G-20 Note on Alternative Options for Revenue Mobilization
June 2024
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Executive Summary
This note discusses alternative options for mobilizing revenue to support achievement of the Sustainable Development Goals (SDGs), notably those that address hunger and poverty. It was prepared by IMF staff [1] in response to a request from the Brazilian G20 presidency for an assessment of revenue-raising options that are currently being discussed internationally, including internationally coordinated taxes and domestic revenue mobilization.
Achieving the SDGs will require significant resources. Estimates suggest that eradicating hunger and extreme poverty would require global annual financing of 0.03 and 0.08 percent of global GDP, respectively. Achieving key health, education, infrastructure, and climate risk targets would cost 3.8 percent of GDP. Financing needs are concentrated among low-income developing economies.
Further international tax cooperation can play an important role in raising revenue but will be insufficient to fund the SDGs. Ongoing international tax reforms, such as the global minimum corporate tax and information sharing, make a positive yet modest revenue contribution but are important as they allow for more effective taxation of large multinationals and wealthy individuals. Significant revenue potential lies also in carbon taxation, which is a potent way to meet global climate objectives. It includes levies geared toward international transportation—a sector currently exempt from such taxes. Financial transactions taxes would be associated with large economic distortions, even if globally coordinated. A globally coordinated wealth tax would help address inequality but seems a remote option and should not prevent countries from pursuing their own reforms to more effectively tax capital income. For all internationally coordinated tax reform options, only a small portion of the revenue will accrue to developing countries where most of the financing needs for the SDGs are. To address this mismatch, revenue sharing arrangements could be considered, for instance, under a global carbon tax.
There is significant scope for revenue mobilization through domestic tax reforms. Developing countries have an average tax gap of 9 percent of GDP, that is they raise less than what is possible, based on best-performing peers under similar circumstances. While reform options are country specific, common options are to broaden tax bases (by reforming tax expenditures) and improve tax compliance through dedicated administrative reform efforts and a well-designed digital transformation of tax and customs administrations. These domestic reforms are usually not easy to pursue and should be managed carefully by a strong political leadership. The medium-term revenue strategy provides a framework to formulate and implement such reforms. Experiences from several countries provide examples of how increased revenue mobilization has been achieved. Capacity development, including from the IMF, can support such reforms.
[1] Prepared under the supervision of Katherine Baer and Ruud de Mooij by a team led by Alexander Klemm comprising Shafik Hebous (co-lead), Debra Adams, Frank von Brunschot, Pierre Kerjean, Tamas Kulcsar, Andrea Lemgruber, Thabo Letjama, Mario Mansour, Dumisani Masilela, Thornton Matheson, Diego Mesa Puyo, Gilles Montagnat-Rentier, Tewodaj Mogues, Ian Parry, Charles Vellutini, Christophe Waerzeggers, and Pierre-Adrien Wandja Fondja.
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