The International Monetary Fund has said that Nigeria and other emerging markets and developing economies need $3tn annually through 2030 to finance their development goals and the climate transition.
The global lender stated this in a new report titled “Countries Can Tap Tax Potential to Finance Development Goals”.
The IMF, in the report, said that its new research found that many countries had the potential to increase their tax-to-GDP ratios—enabling them to provide critical government services—by as much as 9 percentage points through better tax design and stronger public institutions.
The report noted that making use of that potential would also contribute to financial development and private sector entrepreneurship.
It added that easier financing, together with efficient and well-targeted spending, including strengthening social safety nets, would go a long way toward delivering sustainable development.
According to the report, the average tax-to-GDP ratio in emerging market and developing economies had increased by about 3.5 per cent points to 5 per cent since the early 1990s, driven primarily by taxes on consumption, such as value-added and excise taxes.
The report read partly: “Emerging markets and developing economies need $3tn annually through 2030 to finance their development goals and the climate transition. That amounts to about 7 per cent of these countries’ combined 2022 gross domestic product and poses a formidable challenge, particularly for low-income countries.
“Countries have considerable room to collect more revenue based on their tax potential—the maximum a country can collect given its economic structure and institutions. We find that low-income countries could raise their tax-to-GDP ratio by as much as 6.7 percentage points on average.”
The Washington-based lender further noted that improving public institutions, including reducing corruption, to the level of those in emerging market economies would result in an additional 2.3-point increase.
It also said that emerging market economies could raise their tax-to-GDP ratio by 5 percentage points on average while improving their institutions to the average of advanced economies could raise an additional 2 to 3 points.
“Some policy makers hope for additional revenue from the ongoing international collaboration on taxing profits of large multinational corporations. The direct revenue impact of this initiative is likely to represent only a tiny fraction of the overall revenue needs.
“To build tax capacity, governments will need to take a holistic and institution-based approach that focuses on leveraging core domestic tax policies,” the report further stated.
