Toespraak Eurocommissaris Karel De Gucht over belastingheffing in ontwikkelingslanden (en)
EU Commissioner for Development and humanitarian aid
Introductory speech
Figures and graphics available in PDF and WORD PROCESSED
Joint Conference on Tax and Development - to fight against Poverty
Brussels, European Parliament, 9 December 2009
" No taxation without representation " was the famous slogan of angry American settlers in 1773, when they threw shiploads of tea into the Boston harbour. The reason: they didn't want to pay taxes to the British Crown without being represented in the British Parliament. The link between paying taxes and political representation was obvious to the settlers, as it still is today.
I thank Mrs Eva Joly, Chairwoman of the Development Committee, for having us today in the European Parliament. Mrs Joly and I decided that it was time to address and debate the issue of taxation and development. Together with Commissioner Kovacs, and the Spanish Secretary of State for International Cooperation, Mrs Soraya Rodríguez Ramos who will speak this afternoon, we are very much interested in hearing your ideas and proposals to take this agenda forward.
Ladies and gentlemen,
The issue of taxation and development touches in my view the heart of the debate on effective and sustainable development. The weak or non-existing tax base in the Bottom Billion-countries undermines not just the economic but the political institutions as well. Talking about political institutions, I think that the Boston adage of no taxation without representation is also true in the reverse: " no political representation without taxation ": all parts of a society that can afford to pay taxes should pay taxes. And without better long term public revenues, our development efforts will always remain limited.
Domestic revenue collection is very low in many developing countries which depend on aid to have functioning States that provide services to their populations. Mozambique is a case in point: development assistance accounts for 15% of GDP (and 42% of its budget) whereas its tax revenues only account for 12% of GDP. One may wonder if, and for how long, this situation is sustainable ? How long will developing countries like Mozambique depend on foreign aid, which is less predictable than tax revenue? It will be a challenge to convince public opinion in Europe to increase our aid if we can't point in any clear way to a time, however remote, when this aid may be stopped.
We know that developing countries are confronted with several constraints when they attempt to increase tax revenues.
Firstly , their levels of development and the structure of their economies: many have a limited tax base as a consequence of large informal economies and subsistence-based rural sectors.
Secondly , raising tax revenues requires an efficient tax administration and clear tax legislation . This is often missing because of inadequate tax legislation and large loopholes.
Thirdly , it is a challenge to cope with complex cross-border commercial and financial transactions designated to shift profits to tax jurisdictions with non-existent or very low corporate taxes for off-shore activities.
Fourthly , developing countries tend to grant multiple exemptions to large domestic and foreign companies in order to attract and expand productive investments.
At the global level, the recent G20 Summit underlined that tax evasion and avoidance are matters of growing concern for both developed and developing countries. They have an impact on the ability to raise taxes in the North as well as in the South. Studies estimate that tax losses due to these practices could amount to 250 billion dollars. This nearly three times the total annual amount of ODA!
In developing countries, insufficient tax revenue is a major obstacle to the State's capacity of providing public goods, such as security, rule of law, health, education and infrastructure. It is time to take action to help developing countries raise revenues by building robust tax systems.
Helping developing countries to raise more tax revenue is not just a new fashion in the development agenda. It is in fact a new way of looking at development . We, the donor community, have been criticised for generating aid dependence, and for shifting accountability from politicians in partner countries to the international donors. But accountability for development should rest first and foremost with politicians in partner countries. If we pay more attention to increasing tax revenue, as the saying goes, we would kill two birds with one stone.
To start with, we would help to develop economies based on endogenous and thus more sustainable growth which reduces poverty. For example, in Mozambique, the challenge for development is enormous, with 45% of its population living under the poverty line. The country realised a growth rate of 7% on average over the last six years, but the tax revenue remains low.
Improving tax systems is a key element in this respect. This is why we reserved a 2.7 billion euros tranche under the 10 th EDF for countries making commitments on good governance, including for instance in tax systems. In this respect, several Caribbean states have made pledges on matters of transparency and exchange of information in tax systems which we are currently reviewing in the framework of the Mid-Term Review of development assistance.
Moreover, it is also a way to promote democracy by raising domestic accountability and political participation at all levels of society. Taxpayers hold their governments accountable. They want to know what happens to their money and they want to participate in the decision-making process. They want schools for their children, hospitals for the sick, pensions for their parents, and other basic government services. They ask for improved public services and request more transparency. That is the indissociable link between taxation and representation. As I said earlier, the reverse is true: all economic actors should pay taxes to ensure sufficient financing for public services.
Ladies and Gentlemen,
Better tax revenue collection requires improvements in tax administration and tax policy reforms . We need to assist developing countries to enhance capacity and specialised skills in their tax administrations . Improvement of administrations is an essential matter, but I contend that is not enough.
Together with our partner countries, we should promote tax reforms that broaden the tax base. In this respect, all ideas need to be explored, for example levying more taxes at source. How can donors assist developing countries in these reforms, bearing in mind that taxes are at the centre of the domestic political debate? This is a difficult question, which needs further consideration. I welcome in that respect the statements made by Ministers of Finance of 39 countries from the South and the North in August 2008 in Pretoria. They underlined the prime responsibility of developing countries to improve their tax systems, in partnership with the donor community.
Furthermore, developing countries and developed countries need to act jointly against harmful tax practices. But how can we do this? The global financial system is complex. Many national tax authorities experience difficulties in dealing with the increasing mobility of capital flows. Therefore, a more coordinated approach on international tax matters is needed which takes into account the specific needs of developing countries. For example, very few developing countries have signed model agreements for international tax cooperation, although they have an equal need for signing them. Is it because these are not adapted to the needs of developing countries? I think we need to assess if international tax cooperation structures are sufficiently development friendly.
The European Commission is committed to assist developing countries to improve their tax systems. I expect that my successor, Andris Piebalgs i, once he will have been confirmed, will focus on this issue and respond to the request of the Council to present some ideas.
The strengthened focus on tax issues at the G20 and the OECD, as well as your large presence today, are testimony of the fact that from all quarters, there is a willingness and new momentum to tackle this issue and secure more revenue towards development goals. Let's not miss this opportunity.