From tax collectors to state-builders
*Tax administrators urged to change attitudesNovember 6, 2011, 7:43 pm
Top international taxation experts has urged Sri Lankan tax administrators to change their attitudes to the role they play in the economy because the idea that collecting taxes is really a state-building exercise is gaining momentum and global acceptance. Sri Lankan tax collectors were urged to engage the media as a means of communicating with the public and even critically questioning the state as to how tax rupees were being spent.
The Institute of Policy Studies organised a two day international conference on taxation and development which brought together top international experts on the subject. The conference theme was, ‘Pulling Ourselves Up: taxation, State-building, and Away from Aid’.
Mick Moore, Chair/CEO, International Centre for Tax and Development, Institute of Development Studies of the University of Sussex UK highlighted the growing importance of taxation as means of state-building. Apart from its functions of redistributing income, thereby minimising inequality, tax administration is also being seen as an integral unit in the fight against crime and an efficient tax system would also attract more investments.
"I am speaking to the officers of the Inland Revenue Department, the others can listen or wander off," Moore told the conference.
"You are the most under appreciated of all public servants. I am not a stranger here. I have spent a lot of time in Sri Lanka over the last 40 years. This is my second home but do not look at your records, I do not have property here."
Moore spoke of changing perceptions, development and trends in tax administration in Africa, the OECD and Sri Lanka.
"The African Tax Administrators’ Forum (ATAF) was formed about three years ago. It is a great success story today and it created a great deal of enthusiasm when it was formed. Why was this? Why was taxation taken very seriously?
In Africa, as in Sri Lanka, an era of development aid is ending, and this is not actually bad thing, because aid is the most unstable source to finance development and it becomes very difficult to run governments with aid.
"Enormous development had taken place in the mining industry across Africa. Multinational companies were drawing the rich resources but paying trivial taxes to the exchequer while making trillions of dollars in profits, and this irritated many people.
"Since end of the of Apartheid, South Africa made great strides in collecting revenue, driven in part by credible communication with the people and this was an inspiration to the rest of the continent which resulted in AFTA being formed comprising unified and semi-autonomous tax administrations.
"It was realised that taxation was not just about collecting taxes. It was all about state building," Moore said.
Turning to the developed economies of the OECD, Moore said the African enthusiasm with taxation was now true with the OECD as well where massive fiscal problems, loss of revenue, bailouts and recessions have resulted in huge deficits.
"International tax evasion was massive worldwide, but the OECD was not interested. But now, the OECD is looking for more cooperation to counter tax evasion and real interest has taken off. The debate has changed for the need of more revenue. Civil society groups in these countries are campaigning against both international and national tax evasion.
"They realise that they cannot shut down tax havens, but OECD realises that they can control them. Improved reporting of MNCs and the exchange of tax information are all in the agenda now, and the changes taking place are putting the OECD beyond recognition (from its previous stance of tax evasion)."
The US is loosely perceived to be a capitalist economy where taxation is often a bad word.
Moore said the anti-tax policy of many US governments was also beginning to see a change.
"In the USA something very interesting is taking place. Governments have always been very anti tax. Warren Buffet had once asked ‘why am I not paying more taxes than my office assistant’. There is now an organisation of very wealthy people in the US who are saying ‘please take are taxes’ while expressing concerns about global (inequality) trends. The collection of tax revenue has tremendous implications for social stability, fairness and equality. The OECD too takes it very seriously and there is resentment towards wealthy people who do not pay taxes," Moore said.
For Sri Lanka, the idea that collecting taxes was actually ‘state-building’ would be key to future equitable development prospects of the country.
"Sri Lanka has something of a world record. During a period of war the country has been able to sustain a period of growth. But tax revenues have been going down. Fiscal data over a 20 year period has shown that the proportion of tax revenue spent on salaries has increased and increased and increased. The government is employing a lot of people but they have very little tools to do anything.
"At one time Sri Lanka was leading on education and health indicators. Now, Sri Lankan figures are shocking. The country is the lowest spender in education (as a percentage of GDP) even lower than Bangladesh and Nepal (as a percentage of GDP). This bears down on the quality of the labour force and prospects for economic growth become poor," Moore said.
Inequality can be addressed through vibrant tax revenues.
"There is a complicated nexus between terrorism, crime and drug trafficking. Tax administration is a part of the solution, and it has a security dimension for the state. Taxation also has a growth dimension, if it is too complicated it is not conducive to investment and growth," Moore said.
He concluded by asking Sri Lanka’s tax administrators to change the way they perceived their roles in the economy. "From being tax collectors to state builders is not a bad way of looking at your job," Moore said.