Book Review on Tax Challenges Facing Developing Countries
Tax is a fundamental issue in the world since it has direct impact on the economy of every nation in the world. However, developing nations experience more challenges regarding taxes as compared to developed nations. In her book, Tax Challenges Facing Developed Countries, Lisa Kayaga discusses a wide range of tax-related issues that third world countries grapple with. Lisa, a lawyer by profession with Ugandan origin, explores how these challenges derail developed efforts and what to do to overcome them. Her 2007, work, published by Queen’s University (Canada), is a masterpiece in comprehending the underlying tax challenges, not only in Africa, but also in other continents with developing nations.
The book focuses on the milestones that developing countries have made in their tax collection policies over the years. However, Kayaga notes that these countries confront an array of challenges whenever they attempt to establish efficient tax systems. While noting that Ugandan system has greatly improved in the recent past, the author says this transformation is likely to be a mirror image of what is happening in other Sub-Saharan Africa nations. Most of these improvements revolve around the types of taxes and the rates applied. Lisa however notes that most developing countries experience budget deficits, a clear indication that mobilization of domestic revenue has not significantly grown despite the reforms undertaken. She points out that developing countries like Uganda do not put into consideration prevailing social issues when setting up tax policies. A case in point is HIV/AIDS, which the Ugandan government did not consider. Other factors depleting tax base include civil wars, the ever-increasing informal sector, and ineffective administration.
Lisa echoes the findings of Vito Tanzi and Howell H. Zee, in the book, Tax Policy for Emerging Markets: Developing Countries, published in 2000. In the book, they two renowned authors identified structure of the economy, limited tax administration capacity, poor quality of important data and political setbacks as leading tax challenges facing developing countries.
Regarding the structure of developing economies, Lisa notes that these countries’ economies largely depend on agriculture, have huge informal sectors, small share of wages, small and numerous entrepreneurial units and small percentage of total consumer spending. According to the author, the size of the informal sector in any developing country is important. This is because it determines the dependability of a country on modern taxes and may hinder effort to reach those with the ability to pay revenues.
The second factor, which the author emphasizes, is tax administration and data. Lisa says most developing countries lack efficient tax administration systems. These challenges stem from the fact that a huge percentage of these economies is at a subsistence level and most taxpayers do not keep their records. Moreover, for those who manage to keep their records, these documents are not reliable. There is low tax cooperation since these countries have shortage of processional officers, corruption and lack of governments to deliver services to the people. Lastly, lack of political will to support tax reforms in developing countries breeds poor reforms. From history, tax reforms can only be realized with full commitment from the leaders. Other related factors discussed by Lisa are perennial military coups, corruption, civil wars, poverty, famine, diseases and underdevelopment.
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