Roger Thayer Stone Center For Latin American Studies

Tulane University

Tax To Finance The SDGs, But Not To Undermine Them

This blog post was jointly authored by Nora Lustig, Brahima Coulibaly, Ian Gary, Sanjeev Gupta, Warren Krafchik & Wilson Prichard

This week over 170 policymakers, government officials, and members of academia, civil society and international organizations will gather in Berlin to discuss the future of the Addis Tax Initiative (ATI). The overarching goal of the ATI is to improve domestic revenue mobilization (DRM) in order to finance the Sustainable Development Goals (SDGs). More than 55 countries, regional and international organisations have joined the ATI, which commits donors to collectively double their assistance to DRM, developing countries to step up their tax collection efforts, and all members to ensure “policy coherence for development.” However, noticeably absent from the ATI’s progress monitoring is the issue of equity. Indeed, analysis by Oxfam finds that only 7% of DRM support reported by ATI donors in 2017 contained clear goals related to equity or fairness in revenue systems.

The importance of equity
If the primary goal of DRM projects and reforms is simply to collect more revenue, this can have negative consequences for development efforts. For example, revenue targets (like collecting 15% of GDP in tax) can create perverse incentives to collect wherever it is most feasible- which can harm those without political power such as the poor or women the most. Tax and transfer systems in low and middle-income countries are, in general, far less effective than those in OECD countries at reducing poverty and inequality. In fact, research by the CEQ Institute shows that in 16 out of the 29 countries analyzed, taxes and direct transfers to the poor actually increased income poverty. Of course, part of that pattern reflects the inadequacy of social spending, but it equally reflects the need for a greater focus on the equity implications of tax reforms.

Priority areas for increasing equity in DRM
Given that in low and middle-income countries, taxes on consumption currently make up over 60% of revenues, there is a great deal of room for making tax systems more equitable at the national level. We suggest four priority areas for reform:

1. Strengthening taxation of income and wealth: OECD countries collect about 10% of GDP in personal income taxes, while non-OECD countries collect only slightly more than 2% of GDP on average. There is much developing countries can do to better tax professional incomes, increase the progressivity of income tax schedules, and tax inheritance and capital gains. When it comes to wealth, it remains largely undertaxed, despite a surge in ultra-high net worth individuals (especially in developing countries). An increasing amount of that wealth is being concentrated in real estate, yet property tax collection is similarly low. Non-OECD countries on average collect merely 0.5% of GDP from property taxes (compared to 2-3% in OECD countries). If low and middle-income countries as a group could reach 1.5%, this would be equivalent to an additional $28.9 billion in government coffers annually: more than total combined aid disbursed by Canada, France, Netherlands, Norway and Sweden in 2017.

2. Rationalizing the use of tax incentives: Tax incentives to attract investment can play a legitimate role in economic policy. Unfortunately, studies suggest that tax incentives in developing countries frequently continue to be characterized by excessive discretion, poor monitoring and little transparency. The result is reduced revenue and little new investment – in effect, a handout to corporations and wealthy interests. More transparent and accountable governance of tax incentives is needed.

3. Reducing the burden of consumption taxes and informal and nuisance taxes on the poor: While many assume that the poor do not pay much tax in low-income countries, they actually bear a heavy fiscal burden due to a wide array of consumption and informal taxes, small subnational taxes and levies, and formal and informal user fees to access essential services. In low and middle-income countries, consumption taxes make a significant proportion of the poor poorer than they were before taxes and transfers. Unless the poor can be sufficiently compensated with transfers, exemptions for basic foodstuffs and other essential goods may thus be necessary. Studies from Sierra Leone and the DRC suggest that total formal and informal burdens of direct taxes, levies and user fees make up as much as 10-20% of the incomes of poor households. Limiting these burdens should be given significantly greater priority.

4. Enhancing the participation of accountability stakeholders: Civil society organizations, academic institutions, women’s rights groups, and journalists have a critical role to play in monitoring and pressing for increased fairness in tax systems, voicing the concerns of the vulnerable, and advocating for the translation of tax revenues into public benefits. Nevertheless, in 2017, only 7% of DRM aid (reported to ATI) supported these actors.

