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G20 Reforms Could Help Boost Revenue Collection in Developing World
By William Eagle
Washington
22 September 2009
In poor nations, collecting taxes can be tough in the best of times.
Economists say in African, and other, developing countries up to $800 billion is lost each year to tax evasion, money that could go toward development, but instead makes Africa to borrow money from the rest of the world.

Tightening loopholes
Analysts say some multinational companies avoid paying high taxes by using what financial experts call transfer pricing - improperly declaring high income and expenses in the low-tax countries they operate in, while underdeclaring their levels of income and expenses in high-tax countries.
Henri-Bernard Solignac-Lecomte, a senior economist at the Organization for Economic Cooperation and Development (OECD), says regulation of both transfer pricing and tax havens is important.
"African governments often do not have the power to negotiate with multinationals whose turnover is sometimes a multiple of their own [gross national product] – terms and conditions that would make those companies fair contributors to the economies in which they are operating," he says. "So far, these are issues mainly discussed by representatives of richer countries who all want to make sure they get their fair share of taxation from multinationals [on their territory]. But Africans have been absent in this debate and need to be brought in. "
The global financial crisis has made things even more difficult. Slumping economies mean fewer goods and services for governments to tax.
Room for improvement
At this week's meeting of the G20 in Pittsburgh leaders may discuss ways to enhance revenues, and improve budgets for improving social programs.
The group has promised to crack down on tax havens. The Washington Post newspaper, citing sources close to the G20, says the group is considering imposing sanctions on Uruguay and Panama if they continue to shield tax dodgers.
Some economists have suggested the group consider a tax on international currency transactions to help developing nations build social safety nets. Solignac-Lecomte says, however, that there’s no consensus on the issue: Europeans often favor international taxes, while the U.S. opposes them.
In the long run, he says the G8 has given a clear mandate to the OECD to help African countries find solutions to tax collection issues.
He says the Paris-based organization is helping African countries identify alternatives, including taxes on some urban properties. It’s also helping a number of countries and institutions set up an African Tax Administration Forum to be launched in Kampala, Uganda, in November.
"They would first [agree on a set of] principles," he explains, "and [assess] how much they lose from tax evasion. So they’d be joining forces [to maximize savings reserves and reduce dependence on foreign aid]. They would set up capacity building programs to help administrations become more effective at negotiating and implementing tax policies, including toward foreign economic agents [companies], " says Solignac-Lecomte.
Coordinating finance
The G20 is also likely to discuss another issue that may affect taxation – the need for all countries to adhere to the same accounting practices.

"There is a patchwork of accounting practices," explains John Kirton, Director of the G20 Research Group, based at the Univer