Chapter 4 | Page 145
introducing single-rate flat taxes.17 These changes have made the collection
of taxes more efficient, although the results have been mixed.18
Corporate tax is another important tool that can be better utilised by developing
States. Despite the potential of corporate taxes as a source of public sector
revenue,19 many developing countries perform poorly in collecting adequate
revenue from corporate taxes.20 The power and influence of corporations,
various forms of corporate tax incentives and institutional weaknesses in
enforcing tax compliance are the likely causes.
It is argued that the use of tax incentives for domestic and multinational
corporations as a policy measure to attract investment has the effect of
reducing overall tax revenue as a percentage of economic production,21 with
very little real effect in increasing the overall level of investment. Therefore it
is an unnecessary loss of revenue. Yet many countries are reluctant to reform
or increase tax rates to avoid losing investment.22 A common justification for
reducing corporate tax rates is that it stimulates the economy and leads to
further investment, but many reject this proposition, arguing that the evidence
does not support it and that such tax cuts do not produce the expected
benefits.23 At the same time, the increasing scope and complexity of
17
An analysis of the pros and cons of a flat tax system is given by The Economist,
Simplifying tax systems: The case for flat taxes The Economist
<http://www.economist.com/node/3860731>.
18
Deborah Itriago, Owning Development: Taxation to fight poverty (Oxfam, London, 2011),
24; Michael Busler, 'Income tax policy: is a single rate tax optimum for long-term economic
growth?' (2013) 9(4) World Journal of Entrepreneurship, Management and Sustainable
Development 246-254.
19
International Monetary Fund, above n 14.
20
See for example, Giulia Mascagni, Mick Moore and Rhiannon Mccluskey, Tax Revenue
Mobilistation in Developing Countries: Issues and Challenges (European Parliament,
2014), <http://www.europarl.europa.eu/RegData/etudes/etudes/join/2014/433849/EXPODEVE_ET%282014%29433849_EN.pdf>.
21
Enrique Delamonica and Santosh Mehrotra, 'How Can the Financing of Social Services Be
Made Pro-Poor?' in Katja Hujo and Shea McClanahan (eds), Financing Social Policy:
Mobilizing Resources for Social Development (Palgrave Macmillan, London, 2009) 89,
101.
22
Ibid.
23
Institute on Taxation and Economic Policy, '"High Rate" Income Tax States Are
Outperforming No-Tax States: Don't be fooled by Junk Economics' (Policy Brief, ITEP),
<http://www.itep.org/pdf/junkeconomics.pdf>; Ignacio Saiz, 'Resourcing Rights: Combating
Tax Injustice from a Human Rights Perspective' in Aoife Nolan, Rory O'Connell and Colin
Select target paragraph3
Connect to a paragraph
Connect to an entity
Disable highlights
Add to table of contents