Parallel action is also needed at the global level to make the ATI’s third commitment to “policy coherence” a reality:

1. Reforming the international tax system: While the BEPS Action Plan was a useful first step in trying to combat aggressive tax avoidance, it is not enough. Low-income countries continue to be disadvantaged by restrictive tax treaties and often still have little voice in global decisions that impact their taxing rights. All countries should be given the opportunity to raise their voice in the BEPS 2.0 negotiations, even if they are not members of the OECD Inclusive Framework – a situation that pertains to half of ATI partner countries. Meanwhile, existing international rules continue to be difficult to implement in lower-income countries, which are substantially more dependent on corporate tax revenues than OECD countries. A continued push for developing country taxing rights and priorities, including simplified approaches to enforcement, is needed.

2. Increasing cooperation on tackling offshore tax avoidance and evasion by wealthy individuals: It is estimated that Africans hold $500 billion in financial wealth alone offshore, which results in governments losing around $15 billion per year in unpaid taxes. Progress must be made to include developing countries effectively in automatic exchange of information processes and ensure effective collaboration in cases of tax evasion, while strengthening rules on beneficial ownership.

3. Continuing external support: In low-income countries, even the most substantial improvements in DRM will not generate enough revenue to finance adequate social protection and human development floors. External support such as aid will therefore remain critically important in pursuing equity at the global level.

Prioritizing equity in the ATI agenda
The theme of this week’s conference is “Towards a Roadmap for the ATI post-2020.” In drawing that roadmap, we are calling on ATI members to focus more explicitly on equity and inclusion. Along with the priorities outlined above, we propose that members of the ATI:

1. Adopt specific indicators on revenue composition in monitoring progress on Commitment 2, in order to prioritize not only collecting more revenue, but from more progressive sources, like direct taxes on income and property, rather than indirect taxes on consumption.

2. Regularly assess, under Commitment 3, tax spillovers and the distributional impact of tax policy reforms. ATI donor countries should conduct tax spillover analyses to ensure that their own corporate tax rules and practices, and tax treaties, are not undermining their DRM support. ATI partner countries should conduct distributional impact assessments in order to ensure the drive for more revenue does not come at the expense of achieving the SDGs, particularly on inequality and poverty.

3. Make a collective commitment to increase tax transparency. All government ATI members should commit to transparency on data about tax collection, tax policy decisions, administrative practices, and the amount of revenue raised from each type of source. In addition, all ATI members should commit to encouraging and facilitating the engagement of accountability stakeholders, and to support the effective representation of developing countries in international policy-making forums.

Rhiannon McCluskey (ICTD), Paolo de Renzio (IBP), Nathan Coplin (Oxfam) and Ludovico Feoli (CEQ) also contributed to this piece.

For more on this topic, read our brief: What Might an Agenda for Equitable Taxation Look Like?

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Join Kaqchikel learners and speakers at all levels to practice your language skills at this bi-monthly conversation table. Hosted by expert instructor Mtro. Byron Socorec (aka Oxlajuj B’atz’), the Sept. 23 session will focus on where we come from. Bring a picture of a special place and come ready to describe your hometown.

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Join us for a live bilingual reading of their book Qué Vola, Nola?. From the vibrant jazz scenes and Spanish-colonial architecture to the food and weather, New Orleans, Louisiana, and Havana, Cuba, have much in common. And they are both home to anole lizards who love jazz! After a jazz song lures Ramito through a hotel window in Havana, he crawls into in a convenient, comfy suitcase for a nap. When he awakens, Ramito can’t quite find the way back to his tree. His new friend Bernard, an American anole lizard, unsuccessfully tries to convince Ramito that he’s in New Orleans. Is he? Readers of all ages will find the lush, tropical illustrations and the frustrated refrain of “but that is something we have in Havana” endlessly entertaining. In fact, they just might agree that the cities, and their inhabitants, share a lot! We are honored to welcome local author, Abigail Isaacoff and illustrator originally from Cuba, Ramiro Díaz for a bilingual story time at both Pebbles Center locations. Check below and make sure to join us at one of these events. Families will explore this unique story and learn to create their own craft based on the book.

Saturday September 18 at 2 pm
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Teach Central America: Exploring Garifuna Culture

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In honor of Teach Central America Week (October 4 – 10, 2021), Tulane University presents in collaboration with Vanderbilt University and the University of Georgia an educator workshop exploring the diversity of Central America. Over the course of three years, we have produced annual summer teacher institutes to enhance the teaching of Central America at the K-16 level. We are excited to continue the professional development series by providing this online panel open to K-16 educators of any subject area.

