Building Tax Capacity for Growth and Development: Evidence-Based Analysis for Mobilizing Domestic Revenue
Departmental Papers, October 9, 2025
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- Building Tax Capacity for Growth and Development: Evidence-Based Analysis for Mobilizing Domestic Revenue
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Bibliographic details
- Authors: Katherine Baer, Matthieu Bellon, Matt Davies, Ruud de Mooij, Vitor Gaspar, Andrea Lemgruber, Mario Mansour, Fayçal Sawadogo, Misa Takebe, Charles Vellutini
- Published: October 9, 2025
- Series: Departmental Papers
- DOI: https://doi.org/10.5089/9798229027298.087
Key findings
- Tax capacity is fundamental to state-building and sustainable development.
- Achieving a tax-to-GDP ratio of at least 15 percent—endorsed by the UN’s Compromiso de Sevilla—is critical for institutional strength, financial market depth, and economic growth.
- 71 nations are below the 15 percent tax-to-GDP threshold, including fragile states and resource-rich economies.
- Comprehensive tax reform could mobilize an additional 5 percent of GDP in revenue, though institutional capacity remains a key constraint.
- The ‘tax system approach’—integrating tax policy, law, and administration—is essential for effective revenue mobilization.
- Building tax capacity is ultimately a domestic political endeavor, supported by international capacity development.
Reform strategies and policy recommendations
- Broaden tax bases to increase revenue mobilization.
- Improve indirect taxes to enhance efficiency and collection.
- Rationalize incentives to reduce revenue erosion.
- Simplify tax design to facilitate compliance and administration.
- Align domestic revenue mobilization with the Sustainable Development Goals through integrated policy frameworks.
Enhancing compliance and administration
- Cultivate taxpayer trust as a central element of compliance strategy.
- Simplify procedures to lower compliance costs and barriers.
- Manage compliance risks proactively through risk-based approaches.
- Leverage digital tools to modernize tax administration and improve efficiency.
- Strengthen governance and leadership to underpin successful revenue administration.
Role of the IMF and international support
- The IMF plays a central role through integrated support for domestic revenue mobilization.
- The Global Public Finance Partnership is highlighted as an example of aligning revenue mobilization efforts with broader development objectives.
- International capacity development complements domestic political processes and institutional reforms.
By Katherine Baer, Matthieu Bellon, Matt Davies, Ruud de Mooij, Vitor Gaspar, Andrea Lemgruber, Mario Mansour, Fayçal Sawadogo, Misa Takebe, and Charles Vellutini. October 9, 2025. Departmental Papers 2025, 007. Pages: 48. DOI: https://doi.org/10.5089/9798229027298.087. ISBN: 9798229027298.