic by helping to finance broader engagement of citizens and other development stakeholders in DRM activities; and
- Transparently assess progress. The US government should support accountability of tax systems to their own citizens working with partner governments to develop benchmarks for monitoring and evaluating equitable DRM and sharing them publically in their countries.
Save the Children knows firsthand from our work in communities in places like Kenya how difficult it can be for civil society and citizens to engage in dialogue with their governments around tax policy. Such discussions are often technical and not transparent; civil society organizations often lack the resources and capacity to engage. But tax reform will not lead to more accountable governance without civil society and citizens at the table; so it’s vital that aid for DRM support not only the government’s activities, but also support civil society’s ability to engage in the process.
MFAN has created these principles not only to ensure that the U.S. government’s DRM strategy is a catalyst for inclusive economic growth and poverty reduction, but to ensure that it also includes the voices of vulnerable and marginalized populations so that reform reduces inequality and improves governance.
As experts have noted, DRM that produces meaningful improvements for marginalized and vulnerable populations is unlikely to occur without their voices being included. Donor nations like the United States can play an important role to ensure that these voices are integrated into national DRM dialogue and that equity and fairness become the centerpiece of tax policy and administration reforms.