4.3.6. Provide Governments with Advisory Support for Tax Policies and Collection Systems
DESCRIPTION
Tax policy and collection is essential for adequate financial market oversight, and also helps lower interest rates. Also known as ‘domestic resource mobilization’ (DRM), it is the process through which countries raise and spend their own funds to provide for their people – i.e. the long-term path to sustainable development finance. DRM not only provides governments with the funds needed to alleviate poverty and deliver public services, but is also a critical step on the path out of aid dependence. USAID is well-versed in providing advisory support to federal and local governments in developing a system for tax collection.
CONSTRAINTS ADDRESSED
- Exchange rate risk
- Interest rate risk
- Potential for higher inflation
- Rate of return on lending in target sector/region
- Unpredictable fiscal policy
ADVANTAGES
Coming soon.
DISADVANTAGES
Coming soon.
MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER
Coming soon.
VIGNETTE: REVENUE COLLECTION FOR THE HAITIAN GOVERNMENT
SITUATION
The Haitian Government is determined to improve the quality and scope of public services, but it faces a critical problem —lack of revenue. At 9 percent, Haiti’s rate of tax receipts as a share of gross domestic product (GDP) is one of the lowest in the world. However, a recent USAID-piloted tax mobilization program in the city of Saint Marc has proven that it is possible to raise local revenues to pay for quality local services.
STRUCTURE
Working with the Groupe de Recherche et d'Interventions en Developpement et en Education (GRIDE), a Haitian nonprofit organization of public policy experts, USAID sparked a significant jump in Carrefour’s municipal revenue — taxes collected increased by 481 percent, from $309,000 in 2011 to $1.8 million in 2012.
IMPACT
With the increased revenue, the municipality plans to construct four footbridges and two schools, pave a kilometer of road downtown, build two community cisterns, dredge canals, and replace broken sewer grates—all prioritized through a municipality-wide participatory planning process.