IMF Sets Out on International Tax Project

December 20, 2010 International Tax Cooperation

IMFC_1The International Monetary Fund will soon launch a new project designed to greatly improve and overhaul the tax systems of selected low-wealth nations and decrease developing countries’ dependency on international financial aid.

Over the weekend the International Monetary Fund (IMF) held a pledging ceremony for an upcoming program aimed at providing fiscal and technical assistance for low income countries looking to improve national tax systems and administration. Explaining the need for such an initiative IMF Deputy Managing Director Murilo Portugal stated, “…robust tax administrations are essential if low- and lower-middle-income countries are to decrease their dependence on aid and create the fiscal space, over time, to finance their development needs.”

The new program will launch in May 2011, and will be financed by a fund worth USD 30 million. The governments of Germany, Switzerland, Belgium, Luxembourg and the Netherlands have already agreed to be the primary contributors to the fund, making up nearly 50 percent of the currently pledged donations. The European Commission and Norway have also expressed interest in providing sizable deposits to the fund.

The program will concentrate primarily on tax administration assistance for low wealth nations which possess abundant natural resources. At the pledging ceremony Jerome Duperrut, attending representative for the Swiss State Secretariat for Economic Affairs, explained that the IMF is perfectly placed to deliver large-scale technical assistance to countries, in an effort to assist the mobilization of domestic resources and ensuring sustainable tax revenues for the future. According to the IMF, the fund will also be used to finance new research projects in the area of taxation assistance and revenue collection efficiency for low income and developing countries.

It is expected that the fund will operate by offering a series of modules, each addressing a separate area of tax system weaknesses. Currently the IMF has revealed that they will initially attempt to address the issues of “low revenue-collection rates, including weak and fragmented administrative structures, poorly designed operational processes, and unclear accountability.” It has also been stated that the fund could be used for programs designed to downplay, or eradicate, the effects of underground economies or missed tax revenues due to illicit activities. The IMF has not yet publicized the countries which will receive assistance from the fund.

Photo by International Monetary Fund