In a new report, the Organization for Economic Cooperation and Development highlighted work that it, along with governmental and independent development groups, has undertaken with developing-nation governments to strengthen their tax policies and administration.
The report, Tax Cooperation for Development: Progress Report in the COVID-19 Era, reviews interaction between OECD-led teams of experts and tax officials in developing countries in a variety of technical areas. These include implementing inclusive international standards, running capacity-building programs, providing guidance and data developed and analyzed by top tax specialists, and forming partnerships with international bodies, regional tax associations and other stakeholders.
As the world moves from crisis to recovery, "tax policymakers will be faced with hard choices, and new approaches to tax policy may be needed to recalibrate their tax bases," Pascal Saint-Amans, director of the OECD Center for Tax Policy and Administration, said in the report's preface.
The report assays the coronavirus pandemic's effects on public health and national economies, especially in lower-income countries, which were already coping with limited fiscal resources. For example, earlier OECD research found that for African countries, the ratio of tax to gross domestic product was on average 16.5%, compared with 34.3% for the organization's developed-economy members.
In addition, developing countries have less ability to borrow or engage in quantitative easing, wherein a central bank buys long-term securities on the open market as a means to increase the money supply and spur lending and investment. Instead, poorer nations tend to rely heavily on value-added and corporate income taxes, both of which were hit hard by the pandemic's economic shocks in 2020, the OECD report said.
As a result, the report explained, tax policymakers and administrators in the hardest-hit countries face massive challenges managing the fiscal impact of the pandemic, and they need tools and guidance on a wide range of issues. According to the report, these include questions of ensuring business continuity in a tax administration, how the pandemic might affect the application of tax treaties or transfer pricing rules and hard choices a government needs to make to support trade and investment.
The OECD described in a statement accompanying the report how it has been working with governments of developing countries to "maximize revenue collection and develop targeted and effective tax policy measures," particularly as leaders adjust to the challenges of the pandemic.
By collecting information on countries' tax policy and administration responses to the pandemic, the report said, the OECD has developed a database containing details of more than 1,000 responses in over 120 countries, of which nearly 400 are from 67 developing countries.
A key finding from those responses is that enhancing business cash flow was the most common goal, with 90% of developing countries pursuing such measures, while 40% of developing countries took measures to enhance household cash flow.
Database results also include that corporate income tax was the most common tax targeted, with two-thirds of developing countries implementing measures in this area. Also, just over half of developing countries implemented VAT measures, and just under half took action on personal income taxes. Almost half — 43% — of developing countries undertook tax measures to support health systems, while 13% implemented measures using the tax system to enable more generous cash transfers.
Since travel was suspended in March 2020, OECD staff members have been providing support virtually, including e-learning and virtual workshops, in lieu of in-person events. According to the report, the organization's tax capacity-building service last year covered more than 30,000 tax officials from developing countries, compared with 5,000 in a typical year.
"This gives us confidence that virtual technical assistance can continue to be a big part of our work even when travel resumes," Joseph Stead, an OECD senior policy analyst, wrote in a Twitter post reacting to Wednesday's report. "Fewer hours in airports and less carbon emissions is a win for everyone!"
The report also surveys the OECD's assistance to developing countries in facilitating knowledge-sharing on tax policies and administrative measures in response to the pandemic, preventing tax avoidance and fighting tax evasion.
"The international community has never been more fully represented in discussions on tax matters relating to preventing tax evasion and countering tax avoidance by multinational enterprises," the report said.
The report noted the participation of 139 jurisdictions in the inclusive framework of the OECD's base erosion and profit shifting project and 162 members of the organization-led Global Forum on Transparency and Exchange of Information for Tax Purposes.
"Even as we move beyond the pandemic, the challenges will not subside, as 2021 promises to present developing countries with additional pressures on their tax capacities," the report said. It said the OECD "stands ready to help developing countries with the collaboration of its many development partners."
--Editing by Neil Cohen.
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