By Giorgia Albertin, Dan Devlin, and Boriana Yontcheva. Sub-Saharan African countries will need to implement targeted policy actions to reduce profit shifting in the mining sector and avoid losses in tax revenue.Sub-Saharan Africa is estimated to possess 30 percent of global mineral reserves, representing a major opportunity for the region. Despite the high level of private investment in this critical sector, new analysis finds that many multinational companies are avoiding paying their taxes.Targeted policy actions to reduce tax avoidance could help governments recover some of this badly needed tax revenue.To get a sense of the scale of the investment that companies are making in the region’s mining sector consider the case of Guinea. One multinational company has invested five times more in a single bauxite mine than the government has spent in total public investment since 2018.New IMF staff research shows that governments in sub-Saharan Africa—now under tremendous pressure to raise public spending in response to the pandemic—are losing between $450 and $730 million per year in corporate income tax revenues as the result of profit shifting by multinational companies in the mining sector. Targeted policy actions to reduce tax avoidance could help governments recover some of this badly needed tax revenue to aid with the recovery and meet Sustainable Development Goals.Our analysis comes amid a global effort to address tax competition and profit shifting by multinational companies, which has put unprecedented stress on the international corporate tax system. To address this, 136 countries, including 20 countries in sub-Saharan Africa, agreed last month to a minimum effective corporate tax rate of 15 percent starting in 2023.The importance of mining to economies in the region is clear. The mining sector contributes about 10 percent to GDP across 15 resource intensive sub-Saharan African countries. In most of these countries, mining exports represent 50 percent of total exports on average and is the main source of foreign direct investment.However, for the 15 resource-intensive economies in the region, revenue from mining accounts for just 2 percent of GDP on average. There are concerns that this level of revenue does not represent a “fair” sharing of the benefits.Our research found that revenues are being reduced in two ways. First, countries try to attract inbound investment by lowering taxes, which has stoked unhealthy regional tax competition. Second, international profit shifting by multinational companies has reduced the tax base in producing countries.Most countries in Africa collect revenues from the mining industry through a combination of royalties, corporate income tax, and sometimes the state taking a non-controlling ownership stake in projects where they receive dividends from corporate profits.
Washington, DC: The Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and the World Bank – enhanced its support to countries in the area of domestic resource mobilization during the COVID-19 pandemic, according to the PCT Progress Report 2021. The report, released today, highlights that the PCT Partners are committed to deepening their tax collaboration further with a revamped work program to help countries develop resilient tax systems and better fiscal policies in response to the crisis.The PCT Progress Report 2021 examines activities that the PCT has undertaken in five focus areas since July 2020: medium-term revenue strategies , COVID-19, tax and sustainable development goals , international taxation, and coordination. The new workstreams reflect the changing global tax landscape and the challenges of the pandemic for governments and policymakers as countries around the world try to balance the increased spending and lower revenues due to the COVID-19 crisis.During this period, the PCT Partners increased their support to countries through the release of joint knowledge products, technical assistance concerning tax-related responses to the crisis, and workshops on critical issues, as the report reveals. The PCT released the final versions of two toolkits on Transfer Pricing Documentation and Tax Treaty Negotiations with virtual consultations and public workshops, hosting over 1,300 participants from governments and other stakeholders. Additionally, the PCT Secretariat collaborated with the African Tax Administration Forum and the Asian Development Bank to hold three regional workshops on MTRS, which provided 53 governments from Africa, Asia and the Pacific with a platform to exchange information on how the MTRS can benefit their tax system reform in the face of the pandemic. The PCT Partners also raised awareness on the role of taxation in promoting gender equality and growth through a joint blog and a public workshop.The report illustrates that the PCT website continues to serve as a global resource on international taxation for tax officials from developing and emerging economies with its enriched content. The MTRS resource page, the e-learning calendar of the PCT Partners’ tax-related courses and the regularly updated Online Integrated Platform, which is the public database of domestic resource mobilization activities and projects of the Partners, are among the new and existing products that provide countries with capacity-building support and transparent information.Looking ahead, the PCT Partners will, in the coming months, focus on areas where coordination brings the most value by identifying new priorities and activities for their work in light of the recent developments in the global tax agenda. Further activities on the interconnection between tax and SDGs, more and improved resource pages on the PCT website and expanded engagement with countries on the P
Opening Remarks by Deputy Managing Director Antoinette M. Sayeh. Good afternoon to our viewers in Africa, good morning to those joining me in Washington, and a warm welcome wherever you are. My name is Antoinette Sayeh, and I’m a Deputy Managing Director at the International Monetary Fund. It is my pleasure to welcome you to a roundtable policy discussion on Tax Avoidance in subSaharan Africa’s Mining Sector.Africa is home to a large share of the world’s natural resources which are mostly extracted by multinational enterprises. While governments in sub-Saharan African countries need to attract foreign direct investment, it is also key that they capture a fair share of the mining of their resources to support their revenue mobilization efforts.How to harness the economic potential of the region’s natural resources to fund economic development and raise living standards is an issue that has been on the mind of many in sub-Saharan Africa for quite some time. It is even more pressing today when fiscal space to foster the recovery is lacking in many countries. At the same time, there are increasing concerns that tax competition among countries and aggressive tax optimization by multinationals result in lower revenue for SSA countries.Today’s discussion will focus in particular on the