It’s Global Tax Season: What Role For Citizens?

JANUARY 31, 2018 • GLOBAL ADVOCACY

Written by Andrew Wainer, Director of Policy Research at Save the Children

Even as domestic tax reform is in the political limelight, there is growing attention to taxation in the developing world and the role of citizens in shaping tax policy.

This month Save the Children launched an initiative supporting citizen action in Kenya on domestic resource mobilization (DRM) – as taxation is referred to in the development community. The project is directed at the Kenyan national and county-level tax systems.

Working with local citizens, Save the Children is advocating for fair and transparent tax collection with the ultimate aim of supporting the Kenyan government’s ability to finance basic services for its most vulnerable communities.

DRM assistance typically comes in the form of technical support and capacity building provided by bilateral and multilateral donors directly to developing country revenue authorities or ministries of finance. This assistance, which often involves upgrading information technology and increasing tax officials’ professional competency, is critical.

But citizen engagement in DRM is also crucial to ensuring that tax policy is fair and reflects the popular will, not just the aims of special interests. Integrating the voices of regular citizens into DRM discussions strengthens citizens’ relationship with their government. Paying and spending tax resources is at the heart of the relationship between citizens and the state.

And engaging local citizens in DRM isn’t just good for transparency, it can also result in more effective DRM assistance, because taxation is inherently political.

As the World Bank states, “Even after the formal tax structure and tax administration are reformed, levels of tax collection can remain unchanged unless there is sustained political will….The political dimension is therefore of paramount importance in any kind of tax and revenue reform.”

While DRM is the most sustainable way to finance the Sustainable Development Goals, it must address both the administrative and the policy shortcomings that undermine the fairness of national and local tax systems. To address equity and fairness, DRM assistance should be inclusive of a range of citizen voices – not just technocratic experts – so that the concerns of vulnerable and marginalized groups are integrated into tax policy.

Supporting Citizen Engagement in DRM

In order to support citizen voices in developing world tax reform, we need better data on the quantity and quality of donor DRM assistance.

To this end, the OECD, through its Creditor Reporting System (CRS) foreign assistance database, created a sub-code for DRM assistance to measure its disbursement by bilateral and multilateral donors. This is a big step forward for measuring DRM assistance, and while the data includes significant limitations, it is now possible to ascertain the contours of donor DRM assistance to the developing world, including assistance that supports greater engagement of local citizens in tax conversations.

But in spite of the new data, the extent to which donors support DRM through empowering local citizen voices has not been extensively analyzed. Using the new DRM sub-code, we can begin to measure donors’ support for local citizens as a percentage of their overall DRM support.

The CRS includes a “channel” variable describing how foreign assistance is disseminated. Using the channel variable, it is possible to disaggregate donor DRM funding by using the “NGO and civil society” channel as a – useful, but imprecise – proxy for DRM assistance to local citizens. For the sake of context, the channel variable includes the following eight options for how donors channel foreign assistance to developing nations:

• Public sector
• NGO and civil society
• Public private partnership
• Multilateral organizations
• Teaching institutions
• Private sector institutions
• Other
• Not reported

Lack of Donor Emphasis on DRM Citizen Engagement

Overall, direct support to citizens within the DRM sub-code is quite low compared to other development sectors. In 2015, of the total $191 million in DRM assistance provided by all donors and reported through the CRS, only 3% ($6 million) was channeled to local civil society or NGOs. 

Contrast this with the level of direct support to citizens for all sectors: In 2015, 12% ($21 billion of the total $174 billion) of all foreign assistance was disbursed to local civil society or NGOs – four times greater than the percentage for DRM assistance alone.

US DRM Assistance

The United States was the second largest bilateral DRM donor overall in 2015 with $37 million in disbursements, but like the sector overall, the data indicates that the US could improve in terms of balancing its DRM portfolio with increased citizen engagement activities.

In 2015 the OECD did not record the United States providing any DRM assistance directly to local citizens or NGOs. This statistic is incomplete due to imprecise OECD capture of US DRM projects.  A more detailed investigation of the US DRM portfolio indicates that it has multiple project components dedicated to citizen engagement that do not appear in the OECD data. These projects include:

• Work with local civil society in Uganda to educate citizens about the importance of local taxation,
• Support for civic oversight and participation in municipal budgeting in Haiti, and
• Funding of local civil society organizations to ensure transparency in the use of revenues from extractive operations the in the Philippines

Still, it’s clear that there is room for improvement. USAID Administrator Mark Green has emphasized the importance of US assistance for DRM to help nations finance their own development needs. But to ensure that DRM is inclusive and accountable – and sustainable – the US government and other bilateral and multilateral donors should do more to ensure that DRM assistance supports local citizens’ ability to join tax discussions and advocate for fair and equitable revenue collection.