There are currently over 600,000 Garifuna around the world. Central America has the highest population; 100,000 in Honduras and 8,000 in Nicaragua, which was one of the last settlements in 1912. Guatemala has a small, isolated population which has retained much of the original culture. The United States has the second highest population, with about 100,000 residing in New York City. There are also populations in Chicago, Louisiana, and California. The number in the US increases every year as more people leave Central America. The Carib populations in Central America have almost entirely vanished, so the Garifuna are now considered the last descendants of the Amer-Indian tribes in South America.

Join us Thursday, October 7th for a discussion with three Garifuna writers/artists leading a discussion on Garifuna culture and identity through performance, writing, food and more. Join the conversation to explore new resources and perspectives to incorporate into your teaching on Central America. Participants in this program will explore Garifuna identity through the work of the three writers and cultural scholars. Janel Martinez, Saraciea Fennell and Isha Sumner. Participants will receive a copy of the up and coming WILD TONGUES CAN’T BE TAMED on a first come, first serve basis. Sign up by Friday, September 24 to guarantee your copy. REGISTER HERE

Janel Martinez is a writer and the founder of the award-winning blog, Ain’t I Latina? an online destination celebrating Afro-Latinx womanhood. The Bronx, NY native is a frequent public speaker discussing media, culture and identity, as well as diversity at conferences and events for Bloomberg, NBCU, SXSW, Harvard University and more. She’s appeared as a featured guest on national shows and outlets, such as BuzzFeed, ESSENCE, NPR and Sirius XM, and her work has appeared in Adweek, Univision Communications, Oprah Magazine, Remezcla and The New York Times. The Honduran-American has been nominated for the 20th Annual Rosoff Award in the 20-Something Category and won the Afro-Latino Festival of New York’s Digital Empowerment Award and, in 2018, was recognized at City Hall by the New York City Council, the Black, Latino and Asian Caucus and the Bronx Delegation to the NYC Council for her contributions as a woman of Garifuna descent. Her work will be included in the forthcoming YA anthology, WILD TONGUES CAN’T BE TAMED, which will be published in November 2021 by Flatiron Books.

Isha Sumner immigrated to the US at the age of 15, the foundation of her Garifuna ethnicity and culture remains central to her identity and sharing that has been a major part of her life for the past 25 years. As a professional Garifuna dancer, Isha was a member of the International Folkloric Garifuna Ballet of Honduras, which toured throughout Honduras & Europe in the early 1990s. From 1995-2000, she was a member of Wanichagu, a Garifuna dance company based in NYC, and performed at the likes of Lincoln Center and Harvard University. Isha’s passion to perform onstage transitioned to more formal acting and included a featured appearance speaking Garifuna in Law and Order: Special Victims Unit in 2007. In 2016 she completed her Associate‘€™s Degree in acting at William Esper School in Manhattan. With a continued passion to share and preserve her own Garifuna culture, Isha has dedicated much of the past 5 years to documenting Garifuna cuisine in Weiga, Let’s Eat.

Saraceia Fennell is a Brooklyn born Black, Honduran writer from the Bronx and the founder of The Bronx is Reading, and Honduran Garifuna Writers and Friends. She is also a publicist who has worked with many award-winning and New York Times bestselling authors. Fennell is board chair of Latinx in Publishing, and on the Advisory Board for People of Color in Publishing. Her forthcoming anthology WILD TONGUES CAN’T BE TAMED will be published by Flatiron Books in November 2021. For more information visit SaracieaFennell.com and follow her on social @sj_fennell.

Co-sponsored by the Center for Latin American, Caribbean and Latinx Studies at Vanderbilt University.

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Join Kaqchikel learners and speakers at all levels to practice your language skills at this bi-monthly conversation table. Hosted by expert instructor Mtro. Gonzalo Ticun (aka Sotz Aq’ab’al), the Oct. 8 session will focus on the creatures that share our homes and lives. Bring your favorite animal friend to join the discussion.

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Join Kaqchikel learners and speakers at all levels to practice your language skills at this bi-monthly conversation table. Participants in the Oct. 28 session will get the chance to read the short story “Ri töp chuqa’ ri kär”/“The Crab and the Fish” alongside its author, Mtra. Magda Sotz (aka Ixkamey).

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Kaqchikel Language Table

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Join Kaqchikel learners and speakers at all levels to practice your language skills at this bi-monthly conversation table. Nov. 12 is game day with Mtro. Edy Rene Guaján (aka Lajuj B’atz’)! Come prepared to play along and laugh.

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This event is co-sponsored by the Center for Latin American and Caribbean Studies at the University of Kansas.