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functional lines. Risk management needs to replace a system based upon trying to control and audit the vast majority of taxpayers. A balance between enforcement and taxpayer service must be achieved. New technologies will have a role to play in modernizing the tax administration but can never, by themselves, provide a substitute for a well-designed administration. Support is needed in administration and international tax areas such as transfer pricing, and here working with key regional initiatives such as ATAF helps to put control over the developmental agenda firmly in the hands of developing countries themselves.

Phase-in trade liberalization: Before removing tariffs on cross-border trade, governments need to ensure that alternative sources of revenue are already in place. This suggests that as the process of liberalization continues, there needs to be a phase-in period since all the sources of revenue which could replace tariffs – personal or corporate incomes taxes; sales or VAT; taxes on moveable or immoveable property – are far more complex to administer than tariffs.

Broaden the tax base: Developing countries need to explore how the tax base can be broadened and how people in the informal sector can be brought within the tax base. This may require reviewing the taxation of land and buildings; exploring new ways to tax households; re-examining the tax treatment of small and medium-sized enterprises, as well as exemptions in the provision of aid funded goods and services; or introducing simple environmental taxes. It may also require moving towards a heavier reliance on fees and charges.

Raise awareness in the donor community: to ensure tax administrations and related revenue and customs institutions in the poorest countries receive adequate support. Currently, these issues attract less than 0.1% of Official Development Assistance. Donors could increase that amount and see aid as a way to kick-start the move towards sustainable tax systems. Such assistance should be seen as an investment in the future of developing

countries.

In this regard, we acknowledge the need to further promote international cooperation in tax matters, and request the Economic and Social Council to examine the strengthening of institutional arrangements, including the United Nations Committee of Experts on International Cooperation in Tax Matters.

However,

namely

Mobilizing own domestic resources via taxation provides a sustainable alternative to these external revenue sources. Moreover, establishing a broad-based system of taxation can contribute to good financial governance practices: On the one hand, governments that depend on tax revenues are obliged to tailor policies to the demands of their taxpayers. On the other hand, citizens start to demand services in return to the taxes paid, as well as transparency and accountability with regard to the way revenue is raised and spent.

However, revenues resulting from domestic taxation still account for a relatively low share in total revenues in most developing countries. Moreover, the ratio of tax revenue to GDP is much smaller compared to industrialized countries, revealing the high potential of additional resource mobilization. This “tax revenue gap” is due to a variety of factors such as insufficient capacities of tax administrations or deficiencies in the area of tax policy