Press Release No. 10/500

Press Release No. 10/500
December 17, 2010

The International Monetary Fund (IMF) is launching a new topical trust fund supporting technical assistance to members in the areas of Tax Policy and Administration. This new multi-donor trust fund will start operations in May 2011 and will provide about US$30 million over five years to finance technical assistance for strengthening tax systems in 15-20 low- and lower-middle income countries. The assistance financed by the trust fund will benefit from the IMF’s technical assistance infrastructure and proven expertise in tax policy and administration. It will also provide a vehicle for donor coordination and commissioning focused research in this area.

A pledging session for this trust fund was held yesterday at the IMF headquarters in Washington D.C. Lead donors contributing to the trust fund are Germany and Switzerland. They are joined by Belgium, Luxembourg and the Netherlands, together providing about half of the funding. The European Commission and Norway have also expressed interest in contributing and discussions are underway with several other donors.

“Robust tax administrations are essential if low- and lower-middle-income countries are to decrease their dependence on aid and create the fiscal space, over time, to finance their development needs,” Murilo Portugal, IMF Deputy Managing Director, said. “In many of these countries, the shadow economy is estimated at around one-third of gross domestic product and sound tax systems are therefore essential for broadening participation and reducing tax evasion. There is clear demand from countries for scaling up technical assistance in tax policy and administration and the trust fund is designed to help meet this increased demand.”

“We greatly welcome the fact that the IMF is devoting increased attention to tax issues in developing countries,” Hans Wollny, representative of the German Federal Ministry for Economic Cooperation and Development (BMZ), commented. “The support for socially equitable, transparent and effective tax systems is a key issue in German development cooperation. The BMZ has committed Euro 4 million for the new topical trust fund on tax policy and administration and, since 2002, another Euro 8 million for the work of IMF's regional technical assistance centers in Africa and Central America.”

Jerome Duperrut, representing the Swiss State Secretariat for Economic Affairs (SECO) at the pledging session, said “The IMF Topical Trust Fund on Tax Policy Administration is ideally placed to deliver on a large scale the necessary technical assistance to allow low and lower middle income countries to mobilize domestic resources for ensuring sustainable socio-economic development and reducing dependence to official development aid.” Switzerland intends to make a contribution of US$5 million to the trust fund.

The trust fund will address the weaknesses at the heart of low revenue-collection rates, including weak and fragmented administrative structures, poorly designed operational processes, and unclear accountability. The work supported by the trust fund will focus on nine modules, each addressing a critical area in building sustainable revenue systems. As needed, modules will be delivered individually or in packages, or integrated into a program over several years, working in collaboration with existing donor-supported programs.

Background Information

Demand for the IMF’s technical assistance is rising in light of the global economic and financial crisis, but also because countries are seeking to strengthen their institutions. At the same time, the Fund is moving forward with a broad range of measures to respond more effectively to its members’ needs to deal with emerging challenges of the global economy. To meet this rising demand as well as better coordinate assistance delivery, the Fund seeks to strengthen its partnerships with donors by engaging them on a broader, longer-term, and more strategic basis.

As a part of these efforts, the IMF is enlarging and expanding its Regional Technical Assistance Centers. It now has three centers in Africa, plus centers in the Pacific, Middle East, Central America and the Caribbean. Complementing the regional perspective of the regional centers, the topical trust funds provide technical assistance globally on specialized topics. A successful topical trust fund on Anti-Money Laundering/Combating the Financing of Terrorism was launched in May 2009 (see Press Release No. 09/108). In addition to the new trust fund on Tax Policy and Administration, the IMF will launch another on Managing Natural Resource Wealth, also in May 2011. Responding to the recent crisis, further topical trust funds are envisaged, including on debt management, training in Africa and financial statistics.