{
  "title": "Countries Can Tap Tax Potential to Finance Development Goals",
  "publication": "IMF Blog, September 19, 2023",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals",
  "canonical": "https://www.imf.org/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals",
  "overlayPath": "/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals/index.md",
  "summary": "Emerging market and low-income economies have a significant untapped tax potential of 8 percent to 9 percent of GDP",
  "sections": [
    {
      "heading": "Key findings and context",
      "content": "- Emerging market and low-income economies have a significant untapped tax potential of 8 percent to 9 percent of GDP.\n- Emerging markets and developing economies need $3 trillion annually through 2030 to finance their development goals and the climate transition, equal to about 7 percent of these countries’ combined 2022 gross domestic product.\n- The average tax-to-GDP ratio in emerging market and developing economies has increased by about 3.5 percentage points to 5 percentage points since the early 1990s, driven primarily by taxes on consumption such as value-added and excise taxes.\n- Some countries mobilized more than 5 percentage points of GDP (examples cited: Albania, Argentina, Armenia, Brazil, Colombia, and Georgia), with much of the increase occurring before the 2008 global financial crisis.\n- Half of emerging market economies and two-thirds of low-income countries had a tax-to-GDP ratio in 2020 that was lower than 15 percent—a tipping point above which growth has been found to accelerate.\n- Resource-rich countries have typically generated less tax revenue, as some governments reduced taxes due to higher revenue from natural resources.\n- The direct revenue impact of the ongoing international collaboration on taxing profits of large multinational corporations is likely to represent only a tiny fraction of the overall revenue needs, as shown in a February policy paper."
    },
    {
      "heading": "Tax revenue potential by country group",
      "content": "- Low-income countries:\n  - Could raise their tax-to-GDP ratio by as much as 6.7 percentage points on average based on tax potential.\n  - Improving public institutions, including reducing corruption, to the level of those in emerging market economies would result in an additional 2.3-point increase.\n  - The total revenue-raising potential for low-income countries is 9 percentage points of GDP—a two-thirds increase relative to their tax-to-GDP ratio in 2020.\n- Emerging market economies:\n  - Can raise their tax-to-GDP ratio by 5 percentage points on average based on tax potential.\n  - Improving institutions to the average of advanced economies could raise an additional 2 to 3 points."
    },
    {
      "heading": "Essential reforms and policy recommendations",
      "content": "- Adopt a holistic and institution-based approach focused on leveraging core domestic tax policies.\n- Improve the design and administration of core domestic taxes:\n  - Value-added taxes (VAT), excises, personal income taxes, and corporate income taxes should be strengthened.\n  - VAT revenue in low-income countries, for instance, could be doubled by limiting preferential treatments and improving compliance without increasing standard tax rates.\n  - Widespread adoption of digital technologies would result in higher revenue collection and narrow compliance gaps.\n- Implement bold reform plans with emphasis on tax base broadening:\n  - Rationalize tax expenditures.\n  - Pursue more neutral taxation of capital income.\n  - Make better use of property taxes.\n  - Headline tax rates are generally not the main concern.\n  - Use excise taxes—particularly fuel excises and forms of carbon pricing—to mitigate domestic health and climate-related costs.\n  - This multi-pronged approach can balance equity and efficiency considerations and address the political economy challenges of tax reforms.\n- Improve institutions that govern the tax system and manage tax reform:\n  - Provide evidence to convince the public of the gains and show progress in policy implementation over time.\n  - Ensure adequate staffing to forecast and analyze the impact of tax policies on the economy.\n  - Increase professionalization of public officials working on tax design and implementation.\n  - Use digital technologies to strengthen compliance.\n  - Enhance transparency and certainty in how policy and administration are translated into legislation.\n- Carefully prioritize and coordinate reforms across government agencies:\n  - Recognize that the broader institutional context matters.\n  - Strengthened institutions create a virtuous circle: improved state capacity enhances tax design quality and its acceptance by citizens.\n  - This institution-centered approach encapsulates the IMF’s approach to supporting countries in tax system reform and raising domestic revenue.\n\nSource: Countries Can Tap Tax Potential to Finance Development Goals — Vitor Gaspar, Mario Mansour, Charles Vellutini; September 19, 2023.\n\n---\n\n\n References\n\n- Our new research\n- a tipping point\n- February policy paper\n\nSource: https://www.imf.org/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals"
    }
  ],
  "bullets": [
    "[Markdown version](/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals/index.md)",
    "[Structured JSON version](/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals/index.json)",
    "[Bundle manifest](/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals/bundle-manifest.json)",
    "Authors: Vitor Gaspar, Mario Mansour, Charles Vellutini",
    "Published: September 19, 2023",
    "Emerging market and low-income economies have a significant untapped tax potential of 8 percent to 9 percent of GDP.",
    "Emerging markets and developing economies need $3 trillion annually through 2030 to finance their development goals and the climate transition, equal to about 7 percent of these countries’ combined 2022 gross domestic product.",
    "The average tax-to-GDP ratio in emerging market and developing economies has increased by about 3.5 percentage points to 5 percentage points since the early 1990s, driven primarily by taxes on consumption such as value-added and excise taxes.",
    "Some countries mobilized more than 5 percentage points of GDP (examples cited: Albania, Argentina, Armenia, Brazil, Colombia, and Georgia), with much of the increase occurring before the 2008 global financial crisis.",
    "Half of emerging market economies and two-thirds of low-income countries had a tax-to-GDP ratio in 2020 that was lower than 15 percent—a tipping point above which growth has been found to accelerate.",
    "Resource-rich countries have typically generated less tax revenue, as some governments reduced taxes due to higher revenue from natural resources.",
    "The direct revenue impact of the ongoing international collaboration on taxing profits of large multinational corporations is likely to represent only a tiny fraction of the overall revenue needs, as shown in a February policy paper.",
    "Low-income countries:",
    "Emerging market economies:",
    "Adopt a holistic and institution-based approach focused on leveraging core domestic tax policies.",
    "Improve the design and administration of core domestic taxes:",
    "Implement bold reform plans with emphasis on tax base broadening:",
    "Improve institutions that govern the tax system and manage tax reform:",
    "Carefully prioritize and coordinate reforms across government agencies:",
    "[Our new research](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/09/15/Building-Tax-Capacity-in-Developing-Countries-535449)",
    "[a tipping point](https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Tax-Capacity-and-Growth-Is-there-a-Tipping-Point-44436)",
    "[February policy paper](https://www.imf.org/en/Blogs/Articles/2023/02/16/the-unfinished-business-of-international-business-tax-reform)"
  ],
  "alternates": {
    "markdown": "/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals/index.md",
    "json": "/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals/index.json",
    "bundleManifest": "/en/blogs/articles/2023/09/19/countries-can-tap-tax-potential-to-finance-development-goals/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-08-26T02:22:32.382Z"
}