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Monday, 14 December 2009

Fact sheet 'Tax and Development'

Taxes are central for the functioning of a state and for the provision of public goods. Many developing countries cannot finance their policies through taxes and rely on external revenues such as development assistance. Generally, developing countries have a lower tax-to-GDP ratio than developed countries. According to several studies examining the tax-to-GDP ratio in Sub Saharan Africa, Latin America, the Caribbean and Asia: In Sub Saharan Africa, the tax-to-GDP ratio increased from less than 15% in 1980 to more than 18% in 2005. This increase is almost entirely due to natural resource taxes (income from production sharing, royalties or corporate income tax on oil and mining companies). In the same 25 years non-resource related revenue rose by less than 1 % of GDP (Keen/Mansour). There are considerable differences among African countries such as the Central African Republic and Guinea where tax revenue is under 10% of GDP, and South Africa were it reaches 25% or even Namibia where it is 30.1% (Volkerink). In Latin America and the Caribbean the tax-to-GDP ratio has increased from 12 % in 1990 to 18.5% in 2006. The ratio is as low as 10% in Haiti and reaches more than 34% in Brazil. Mexico is the only country where the ratio decreased (from 12.6% to 11%) (Martner).

Source: European Commission