role of mining in sub-Saharan Africa, its contribution to tax revenues, how tax optimization practices could be undermining countries’ much-needed revenue mobilization efforts, and how countries in the region can ensure that multinational enterprises pay greater corporate taxes on mining profits where the mines are.It is also worth noting that international corporate taxation is a worldwide concern, which has led to significant changes recently. The Inclusive Framework member countries announced reforms to restore some balance to global taxing rights, including a move to a global minimum effective corporate tax rate of 15 percent for large multinationals with turnover exceeding 750 million Euros.A minimum tax is something the Fund has long supported. That agreement is part of the backdrop to our discussion on mining today. As far as sub-Saharan Africa is concerned, many—including African Union leaders themselves—have noted the paradox that the region’s mineral wealth exists side-by-side with pervasive poverty.A significant part of the answer is that we are seeing a pattern of international profit shifting by multinationals, driven by differentials in corporate tax rates in producing countries relative to tax rates abroad.A recently published IMF departmental paper estimated that mining profits in sub-Saharan Africa are notably more vulnerable to profit shifting relative to other sectors of the economy. The paper also estimated a sizeable fiscal cost to the region of tax avoidance in mining of between $450 and $730 million per year in lost corporate tax revenue.Many sub-Saharan African countries have tax legislation that is n
By Era Dabla-Norris, Ruud De Mooij, Andrew Hodge, and Dinar Prihardini. New global reforms will change where tech giants pay taxes in Asia and make the international tax system more robust.Digitalization—the technology that powers fintech, e-commerce, and online services—enables us to make mobile money transfers, purchase goods and services online, and interact with people across the globe. It has created some of the largest global businesses, such as online platforms and marketplaces connecting producers and consumers across the world.The agreed changes could spur more comprehensive reforms applied to all companies and to a larger share of profits.Asia alone has roughly two billion internet users, with considerable room to grow. Asia’s advanced and emerging market economies have several locally headquartered tech giants—including Alibaba, JD.com, Tencent, Rakuten—and host foreign tech giants such as Facebook. A new set of agreed global tax reforms will change where these tech giants and other global giants pay taxes.Thus far, it’s been challenging for many Asian countries to tax tech giants especially because many are not physically but rather only digitally present in a country. Existing international norms for taxing profits, which many people consider to be outdated and unfair, haven’t kept up. Collecting taxes on cross-border digital services and small parcel e-commerce deliveries is also a challenge.Some Asian countries have started to introduce digital services taxes—withholding taxes on payments for cross-border digital services or user-based turnover taxes on digital activities. These, however, may become redundant if a new global system for profit taxation is adopted.As of August 2021, the United States and most major Asian economies were among the 134 members of the Inclusive Framework led by the Organization for Economic Co-operation and Development , agreeing to allocate taxing rights on profits to countries where consumers and users are located, reflecting the digital presence. Details are still under discussion, but under the agreed global reforms, a portion of profits from multinationals with global sales above EUR20 billion will be allocated across countries in proportion to local sales and taxed under local laws.In a new IMF staff paper, we survey the digital landscape in Asia and the effect of proposals, such as that from the OECD-IF, on corporate tax revenue across Asian countries. We also outline the pros and cons of digital services taxes and estimate their revenue potential. Finally, we calculate the potential additional revenue gains from collecting value-added tax on digital services and cross-border ecommerce sales of goods.Investment hubs such as Singapore and Hong Kong SAR could lose up to 0.15 percent of GDP in corporate tax revenue because the profits currently declared in these countries by multinationals exc
Public debt ratios in Latin America and the Caribbean increased by about 10 percentage points of GDP in 2020. With debt service costs rising, countries in the region are under pressure to cut public spending and/or raise taxes, even in the face of widespread needs to respond to the pandemic.Our latest Regional Economic Outlook shows that well-crafted tax reforms can support growth while helping countries maintain fiscal sustainability. Importantly, these reforms can help reduce income inequality—an important objective in one of the most unequal regions in the world.Most LAC countries have a large tax collection gap relative to their potential, which can be explained only partially by the region’s level of development. LAC countries raise 13 percentage points of GDP less in tax revenue than the average OECD country, a gap that remains even after controlling for GDP per capita levels—which partly corrects for differences in informality, tax design and enforcement capacity. Since several LAC countries are, or are likely to become OECD members, OECD country averages are a natural benchmark.There are also important differences in how LAC countries tax.The main tax revenue source in LAC is the value-added tax . Its collection tends to be broadly aligned with the region’s level of development and is comparable to that of OECD countries , but there is still room for improvement.The share of corporate income tax revenues in the region, however, is higher than in OECD countries and above what income levels would predict. Relying largely on corporate taxes negatively affects growth by discouraging investment.Conversely, the share of personal income tax revenues in the region is low . When designed right, raising revenue through the PIT has a similar impact on growth as with the VAT and could help improve equity. More use of personal income taxes, combined with credits to incentivize labor force participation, and possibly fewer corporate taxes, could boost growth.Our analysis points to specific reforms that could help LAC countries tackle their fiscal, growth, and equity challenges.On the PIT front, there are clear design flaws in the region—low statutory rates, excessively high income thresholds, and widespread and regressive deductions . These erode the tax base and worsen income distribution.A worker in one of the five largest LAC economies —Brazil, Chile, Colombia, Mexico and Peru— would have to earn 10 times the country’s GDP per capita to pay the maximum statutory rate for personal income taxes.
