Building Tax Capacity for Growth and Development: Evidence-Based Analysis for Mobilizing Domestic Revenue

Tax capacity is key to sustainable development. Reforming tax systems, improving compliance, and strengthening governance are vital. IMF supports country-led tax reform efforts through capacity development work.
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Volume/Issue: Volume 2025 Issue 007
Publication date: October 2025
ISBN: 9798229027298
$20.00
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Topics covered in this book

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Public Finance , Taxation - General , Tax Capacity , Sustainable Development , Tax Revenue , Tax Policy Design , Tax Compliance , Compliance Risk Management , Capacity Development , Domestic Revenue Mobilization , Revenue mobilization , World , Customs administration core functions , Tax administration core functions , Tax gap

Summary

Tax capacity is fundamental to state-building and sustainable development. Achieving a tax-to-GDP ratio of at least 15 percent—endorsed by the UN’s Compromiso de Sevilla—is critical for institutional strength, financial market depth, and economic growth. However, many developing countries fall short of this benchmark, with 71 nations below the threshold, including fragile states and resource-rich economies. Comprehensive tax reform could mobilize an additional 5 percent of GDP in revenue, though institutional capacity remains a key constraint. The ‘tax system approach’—integrating tax policy, law, and administration—is essential for effective revenue mobilization. Reform strategies include broadening tax bases, improving indirect taxes, rationalizing incentives, and simplifying tax design. Enhancing compliance involves cultivating taxpayer trust, simplifying procedures, managing compliance risks, and leveraging digital tools. Strong governance and leadership underpin successful revenue administration. Ultimately, building tax capacity is a domestic political endeavor, supported by international capacity development. The IMF plays a central role through integrated support, exemplified by the Global Public Finance Partnership, which aligns domestic revenue mobilization with the Sustainable Development Goals.