If revenue reforms are to be successful and achieve their targets, policymakers will need to focus their tax policy on key priorities. In the oil-exporting countries, this means diversifying the sources of revenue away from oil and gas, said Christine Lagarde, IMF Managing Director speaking at the Second Arab Fiscal Forum in Dubai.

As a first step, countries are introducing a value added tax (VAT) and other consumption taxes — for example on tobacco and sugar-sweetened beverages. Over time, governments may also consider deriving additional revenue from income and property taxation.

Countries in the Gulf are working to introduce a harmonised VAT in 2018. These efforts — which the IMF has supported through is technical assistance — could raise anywhere from 1 to 2 per cent of GDP, assuming a VAT rate of 5 per cent.

“Our experiences in other regions underscore the positive impact of diversification. Mexico, for example, was able to boost its non-oil tax revenue by more than 3 percent of GDP—by broadening the VAT base and raising energy taxes and personal income tax rates,” said Lagarde.

In the oil-importing countries the key priority is to generate higher revenue by broadening the base of existing taxes. Such reforms would make tax systems simpler, more efficient, and more equitable

This requires rationalising multiple VAT rates and other tax preferences. Some of the key measures here include simplifying the rate structure and getting rid of exemptions, tax holidays and other carve-outs that benefit only a few and create opportunities for arbitrage.

Egypt, for example, last year approved the replacement of the old general sale tax with a new VAT. Once fully implemented, the new VAT will raise 1.5 per cent of GDP more in revenue than the old tax.

Other good examples are Jordan and Lebanon, where a well-designed and well-administered VAT has allowed for other growth-friendly measures, such as lowering customs tariffs and reducing income tax on labor and capital.

In some countries, tax reform also means making tax systems more progressive — by lifting the top marginal tax rate on personal income. And of course, current tax rules should be applied in a consistent and coherent way.

Transparency

More broadly, fiscal transparency and the sharing of reliable data are essential for the well-being of all countries. Because they increase the accountability of governments and because they can boost the resilience of their economies — and that includes lower borrowing costs.

New IMF staff research shows that greater data transparency — promoted through the IMF data standard initiatives — leads to a 15 per cent reduction in the spreads on emerging market sovereign bonds — three months after the improvements are made.

Of course, better data gathering and sharing help policymakers to design reform strategies and implement them effectively.

Revenue reforms

The IMF chief called for interlinking tax policy reform with revenue administration reform.

“This coordinated, simultaneous effort can help countries avoid some of the time-consuming troubles of the past. Traditionally, policymakers would often start with new tax policies and worry about administrative capacity later. By interlinking the two elements right away, countries can “leapfrog” to a more advanced development stage,” said Lagarde.

“This can be achieved by boosting the capacity of tax administration early in the reform process. This is essential to ensure both efficiency and compliance. Based on our experiences in other countries, we see two main priorities.

One is to simplify codes and regulations. This involves not only the laws on tax rates, but also the procedural laws establishing the powers of tax agencies and the rights of taxpayers.

“The second priority is to upgrade peoples’ skills and technical resources to improve tax compliance and enhance services to taxpayers. This is where your countries can take advantage of technological innovations—to ‘leapfrog’ into the digital age. Modernising the IT infrastructure — as we see in Saudi Arabia and elsewhere —a llows for easier filing and payment by taxpayers, including through mobile technology. It also improves the ability to verify compliance using third-party data.

“To achieve a more sustainable and more inclusive economy, the region’s efforts to build tax capacity are vital to achieving that goal. Your economies and societies will reap the benefits of reform”, Lagarde said

“This means — above all — forging a comprehensive strategy that interlinks tax policy reform and administration reform to generate higher and more reliable revenue. That will make public finances more resilient and build economies that work of all citizens — here in this region and across the world.”

Global growth to pick pace this year and next: IMF

After many years of feeble growth, the IMF is expecting global economic activity to pick up this year and next, and across both the advanced and emerging economies, said Christine Lagarde, IMF Managing Director speaking at the Second Arab Fiscal Forum in Dubai.

The IMF has projected 3.4 per cent growth for the global economy this year and 3.6 per cent for 2018.

However, this does not mean we are out of the woods: conflicts and lower oil prices will continue to affect growth and, by extension, also government revenue. “While oil prices have increased recently, we do not expect them to return to levels we have seen before 2014. And there are, of course, questions about geopolitical developments in many regions of the world,” said Lagarde

source : gulfnews