Current geopolitical landscape heightens trade uncertainty and fiscal pressures.
International tax collaboration is more critical than ever before given the current geopolitical landscape that is marked by trade uncertainty, stagnating investments and mounting fiscal pressures.
The central theme of this year’s Organisation for Economic Co-operation and Development (OECD) Forum on Tax Administration (FTA) Plenary in Cape Town is the protection of tax bases and the fostering of global and domestic economic growth given the geopolitical environment.
Manal Corwin, the OECD’s Centre for Tax Policy and Administration director, said at the opening of the 18th plenary that tax administrations are at the heart of the social contract between governments and taxpayers.
“They play a crucial role in implementing governments’ physical policies, they act as the primary interphase for taxpayers with their government, and they collect the vast majority of tax revenue.”
ALSO READ: OECD tax deal in turmoil as Trump draws battle lines
Persisting tax gaps
Tackling persisting tax gaps and lightening tax burdens highlight the core role of tax administrations in delivering revenues, but also in ensuring fairness and reducing compliance burdens, Corwin notes.
The FTA was established in 2002 and serves as a platform for collaboration, sharing of best practices, and addressing global challenges in tax administration.
During the week-long deliberations in Cape Town, more than 50 tax commissioners and senior officials from around the world will tackle these growing tax gaps while reducing tax burdens.
The integration of the role of tax administrations with tax policymakers is a major challenge in the year ahead that will require some “doubling down”, says outgoing FTA chair Bob Hamilton.
During his opening address, Hamilton said things go wrong when policymakers design policies that are not administrable, and administrators come up with ideas that are unworkable from a policy perspective.
He said there are sufficient examples of this happening domestically and internationally.
“We need to work on integrating the role of tax administrations with that of tax policymakers. We are doing a better job of trying to get ourselves inserted into the process earlier on. This is not to dominate but to ensure that administrative issues that we identify are thought of as policies are [being] developed.”
ALSO READ: Structural reform is silver bullet needed for SA economy to grow – OECD
Falling short
Deputy finance minister and keynote speaker Ashor Sarupen said even the best-designed tax policies will fall short without empowered, modern and well-resourced tax administrations.
“The alignment between policy intent and administrative execution is fundamental to nurturing trust and to drive voluntary compliance and upholding the social contract democratic societies rely on.”
Sarupen added that although global progress is evident, disparities persist.
He quoted OECD revenue statistics that show the average tax-to-GDP ratio among OECD countries was 33.9% in 2023.
In contrast, the 2024 African Tax Outlook reflects an average tax-to-GDP ratio of 15.1% across 39 African countries.
“This stark difference highlights the scale of the challenge faced by developing countries – and underscores why domestic revenue mobilisation remains a central priority of South Africa’s G20 Presidency.”
ALSO READ: SA has one of highest personal income tax rates in the world
Key objectives
Hamilton says significant progress has been made with key FTA objectives over the past year, including digital transformation. A pilot framework for the use and governance of artificial intelligence (AI) has been created.
AI is an important too, but tax administrators must be thoughtful about it. It requires proper governance to ensure that tax administrations are not simply rushing in and making “critical mistakes”, he adds.
On the international front the introduction of a global minimum tax continues to pose various challenges. “We continue to work hard on several fronts,” says Hamilton.
One issue is the risk of protracted tax disputes between countries.
Finding the right balance between the sovereignty of countries and the introduction of global standards will always present some tension.
Work done in this regard includes the introduction of the mutual agreement procedure (Map) to resolve international tax disputes in a double tax agreement (DTA). Currently there are around 500 treaties that allow for Map provisions. According to Hamilton the use of Map has resulted in an increasingly number of cases being resolved in less than 24 months.
This article was republished from Moneyweb. Read the original here.
