UN Urges Action to Bridge Global Tax Gap
At a pivotal G20 side event in Cape Town, UN Deputy Secretary-General Amina Mohammed emphasized the urgent need for enhanced domestic resource mobilization to address a staggering $4 trillion annual financing gap for Sustainable Development Goals (SDGs). She highlighted the critical role of robust fiscal systems in driving economic growth and reducing inequalities, while also calling for renewed political will and international cooperation to reform tax systems worldwide.
Addressing the Financing Gap for Sustainable Development
During her remarks at the G20 event titled “Domestic Resource Mobilization: Bridging the Tax Gap,” Amina Mohammed underscored the pressing challenge of financing sustainable development. She pointed out that the world is not on track to meet the SDGs, with an estimated annual financing gap of $4 trillion. This gap highlights the necessity of domestic public finance, which is vital for promoting equity and enhancing macroeconomic stability.
Mohammed stressed that effective fiscal systems, encompassing both taxation and expenditure, are essential for fostering economic growth, facilitating industrial transformation, and ensuring environmental sustainability. These systems not only generate revenue but also promote fairness, trust, and national sovereignty. However, she noted that tax-to-GDP ratios in developing countries have declined since 2010, falling significantly below those of developed nations.
Unlocking Tax Potential in Developing Nations
Despite the challenges, there is a significant untapped tax potential in many developing countries. Mohammed highlighted that numerous governments have undertaken tax reforms, demonstrating the possibility of unlocking this potential. To strengthen tax systems, she called for sustained investments in capacity development tailored to the specific needs and priorities of each country.
As economies evolve, tax systems must also adapt. The rise of the digital economy presents both opportunities and challenges for international tax frameworks, which were originally designed for traditional business models. Mohammed urged the development of future-ready tax policies that ensure fair global taxation without imposing undue burdens on taxpayers or tax authorities.
The Role of International Cooperation and Political Will
International organizations, including the UN, IMF, OECD, and World Bank, are actively supporting countries in enhancing their tax systems. Initiatives such as Tax Inspectors Without Borders and the Addis Tax Initiative facilitate collaboration, knowledge-sharing, and technical assistance. However, Mohammed pointed out that political will remains insufficient, with many countries failing to invest adequately in tax system reforms and donor nations not fulfilling their commitments to assist in revenue mobilization.
The upcoming fourth International Conference on Financing for Development in Sevilla in June presents a crucial opportunity to translate commitments into actionable reforms. Mohammed emphasized that strengthening fiscal frameworks must go hand in hand with international tax cooperation, as billions of dollars essential for education, healthcare, and infrastructure are lost annually due to tax avoidance, evasion, and illicit financial flows.
Advancing Global Tax Norms for Inclusivity
Africa alone loses approximately $88.6 billion each year to illicit financial flows, which constitutes about 3.7% of the continent’s GDP. The G20 has played a significant role in promoting tax transparency and combating tax avoidance, but more efforts are needed to ensure that all countries, especially those with limited administrative capacity, can participate in shaping global tax norms.
The ongoing negotiations for a UN Framework Convention on International Tax Cooperation represent a historic opportunity to create a fair, inclusive, and effective international tax system. Through the Pact for the Future, member states have committed to enhancing the inclusiveness and effectiveness of tax cooperation under the UN. Mohammed concluded by reiterating the UN’s commitment to building a fairer, more transparent, and effective international tax system, enabling every country to invest in its future and achieve the SDGs.
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