5. The tax consensus: How have tax-policy recommendations impacted developing countries?
Some would argue that taxation without representation still occurs today, as global tax rules are developed without input from impoverished countries, making them by definition unrepresentative. Rather than being accountable to their citizens, many southern governments are in fact more accountable to donors & international financial institutions (IFIs) that provide them with aid & debt, especially as many southern country governments depend on aid & debt for a high percentage of their revenue. Donors & IFIs can impose conditionalities with their aid (called ‘tied aid’) or conditions with debt (i.e. loans). The policies demanded by these conditions can actually make it more difficult for the government to raise revenue via tax.
The ‘tax consensus’ refers to this general set of principles which multilateral donors in particular have adhered to in their tax-policy recommendations to developing countries. Christian Aid examined the role of the IMF in promoting particular tax policies in 18 Sub-Saharan countries to find patterns in their recommendations, & found that the IMF tries to impose a ‘one-size-fits-all’ tax policy on countries, regardless of their specific situation. For example, a key element of the tax consensus has been the focus on indirect taxes – in particular a shift toward a Value Added Tax, which is a regressive tax as it is applied equally to everyone regardless of their income, & as aforementioned, can disproportionately impact on women & girls.
Debt was used as a vehicle for this conditionality throughout the Debt Crisis in the 1980s & 1990s in the Global South. This debt crisis led to more loans towards the Global South from IFIs such as the World Bank & IMF [See FreshUp article on Debt]. The conditionality required to access loans included minimising the taxation of foreign investors However prior to this, taxing foreign investors was an important lever for increasing government revenue.
A study exploring IMF recommendations for 18 Sub-Saharan countries between 1992 & 2008 found that one of the most heavily recommended tax changes was to introduce VAT. The use of ‘sin’ taxes has proved popular in the tax consensus. However, this strategy can have negative impacts on both poor consumers & producers. An example is in India, where regressive kerosene & paraffin taxes targeted poor Indians.
