{"id":1086,"date":"2025-10-02T04:02:22","date_gmt":"2025-10-02T04:02:22","guid":{"rendered":"https:\/\/www.thebrokeronline.eu\/tax-free-poverty-reduction\/"},"modified":"2025-10-02T04:02:22","modified_gmt":"2025-10-02T04:02:22","slug":"tax-free-poverty-reduction","status":"publish","type":"page","link":"https:\/\/www.thebrokeronline.eu\/blogs\/global-development-blog\/tax-free-poverty-reduction\/","title":{"rendered":"Tax Free Poverty Reduction"},"content":{"rendered":"<section class=\"content column wide left blog_post content view\" id=\"content\">\n<div class=\"edit image\">\n\t\t<img decoding=\"async\" src=\"https:\/\/www.thebrokeronline.eu\/files\/var\/broker\/storage\/images\/blogs\/global-development-blog\/tax-free-poverty-reduction\/756216-1-eng-gb\/tax-free-poverty-reduction_full_view.jpg\" alt=\"Money Talks - Do you listen? \/ Jason Mrachina via Flickr.\">\n\t<\/div>\n<article class=\"fader\">\n<header class=\"contents\">\n<div class=\"share\">\n\t\t\t<script type=\"text\/javascript\">\n    var addthis_config = {\n        ui_language = 'en'\n    }\n<\/script><\/p>\n<div class=\"addthis sharing\">\n\t<!-- AddThis Button BEGIN --><\/p>\n<div class=\"addthis_toolbox addthis_default_style addthis_32x32_style\" addthis:title=\"Tax-free poverty reduction?\">\n\t<a class=\"addthis_button_twitter\" tw:via=\"thebrokeronline\"><\/a><br \/>\n\t<a class=\"addthis_button_facebook\"><\/a><br \/>\n\t<a class=\"addthis_button_pinterest_share\"><\/a><br \/>\n\t<a class=\"addthis_button_preferred_4\"><\/a><br \/>\n\t<a class=\"addthis_button_compact\"><\/a><br \/>\n\t<a class=\"addthis_counter addthis_bubble_style\"><\/a>\n\t<\/div>\n<p>\t<script type=\"text\/javascript\">var addthis_config = data_track_addressbar;<\/script><br \/>\n\t<script type=\"text\/javascript\" src=\"https:\/\/www.thebrokeronline.eu\/files\/js\/300\/addthis_widget.js\"><\/script><br \/>\n\t<!-- AddThis Button END -->\n<\/div>\n<div class=\"addthis article_options\">\n\t\t<!-- \n\t\t\t\t\t\t\t\t\t<a href=\"https:\/\/www.thebrokeronline.eu\/mandrill\/subscription\/add\/17067\/79008\">Subscribe<\/a>\n\t\t\t\t -->\n    \t\t\t\t<\/div>\n<\/p><\/div>\n<h1>\n\t\t\t\t\t\t\tTax-free poverty reduction?<br \/>\n\t\t\t\t\t<\/h1>\n<div class=\"clear\"><\/div>\n<div class=\"pubDate\">\n\t\t<a href=\"https:\/\/www.thebrokeronline.eu\/experts-and-authors\/keijzer-niels\/\">Niels Keijzer<\/a>, <a href=\"https:\/\/www.thebrokeronline.eu\/experts-and-authors\/mahn-timo\/\">Timo Mahn<\/a>\t\t|<br \/>\n\t\t\t\t\t\t\t18 April 2025\n\t\t\t\t\t\t<\/div>\n<\/header>\n<div class=\"body contents\">\n\t<!-- body --><\/p>\n<p class=\"yunu3cvqabft7vifv\"><b><\/p>\n<p class=\"yunu3cvqabft7vifv\">Global efforts to counter tax avoidance by multinational companies call for a rethink of policies on the taxation of aid workers and development projects.<\/p>\n<p>\t\t<\/b><\/p>\n<p class=\"yunu3cvqabft7vifv\">\n<p class=\"yunu3cvqabft7vifv\">The ongoing struggle of European governments to reign in public deficits, as well as the growing evidence base on multinational tax avoidance were key among the reasons why international &nbsp;legislation on taxation was high on the agenda in 2013, and led G20 leaders to <a href=\"https:\/\/www.thebrokeronline.eu\/files\/sites\/default\/files\/g20_resources\/library\/saint_petersburg_declaration_eng.pdf\" target=\"_blank\">declare <\/a>that: &nbsp;<i>\u201cProfits should be taxed where economic activities deriving the profits are performed and where value is created\u201d.&nbsp;<\/i>Since then, the principle of local taxation has become the new mantra in global discussions on taxation, with substantial efforts by development cooperation actors such as <a href=\"https:\/\/www.thebrokeronline.eu\/files\/images\/africa-tax-and-inequality-report-feb2014.pdf\" target=\"_blank\">Christian Aid<\/a>&nbsp;and the <a href=\"https:\/\/www.thebrokeronline.eu\/files\/sites\/iob-evaluatie.nl\/files\/iob study 386 en_bw web.pdf\" target=\"_blank\">Evaluation Unit<\/a> of the Netherlands Ministry of Foreign Affairs.