Developing countries must also find creative ways to increase government revenue. Even the poorest nations today fund the large majority of essential services like health care and education. But many don’t have the expertise and resources to raise more money through broad-based and effective tax collection.
One effort backed by the U.S., the U.K., Germany and more than 30 other countries will double the technical support to poor countries, helping them increase tax collection and domestic revenues. This minimal cost could significantly strengthen the efficiency, effectiveness and transparency of tax systems in poor countries.
It can be done. Rwanda–through a combination of legislation, stronger administration and more effective taxpayer registration and compliance–increased revenues by about 50% between 2001 and 2013, the Organization for Economic Cooperation and Development found.
This is from Bill Gates, “A New Map of Poverty, a New Approach to International Aid,” Wall Street Journal, April 15, 2016.
You might think that Gates is advocating taxing only wealthier people in poor countries. But the word he uses that shows that he is advocating taxing poor people more is “broad-based.”
And to think that I used to defend this guy.
READER COMMENTS
Thomas Lee
Apr 18 2016 at 11:06am
I’d like to be a fly on the wall when they’re teaching poor leaders about better “transparency”. Will they give as an example the US income tax system, say the rules governing IRA conversion/distribution? LOL!
The Oklahoma Policy Institute define transparency as: taxpayers and leaders can easily find information about the tax system and how tax money is used. With a transparent tax system, we know who is being taxed, how much they are paying, and what is being done with the money. We also can find out who (in broad terms) pays the tax and who benefits from tax exemptions, deductions, and credits.
Sound vaguely unfamiliar?
R Richard Schweitzer
Apr 18 2016 at 11:45am
Underlying the “problems” of taxation proposals, including these, is a fundamental misconception; that is:
The mechanisms of Governments or governmental authorities, particularly of a centralized character, are assumed to be the appropriate means to the desired ends (AND, in fact for determining those ends and means).
Perhaps a re-reading of Charles Murrays’ “In Pursuit of Happiness and Good Government” (now available as an AMGI Liberty Fund Edition)would bring home this point to those concerned.
Expanding or extending governmental (particularly bureaucratic) intermediation in the relationships of a society impairs or distorts those relationships, often through the displacement of cooperation by coercion.
In a very broad sense, the purpose of taxation is to provide revenues for the functions of government. To mitigate the impacts of taxation there need be constraint on the functions of government.
Where attention is needed (the problem to be “addressed” in the lingo) is on the development of (non-governmental) facilities to meet social needs as recognized and accepted by the members of the various sectors of a society.
Those facilities can not simply be transferred, installed, or adapted from some other society (no matter how effective elsewhere).
Normative Libertarianism is framed by the impacts of the functions of governments on Liberty and thus to limit those impacts by limiting those functions.
MikeP
Apr 18 2016 at 2:12pm
I’m willing to give Bill Gates the benefit of the doubt that he’s not trying to increase revenue by increasing taxation per se, but rather to increase revenue by increasing the efficiency of taxation. He doesn’t have a lot of room in three of fourteen paragraphs to go into much detail.
The countries Gates is talking about are basket cases of corruption and tax inefficiencies. The alternative to “broad-based” taxes in these societies is “take all the revenue the government wants from above-board economic producers because that is the only place the government can find the money.” That puts great stress on anyone trying to actually produce wealth, as only corrupt producers can evade these taxes — which only increases corruption and its social tolerance.
Virtually any change to this type of tax regime is an improvement. I wouldn’t begrudge Gates’s efforts here until there actually is some transparency and efficiency.
Andrew_FL
Apr 18 2016 at 7:14pm
Gates, who thinks he can decide better than the US government-a relatively decent government by world standards-what to do with his immense fortune, apparently thinks that the governments of Africa, South America, etc-notoriously bad governments-would be better at deciding what to do with their citizens’ money. This actually makes sense, if you come at it from the perspective that you’re Bill Gates and you’re just smarter and better than everyone else.
Harold Cockerill
Apr 18 2016 at 7:22pm
So even the poor countries are taking the responsibility to “fund the large majority of essential services like health care and education” but “don’t have the expertise and resources to raise more money through broad-based and effective tax collection”. That must be because health care and education are much simpler than collecting taxes.
This needs to get fixed because governments everywhere need lots more money to do wonderful things. Please ignore Greece and Detroit and Venezuela and Puerto Rico and Brazil and Chicago and…………………….
James
Apr 18 2016 at 7:54pm
What Andrew_FL said.
When it can be shown that the net present value of current government spending in developing countries exceeds the current total cost of taxes, then and only then does it make sense to propose ideas to increase tax revenues. Until such a demonstration is offered, there is no reason to think about how developing nations might increase tax collections.
ThaomasH
Apr 18 2016 at 8:57pm
Maybe Gates is just trying to ingratiate himself with politicians who think the US needs a flat tax system that raises a lot greater portion of revenue from poor people.
HM
Apr 19 2016 at 4:52am
A well-financed, stable, government is good for countries. This is achieved well with a broad-based VAT on 15%. The alternative is tariffs, expropriation, monopoly licenses and raw material income.
In a world where schooling, health care, policing, and crucial vaccination programs are in government hands they better be well-financed. Sure, you might want the privatized, but we’re talking about the world in which we live and not the world in which you wish us to live. Broad based taxation can also further political participation and accountability and improve institutions.
It is a vice to let domestic concerns cloud your judgement about policies in poor countries. This is similar to when leftists indulge in visions for Africa which are bad economics and would never be accepted in the West where cooler heads prevail. Libertarians shouldn’t fall in the same trap.
Shane L
Apr 19 2016 at 7:21am
Am I wrong in thinking that in some developing countries there is “unofficial taxation” through various corrupt practices and links with organised crime? Moving from that unreliable and explicitly violent scenario to the predictable official taxation systems of stable developed countries could be a good thing.
In Rwanda’s case, do we expect the country to fare better or worse following its transition?
Alan Reynolds
Apr 19 2016 at 2:33pm
Development Economics when I studied it at UCLA in the 1960s commonly advocated “forced savings” through heavy taxation of the masses. The money was supposedly to be used for grandiose public infrastructure investments, state-run heavy industries, and subsidies to enterprises favored by industrial policy technocrats.
We were also taught that the ability to compel saving and curtail consumption was one reason (expert planning was another) that the Soviet system must result in faster economic growth than any economy reliant on voluntary transactions among consenting adults.
The Keynesian accounting system supported this sort of mechanical reasoning (Y=C+I+G, so cut C to raise G & I). And some varieties of this quaint thinking still appear in policy advice from the IMF and other global meddlers.
Tracy W
Apr 22 2016 at 8:31pm
When it comes to tax bases, broad and narrow are relative terms. Eg, take two tax systems. Broadinian raises taxes through an income tax that has a personal tax exemption equal to the national average income, then applies a flat tax. Narrownia has a complicated system where many taxes are on necessities like salt or charges for milling grain or on widely-purchased small luxuries like tobacco. There are a complex set of exemptions covering mainly the Church and the aristocracy.
Narrownia’s tax system could easily be more regressive than Broadinian’s. Or even more regressive than an Ultra-Broadinian where there’s just a flat consumption tax.
(Note, in constructing Narrownia I drew on my memory of reading history about pre-Revolutionary France, and Adam Smith.)
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