Domestic Resource Mobilisation

Domestic Resource Mobilisation

Domestic revenue mobilisation (DRM) refers to the generation of government revenue from domestic resources, from tax or non-tax sources (royalties, licenses, levies or other income). DRM creates additional space for sustainable budget expenditures, fosters ownership and reduces dependency on external assistance. When assessing DRM, not only the volume of revenue must be considered (e.g. tax to GDP ratio). The content and fairness of tax policies also matters (e.g. to avoid distortions and inequity).

Tax matters receive growing attention in development cooperation as the relevance of taxation in developing countries for the provision of public goods and state building is increasingly recognized. Support initiatives linked to DRM and more generally to taxation have thus proliferated at international level in the context of G20/G7 meetings or at the OECD. This has culminated with the adoption of the Addis-Ababa Action Plan for Financing for Development in July 2015 followed by the inclusion in the SDG 17 in September 2015.

At EU level, the 2010 Communication on Tax and Development followed by European Council conclusions and an EP resolution in March 2011 set out the EU strategy in this area. These policy statements recognised DRM as central for sustainable growth, poverty reduction, and the provision of public goods needed to achieve the SDGs. In particular, they argued that strengthening tax systems contributes not only to raising more predictable revenue, but also to good governance and accountability of governments by creating a direct link between taxpayers and their government. This relation was further elaborated in the Collect More, Spend Better document issued by the Commission in October 2015.

Working on DRM means putting emphasis on: 1) better understanding the political economy and growth implications of tax reforms to make sure that these are sustainable and support the adaptation of these reforms as appropriate; 2) addressing governance issues that undermine tax reforms (i.e. tax exemptions, corruption) to ensure effectiveness of these reforms; 3) promoting increased governmental accountability to strengthen the relationship between the authorities and the taxpayers, particularly in the management of natural resources and 4) highlighting key international aspects of the tax governance such as country-by-country reporting transfer-pricing (for further background, see for instance this study on transfer-pricing regime West Africa).

A lot has been achieved by the Commission since 2010. Our efforts have focused on both ensuring the inclusion of this dimension in all EU policies and instruments, in particular budget support, and enhancing our cooperation with international organisations (e.g. OECD and IMF but also EITI Secretariat as regards extractive industries) and with civil society organisations active in this field. This is paving the way for further actions at country level.

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