<\/p>\n<p class=\"yunu3cvqabft7vifv\">While international taxation policy and practice are becoming an increasingly important <i>subject<\/i> for development research and advocacy, development cooperation itself has to date not been the <i>object<\/i> of such analysis. Existing taxation practices in development cooperation in fact go against most of the recommendations for reforming international tax legislation and practices, and need to be reconsidered as part of ongoing efforts to improve aid and development effectiveness.<\/p>\n<p class=\"yunu3cvqabft7vifv\">The present situation is mostly a product of history, and a strongly outdated one. Over the decades, development cooperation has evolved from the temporary post-colonial phenomenon it once was into a permanent component of international cooperation. Crucially, its rationale has changed, too: instead of representing a gift from industrialized countries to the third world, today it is more and more motivated as an investment to promote common values and mutual benefit. Today\u2019s global development discourse also gives greater priority to \u2018domestic resource mobilization\u2019 and recognizes that developing countries\u2019 own resources are by far the most important source of development finance. The United Nations Secretary General\u2019s High Level Panel <a href=\"https:\/\/www.thebrokeronline.eu\/files\/sg\/management\/pdf\/hlp_p2015_report.pdf\" target=\"_blank\">report <\/a>on a Post-2015 framework on global development even considers it a condition <i>sine qua non<\/i> for development: \u201c<i>Only through sufficient domestic resource mobilization can countries ensure fiscal reliance and promote sustainable growth<\/i>.\u201d<\/p>\n<p class=\"yunu3cvqabft7vifv\">The OECD estimates that for many of the poorest countries in the \u2018Least Developed Countries\u2019 category, over 70% of their external finance comes in the form of Official Development Assistance (ODA). Over half of global ODA is considered \u2018country-programmable\u2019 in the sense that developing countries \u2018could have a significant say\u2019 over its use. If such a high amount of the 127 billion USD that was provided in 2012 is country-programmable, it seems inconsistent that these are not \u2018country-taxable\u2019 as their tax returns could greatly contribute to developing countries\u2019 resource base.<sup>[1]<\/sup><\/p>\n<p class=\"yunu3cvqabft7vifv\">While the international discussion calls for local taxation of multinational companies, why should we not have the same discussion on Western technical experts posted to a developing country and paying taxes at \u2018home\u2019? The same goes for the goods and materials that are procured through development interventions, as well as other transfers made in this context. Instead of this, providers of development cooperation actively seek to ensure that their development assistance is not subject to taxation, and push recipients of that assistance to exempt them from VAT, registration fees, import duties, etc.<sup>[2]<\/sup> Development agencies also argue their hands are tied because of existing international treaties against double taxation, or lack of support from their ministries of finance. Finally, because tax returns levied on development cooperation may represent a source of discretionary funding or \u2018indirect budget support\u2019 to developing countries, donors may be highly reluctant to allow this due to fiduciary or political reasons.<\/p>\n<p class=\"yunu3cvqabft7vifv\">On the receiving side things are not straightforward either. Intertwined legal, political and technical factors together explain why so little has changed over time. For one, least-developed countries frequently lack systems for effective tax collection and administration, and fiscally unsustainable policies are all too often supported by donors.