22 Dec 2015
Gail Hurley, specialist on Development Finance
Nergis Gülasan, specialist on Strategic Policy
Severe extreme weather events in Small Island Developing States can result in heavy relief and reconstruction costs. Photo: UNDP in Vanuatu
Over the last 15 years, developing countries have increased domestic revenues by on average 14% annually. The domestic revenues of developing economies amounted to USD 7.7 trillion in 2012; that’s USD 6 trillion more than in 2000. Domestic resources are the largest, most important and most stable source of finance for development. Can we expect these resources to keep on increasing in the coming years and mobilise them for development? This was one of the core issues discussed at the UN’s conference on Financing for Development, which took place in Addis Ababa, Ethiopia in July 2015. There, governments committed to enhancing revenue collection, making tax systems fairer, more transparent and effective, and strengthening development aid for building the capacities of tax administrations. But while there has been considerable progress, important challenges remain; in the Least Developed Countries, for instance, tax revenues amount to just 13% of GDP, on average. This is about half the level in many other developing countries. There are many diverse reasons why countries may not be able to raise more domestic resources for development. These include : corruption, weak institutional capacities, a narrow tax base and pervasive tax avoidance and evasion by wealthy individuals and multinational corporations.