Careful calibration of spending and tax policies can reduce inequality caused by automation.For many observers, automation has been responsible for both strong economic growth and rising inequality in many countries in recent decades. Automation raises productivity, but it can exacerbate inequality. This is because it replaces low-skilled workers and helps owners of capital earn bigger monopoly rents. And with the advent of next-level automation in the form of robots, the challenge is more pressing than ever.Fiscal policy instruments can reduce inequality, generally at the cost of some foregone growth in the long term.In recent IMF staff research, however, we find that the right fiscal policies—government spending and tax policies—can improve the trade-off between economic growth and inequality. But not all fiscal policies are equally effective in this regard.We studied several comprehensive fiscal policy packages to address the growth-inequality tradeoffs in the era of automation. Inequality can generally be reduced by redistributing some of the gains of automation from winners toward losers . That said, redistribution policies generally require additional taxation, which can depress investment and labor supply and may thus reduce output. We discuss the pros and cons of various policy packages and seek to define the relevant growth-inequality trade-offs for each of them.For our analysis, we captured the defining features of automation: replacing low-skilled workers and raising the productivity, profits, and thus the market power of its adopters. We link corporate market power to the degree of automation based on empirical evidence. Specifically, we assume a positive correlation between the firms’ price markup and their usage of robots , calibrating the relationship using US data. Intuitively, the higher the robots per worker, the higher the productivity, and the higher the profits. For example, large firms can take advantage of owning the platform they established and acquiring other firms in the same sector to obtain high market shares and large markups.Our research looks at the growth-inequality tradeoffs through the prism of three tax-and-redistribute packages: a tax on capital income, a tax on excess corporate profits , and a tax on robots. All packages involve an increase in a particular tax, with the proceeds used for transfers to the low-skilled workers. A fourth package directly cuts the wage tax for the unskilled workers.We found the effects and trade-offs are very different in the short term vs. the long run. In the short term, three policy packages deliver modest output-per-capita gains and a sizable reduction in inequality. However
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit , in most cases to a member country. Missions are undertaken as part of regular consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources , as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.The Czech Republic entered the pandemic on a strong economic footing and utilized its ample policy space built over time to successfully address the crisis. Swift utilization of an extensive set of fiscal, monetary, and macroprudential policies cushioned the impact of the shock and helped protect people, jobs and businesses. The labor market withstood the impact of the pandemic relatively well, but long-term pressures continue. Inflation remained marginally above the tolerance band in 2020 but increased substantially in late 2021. Macrofinancial vulnerabilities persist as house price growth has reached record highs amid significant risk-taking by households. Given the ongoing resurgence of COVID-19 cases in Europe, the recovery could be impeded by further waves of infections. Hence, commensurate with the recovery, policy support should be cautiously reduced, while ensuring policy coordination to avoid cliff effects. Support should be pivoted to rein in increasing inflation, rebuild policy space, address macrofinancial imbalances, and build forward better.Monetary policy. Amid high inflation and increasing domestic price pressures, staff supports the monetary policy stance. Going forward, in light of the current significant uncertainty, policy action should carefully weigh risks from raising rates too quickly, possibly jeopardizing the economic recovery versus those from hiking too slowly and risking inflation expectations becoming untethered.Fiscal policy. Carefully scaling back fiscal support measures in the short term is appropriate, but fiscal policy should remain flexible given the uncertain outlook, while facilitating reallocation and providing a bridge to the economy of the future.Macrofinancial. Tightening macroprudential tools in coordination with balancing tax incentives and improving housing supply are warranted to address increasing household risk-taking and restrain fast-rising property prices.Green transformation. A strategy based on enhanced carbon pricing, reinforced by broader incentives across sectors is rec
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit , in most cases to a member country. Missions are undertaken as part of regular consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources , as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.Washington, DC: An International Monetary Fund staff team led by Selim Elekdag conducted a remote mission from October 18 to November 3, 2021 in the context of the 2021 Article IV consultation with Tajikistan. At the conclusion of the mission, Mr. Elekdag issued the following statement:
New IMF analysis shows gaps in ambition and policy needed to achieve emissions curbs that contain global warming.In 1785, Robert Burns reflected on how humanity has come to dominate our planet:. “I’m truly sorry man’s dominion, has broken nature’s social union,” he wrote.The Scottish poet’s words still ring true two centuries later.Man-made climate change threatens our planet’s ecosystem and the lives and livelihoods of millions of people. From the IMF perspective, climate change presents a grave threat to macroeconomic and financial stability.Now, the window of opportunity for containing global warming to 1.5 to 2 degrees Celsius is closing rapidly.As world leaders gather in Glasgow for COP26, a new IMF Staff Climate Note shows unchanged global policies will leave 2030 carbon emissions far higher than needed to “keep 1.5 alive.” Cuts of 55 percent below baseline levels in 2030 would be urgently needed to meet that goal, and of 30 percent to meet the 2 degrees Celsius objective.To achieve these cuts, policymakers attending COP26 must address two critical gaps: in ambition and in policy.135 countries representing more than three-quarters of global greenhouse gas emissions have committed to net zero by mid-century. But we fall short in pledges for the near term. Even if current commitments for 2030 were met, this would only amount to between one- and two-thirds of the reductions needed for temperature goals.Advanced economies are expected to cut emissions more rapidly for reasons of equity and historical responsibility. They have collectively pledged to cut their emissions 43 percent below 2030 levels.At the same time, higher-income emerging market economies have together pledged a 12 percent cut, and lower-income emerging market economies, 6 percent.However, the Climate Note shows regardless of how cuts are spread across country groups, everyone has to do more.For example, getting in the range of the 2 degrees target could be achieved with emissions cuts from advanced economies, high-income emerging markets, and low-income emerging markets of 45, 30, and 20 percent, respectively. A different balance of effort with cuts of 55, 25, and 15 percent would achieve the same goal, as would a weighting of 65, 20, and 10 percent.To stay on track for 1.5 degrees, much more ambitious reductions are required for the same groups of countries. For example,70, 55, and 35 percent, or 80, 50, and 30 percent below 2030 baseline levels.The good news is abatement costs are manageable. To put global emissions within range of a 2 degrees target would cost 0.2 to 1.2 percent of GDP, with the biggest burden falling on richer countries. And in many nations, the cost of shifting away from fossil fuels may be offset by domestic environmental benefits, most notably reductions in deaths from local air pollution.
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.Jordan’s IMF-supported program remains on track, with key quantitative targets met, and continued progress on reforms. Despite high unemployment, an economic recovery is underway, with real GDP growth projected at 2 percent in 2021, and accelerating to 2.7 percent in 2022.In 2022, policies aim to support the recovery, build resilience, and protect the most vulnerable. This includes strengthening public finances through reforms to tackle tax evasion and avoidance, and improving government spending efficiency to allow more space for social and infrastructure spending.The authorities are committed to pursuing structural reforms to engender strong, durable, and inclusive growth. Continued strong development partner support in this context will be important, including to support Jordan bear the burden of hosting 1.3 million Syrian refugees.Washington, DC: An International Monetary Fund team led by S. Ali Abbas, concluded virtual discussions with the Jordanian authorities and reached a staff-level agreement on the third review of the authorities’ economic reform program supported by the Extended Fund Facility arrangement. This agreement is subject to approval by the IMF’s management and the Executive Board.At the conclusion of the discussions, Mr. Abbas issued the following statement:. “Preventive actions and a robust vaccination campaign mitigated the effects of recent COVID-19 variants through the summer. Helped by the economic reopening, a recovery, supported by targeted fiscal and monetary measures, is underway, with real GDP growth expected around 2 percent in 2021. However, significant slack remains in the economy, with unemployment persisting at high levels, particularly for youth. Weak household demand together with a delayed pass-through of higher global commodity prices to domestic markets has kept inflation subdued at 1.8 percent y-o-y as of end-September. The current account deficit is expected to increase to around 9.5 percent of GDP in 2021 due to higher fuel import prices and increased intermediate imports, but it is expected to decline to less than 5 percent in 2022. Travel receipts are gradually recovering to near pre-pandemic levels.“Despite the challenging circumstances brought on by the pandemic, sound policies have helped maintain macroeconomic stability. The government is on track to narrow its fiscal deficit by 1 percent of GDP in 2021, reflecting robust revenue collection on the back of a significant institutional effort to tackle tax evasion