<sup>[3]<\/sup> Middle-income countries principally in turn may choose to \u2018voluntarily\u2019 opt not to tax development cooperation so as to maximize access to ODA. &nbsp;<\/p>\n<p class=\"yunu3cvqabft7vifv\">Despite the obsolete current state of affairs, it would thus be na\u00efve and unrealistic to expect a wholesale move to local taxation of development cooperation. The international community could instead take a step-by-step approach and introduce local taxation in a select number of developing countries with continued aid dependence but reliable and strong public finance management systems. If donors prove unable to take such collective action, then one slightly less ambitious solution would be to <a href=\"https:\/\/www.thebrokeronline.eu\/files\/rebel\/jaargangen\/2001-2010\/2003\/tem2003-4\/06_renard.pdf\" target=\"_blank\">require OECD members to deduct income tax incurred over \u2018their\u2019 projects and advisors from their ODA reporting<\/a>. It is interesting that this idea does not get much attention at all in the ongoing discussions on modernizing the international system for reporting on development finance.<sup>[4]<\/sup><\/p>\n<p class=\"yunu3cvqabft7vifv\"><sub>[1] For more info, see the website of the OECD:&nbsp;http:\/\/www.oecd.org\/dac\/stats\/final2012oda.htm.<\/sub><\/p>\n<p class=\"yunu3cvqabft7vifv\"><sub>[2] Isma\u00efla Diallo, &#8216;Tax exemptions for aid-funded projects: reasons for change&#8217;, <i>International Centre for Tax and Development<\/i>, 14 March 2013&nbsp;(http:\/\/www.ictd.ac\/en\/tax-exemptions-aid-funded-projects-reasons-change).<\/sub><\/p>\n<p class=\"yunu3cvqabft7vifv\"><sub>[3] David Booth, &#8216;Development as a collective action problem. Addressing the real challenges of African governance&#8217; (2012) (http:\/\/www.institutions-africa.org\/filestream\/20121024-appp-synthesis-report-development-as-a-collective-action-problem).<\/sub><\/p>\n<p class=\"yunu3cvqabft7vifv\"><sub>[4] Erik Solheim, &#8216;The future of aid&#8217;, <i>The Guardian<\/i>, 14 January 2025 (<a href=\"http:\/\/www.theguardian.com\/global-development-professionals-network\/2014\/jan\/14\/official-development-assistance-reform-aid\" target=\"_blank\">http:\/\/www.theguardian.com\/global-development-professionals-network\/2014\/jan\/14\/official-development-assistance-reform-aid<\/a>).<\/sub><\/p>\n<\/p>\n<p class=\"yunu3cvqabft7vifv\">\n<p class=\"credit\">Photo credit main picture: Money Talks &#8211; Do you listen? \/ Jason Mrachina via Flickr.<\/p>\n<p>\t\t<!-- body -->\n\t<\/div>\n<\/article>\n<div class=\"clear\"><\/div>\n<section class=\"commentform content column wide left\">\n<div class=\"disqus_content\">\n\t\t\t<a name=\"comments\" id=\"comments\"><\/a><\/p>\n<div id=\"disqus_thread\"><\/div>\n<p>\t\t\t<script type=\"text\/javascript\">\n\t\t\t\t\/* * * CONFIGURATION VARIABLES: EDIT BEFORE PASTING INTO YOUR WEBPAGE * * *\/\n\t\t\t\tvar disqus_shortname = 'broker'; \/\/ required: replace example with your forum shortname\n\t\t\t\tvar disqus_identifier = '14765';\n\t\t\t\t\/* * * DON'T EDIT BELOW THIS LINE * * *\/\n\t\t\t\tfunction trackComment(comment)\n\t\t\t\t{\n\t\t\t\t\tconsole.log(comment);\n\t\t\t\t}\n\t\t\t\tfunction disqus_config() {\n\t\t\t\t\tthis.callbacks.onNewComment = [function() { \n\t\t\t\t\tconsole.log(comment);\n\t\t\t\t\t}];\n\t\t\t\t}\n\t\t\t\t(function() {\n\t\t\t\t\tvar dsq = document.createElement('script'); dsq.type = 'text\/javascript'; dsq.async = true;\n\t\t\t\t\tdsq.src = '\/\/' + disqus_shortname + 'https:\/\/www.thebrokeronline.eu\/files\/blogs\/global-development-blog\/.disqus.com\/embed.js';\n\t\t\t\t\t(document.getElementsByTagName('head')[0] || document.getElementsByTagName('body')[0]).appendChild(dsq);\n\t\t\t\t})();\n\t\t\t<\/script><br \/>\n\t\t\t<!--\n\t\t\t<noscript>Please enable JavaScript to view the <a href=\"http:\/\/disqus.com\/?ref_noscript\">comments powered by Disqus.<\/a><\/noscript>\n\t\t\t<a href=\"http:\/\/disqus.com\" class=\"dsq-brlink\">comments powered by <span class=\"logo-disqus\">Disqus<\/span><\/a>\n\t\t\t-->\n\t\t<\/div>\n<\/section>\n<\/section>\n","protected":false,"raw":""},"excerpt":{"rendered":"<p>Tax-free poverty reduction? 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