Apr 24, 2019 - Ghana
A recent report by KU Leuven’s HIVA research institute shows insight in and lessons learned from decentralisation organisations to taxation initiatives in the global south. Data from VNG International’s project Tax Revenue for Economic Enhancement (TREE) in Ghana is used, amongst other projects, to develop this report.
Why focus on taxation?
At the international conference on financing for development (F4D) in July 2015, world leaders agreed upon the Addis Ababa Action Agenda (AAAA) which includes a specific action area on domestic public resources. Domestic public resources is, as mentioned in the agenda, the main source of development finance. The AAAA calls for greater international cooperation “to support local governments in their efforts to mobilize revenues as appropriate”. Domestic revenue mobilization increases subnational governments’ autonomy and capacity, which are recognised to be more and more important when it comes to global sustainable development. However, as mentioned in the paper, governments often lack adequate technical and technological capacity, financing and support.
Most important findings
Three main working areas of donor support are identified: (1) improving tax policy and design, (2) strengthening the tax administration, and (3) encouraging constructive state-society engagement around taxes. The first one is generally, after assessing seven programmes funded by local government donors, not a central outcome of decentralized cooperation programmes. The focus appears to be mainly on the second identified working area and increasingly on the third.
Trust and transparency
Also, there is a need to broaden the focus of donor support in order to include all three working areas where possible, and to avoid a limited focus on only strengthening the tax administration. TREE links to this, in the way that the program does not only aim to improve tax policy and design, ensuring transparency and being socially accountable to ratepayers is just as much a critical aspect in the program. This is done to build trust with ratepayers and to encourage voluntary and timely payment.
Good practices on tax administration strengthening often include the use of digital tools in order to increase transparency and efficiency and to reduce tax leakages. TREE aims to implement a sustainable process for generating revenue collection by, amongst other efforts, cashless payment supported by IT solutions, and capacity development.
Furthermore, locally elected politicians seem central to the success or failure of taxation efforts, so they should ideally be targeted in donor support programmes. It is also important for donors to deepen their understanding of the particularities of subnational taxation in the partner country and the partner local government. Finally, donors should strengthen their monitoring and evaluation systems in order to get a clearer idea on ‘what works’ in relation to donor funded support programmes for local taxation.