We take taxes for granted in economically developed countries. They are, as the adage goes, a fate as certain as death. But that negative association is less apparent in developing nations where millions have been living with a fate worse than high taxes: regressive and erratic taxes with little to no infrastructure for transparently managing and collecting them at all.
It’s a scenario that has occurred far too frequently in recent years in countries like Albania, Iraq, Liberia, Somalia, South Sudan and many others where war, wide displacement of refugees and large-scale destruction of property have exposed gaping holes in administrative infrastructure. As many of these countries start the process of rebuilding, the ability to accurately assess, administer and enforce domestic revenue mobilization is becoming the linchpin to developing a successful government and helping to meet sustainable development goals.
Along the way, many of these countries are deploying tax technology that is helping them leapfrog the current systems deployed by tax authorities in developed nations.
For example, the evolution of land administration and property tax in developing nations is analogous to the adoption of 3G and 4G wireless communications in those regions. Because they were unencumbered by a legacy infrastructure, the advent of functional, cost-effective wireless communications created a revolution in adoption of new technology.
Increasingly, that world stage is becoming an incredibly complicated place.
In Liberia, for example, the age-old paper documents archived to prove land ownership were quite literally destroyed over several years of civil war. Rather than rebuild the old-fashioned way, relying on sketchy recollections of boundaries marked by rocks and trees, the country has started anew with technology that lets it tie land records and boundary information to actual geo-referenced satellite locations.
Ironically, by rebuilding from scratch with the benefit of the last several years of technology, Liberia, a tiny nation of about 4.3 million people that had only 700 land ownership deeds registered on its books as of 2010, is also on its way to building a new tax infrastructure that’s on par with – if not ahead of – some of the most sophisticated countries in the world.
Increasingly, by leveraging satellite imaging, drone-based surveillance and big data analysis, developing nations are finding it easier to build new state-of-the-art tax infrastructures than to piece together the fragments of their legacy land rights and tax management systems.
This is an important step. Foremost, establishing a solid domestic revenue base rooted in land and property ownership is the foundation of a truly modern society. In Liberia, a 2008 report from the Liberia Truth and Reconciliation Commission found that land disputes in the region were one of the largest threats to national peace. It was estimated at the time that 90 percent of civil court cases and 63 percent of violent conflicts in the region were related to land disputes.
No doubt, the ability to instill a sense of stability in a developing nation is fundamental to the government taking control of a wide array of critical functions. Beyond that, however, establishing a long-term, sustainable tax base is the central building block to all future growth. Yes, the government in a war-torn region needs to act quickly to quell immediate conflicts, but it also needs to think long-term toward building a scalable tax system that does not rely only on foreign assistance and can provide a reliable source of revenue to invest back into local communities in the form of building schools, roads and hospitals, or funding important public safety services.
Only once this foundation is in place can developing economies hope to get the scale necessary to establish credit through government-backed bonds and ultimately begin to play on the global stage.
Increasingly, that world stage is becoming an incredibly complicated place. Currently, there are several global programs in development that are focused on creating consistent tax standards around the world, ranging from the Organisation for Economic Co-operation and Development (OECD’s) Base Erosion and Profit Shifting (BEPS) project to the Addis Tax Initiative. While each of these has a slightly different focus, the common bond with all of them is ensuring that tax is administered and collected in a fair and equitable way on a global basis.
Ultimately, what’s happening here is an increased globalization of tax. Countries that want to be a part of the global economy will need to be able not only to support a local tax code, but also to enforce incredibly complex global initiatives, such as those designed to close tax loopholes and shut tax havens. Capturing things like fraudulent reporting requires a very sophisticated approach to tax, one that is rooted in technology and formal processes for cataloging vast quantities of information.
In many ways, those who are rebuilding with a tax-tech focus now are in the best position to seize the opportunities that will come along with the continued globalization of the economy.
Base Erosion and Profit Shifting (BEPS) explained.
Visit the Organisation for Economic Co-operation and Development (OECD) website.
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