{
  "title": "Mission Impossible? Can Fragile States Increase Tax Revenues?",
  "publication": "IMF Blog, September 25, 2020",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2020/09/25/mission-impossible-can-fragile-states-increase-tax-revenues",
  "canonical": "https://www.imf.org/en/blogs/articles/2020/09/25/mission-impossible-can-fragile-states-increase-tax-revenues",
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  "summary": "Authors: Bernardin Akitoby, Jiro Honda, Keyra Primus",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Bernardin Akitoby, Jiro Honda, Keyra Primus\n- Publication date: September 25, 2020\n- Context: The COVID-19 shocks are proving to be especially challenging for fragile states. Pre-COVID, fiscal revenues were low in such countries and governments were struggling to raise them. Now, COVID-19 is hitting them hard and fiscal revenues are falling. Once the pandemic abates, restoring and further enhancing tax collection is even more important to secure debt sustainability, facilitate the post-COVID-19 recovery, and meet development financing needs in order to meet the Sustainable Development Goals.\n- Core finding: New staff research finds that achieving sizable gains in tax collection in fragile environments is not “mission impossible.”"
    },
    {
      "heading": "Empirical findings and key statistics",
      "content": "- Four fragile states—Liberia, Malawi, Nepal, and Solomon Islands—achieved sizable increases in tax revenues over a decade: between 7 and 20 percentage points of GDP.\n- Most of these countries introduced tax reforms when their tax revenues were far below the average for fragile states, but each went on to exceed the average; Nepal and Solomon Islands did so by a wide margin.\n- Successful episodes involved sustained, protracted reform efforts pursued over extended periods of time to achieve long-lasting, sizable gains.\n- Political stability can facilitate continuity of tax reforms, though reforms can also be advanced across administrations (example: Malawi)."
    },
    {
      "heading": "Lessons for tax revenue reforms in fragile states",
      "content": "- Two-handed approach:\n  - Ensure both well-designed tax systems and effective approaches to revenue administration.\n  - Examples: In Liberia and Nepal, using multiple tax policy instruments helped boost tax collection (for instance, reducing tax exemptions, raising excise taxes, and increasing the VAT threshold).\n- Potential source:\n  - Fairly target high potential sectors and areas that contribute significantly to tax revenues to raise funds and promote fairness.\n  - Examples: the logging sector in the Solomon Islands and consumption (from large remittance receipts) in Nepal.\n- Quick and strategic:\n  - Adopt immediate reform steps to address pressing needs and build momentum, alongside a medium-term strategy to sequence reform measures properly.\n  - Immediate-effect reform steps could include reforming indirect taxes on goods and services, curbing exemptions, establishing a Large Taxpayers Office, and enhancing risk-based audits.\n- Political commitment and international support:\n  - Sustained tax reform efforts over a long period require strong political commitment supported by international partners.\n  - In the studied episodes, tax reforms were often pursued with strong political will—for instance in facilitating coordination across agencies—while capacity building support from international partners played a vital role.\n  - Note: political commitment is a necessary but not a sufficient condition for successful tax reform.\n\nSource: IMF blog post titled \"Mission Impossible? Can Fragile States Increase Tax Revenues?\" by Bernardin Akitoby, Jiro Honda, and Keyra Primus, September 25, 2020.\n\n---\n\n\n References\n\n- staff research\n\nSource: https://www.imf.org/en/blogs/articles/2020/09/25/mission-impossible-can-fragile-states-increase-tax-revenues"
    }
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    "Authors: Bernardin Akitoby, Jiro Honda, Keyra Primus",
    "Published: September 25, 2020",
    "Authors: Bernardin Akitoby, Jiro Honda, Keyra Primus",
    "Publication date: September 25, 2020",
    "Context: The COVID-19 shocks are proving to be especially challenging for fragile states. Pre-COVID, fiscal revenues were low in such countries and governments were struggling to raise them. Now, COVID-19 is hitting them hard and fiscal revenues are falling. Once the pandemic abates, restoring and further enhancing tax collection is even more important to secure debt sustainability, facilitate the post-COVID-19 recovery, and meet development financing needs in order to meet the Sustainable Development Goals.",
    "Core finding: New staff research finds that achieving sizable gains in tax collection in fragile environments is not “mission impossible.”",
    "Four fragile states—Liberia, Malawi, Nepal, and Solomon Islands—achieved sizable increases in tax revenues over a decade: between 7 and 20 percentage points of GDP.",
    "Most of these countries introduced tax reforms when their tax revenues were far below the average for fragile states, but each went on to exceed the average; Nepal and Solomon Islands did so by a wide margin.",
    "Successful episodes involved sustained, protracted reform efforts pursued over extended periods of time to achieve long-lasting, sizable gains.",
    "Political stability can facilitate continuity of tax reforms, though reforms can also be advanced across administrations (example: Malawi).",
    "Two-handed approach:",
    "Potential source:",
    "Quick and strategic:",
    "Political commitment and international support:",
    "[staff research](https://www.imf.org/en/Publications/WP/Issues/2020/07/24/Tax-Revenues-in-Fragile-and-Conflict-Affected-States-Why-Are-They-Low-and-How-Can-We-Raise-49570)"
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