Why revenues matter
Public revenues and especially tax revenues can be considered as the lifeline of every modern state. They are the prerequisite for its capacity to act. The mobilization of own revenues is pivotal to ensure independent governments and policies. Public revenues are extracted through taxation, custom duties as well as fees and charges. A solid level of public revenues is necessary to implement reform strategies, fund public goods and services and to achieve policy goals. Public revenues therefore lay the ground for poverty reduction, sustainable development and financial independence from other countries. Furthermore, public revenue reforms can play an important role in terms of governance. When citizens pay taxes and duties, they become more interested in how their taxes are being used. Taxes and duties therefore help building a relationship of accountability between the state and its citizens. Thus they can be considered as the foundation for democratic development.
However, in most developing countries, public revenues consist to a considerable extent of external resources – especially international grants and loans. Own revenues, above all domestic taxes as well as taxes on international trade, are low compared to developed countries and do not cover public expenditure needs. Further, developing countries often have fewer options to generate income of their own. Many economies suffer of low income, low levels of regular wage earning employees, unequal distribution of income and wealth, cash or barter based trade and high levels of informality. Moreover, due to economic integration processes developing countries are urged to reduce custom duties – often a corner stone of developing countries’ revenue structure. In addition tax fraud and tax evasion fuel the erosion of public revenues.
What it takes
A good public revenue system enables governments to raise sufficient resources to fund government expenditure without an unhealthy increase in public debt. At the same time the system should avoid distorting economic activity and should not diverge strongly from other systems. Tax policy should be based on the principles of fairness, effectiveness and sustainability. GIZ supports reforms of public revenue systems within the broader approach of Good Financial Governance (GFG). With GFG German Development Cooperation refers to state actions in the area of public finances that are transparent, legitimate and oriented towards development. GFG implies efficient and accountable state institutions and revenues authorities, which operate under the rule of law. For public revenues, GFG means that tax policy should be based on the principles of fairness, effectiveness and sustainability.
What GIZ offers
GIZ provides services on revenue policies and tax/customs administrations. Main areas of support are:
- Development of tax policy strategy;
- Legal advice (e.g. reform of procedural law, adoption of international standards);
- Modernization of tax administration by introducing rule-based systems, modern human resource management and improved incentive systems for a citizen-oriented service delivery
- Improvement of tax administration through concentration on important tax sources and improvement of technical systems;
- Automation of procedures in tax administration and of communication with taxpayers in order to prevent corruption;
- Development of modern education and training concepts in revenue administrations;
- Standardization of processes, identification of cost-saving potentials and definition of quality indicators for benchmarking in tax administration;
- Coordination of tax and customs reforms in the political and administrative sphere;
- Public relations to improve tax compliance of citizens;
- Harmonization of VAT and customs policy and law to EU Standard.