Good morning everyone!
It is my great pleasure to welcome you to the IMF-Japan High-Level Tax Conference for Asian Countries.
Today we mark the tenth anniversary of this conference.
Since 2009, the conference has provided an important platform for tax officials in Japan and the Asian region to share experiences and deepen collaboration on common challenges in tax policy.
I am grateful to our co-host, the Ministry of Finance, for its generous support of the conference and for the country’s unwavering commitment to our technical assistance activities.
I would also like to thank my colleagues in the IMF Fiscal Affairs Department and in the Regional Office for Asia and the Pacific for their organizational leadership of this event.
This year, the conference takes place against a delicate and unsettled backdrop for the world economy.
The broad-based economic expansion witnessed around this time last year has hit a temporary soft patch – and policy uncertainty and financial vulnerabilities further threaten ongoing momentum.
This is all at a time when rising inequality is eroding trust in institutions and support for a system of international cooperation that has delivered enormous benefits.
So today I would like to share a few thoughts on two areas where effective tax policy and administration can help restore trust in public institutions: corruption and international taxation.
Curbing corruption to restore trust in fiscal institutions
Let me start with corruption.
Corruption helps some people evade taxes, whereas others may end up paying more than they should.
It distorts taxpayers’ money away from schools, roads, and hospitals, and undercuts the government’s ability to achieve sustainable and inclusive growth.
Ultimately, corruption erodes peoples’ trust in government and institutions.
And we know well that effective fiscal institutions – including effective revenue systems – cannot function without trust.
Why? Because corruption weakens the culture of compliance.
In our latest Fiscal Monitor, we analyzed more than 180 countries and found that less corrupt governments collect more revenues, up to 4 percent of GDP.
Countries that managed to reduce corruption significantly were rewarded with even higher revenue.
For example, in Georgia, tax revenues more than doubled, rising by 13 percentage points of GDP following aggressive reforms to fight corruption.
Corruption also distorts how governments use public money and
impacts the effectiveness of social spending.
More corrupt countries overpay for building roads and hospitals, and their school-age students have lower test scores.
So, what is the IMF doing to help our members in their fight against corruption?
We have been deeply engaged with our members in building effective institutions and improving public sector governance – through policy advice and diagnostic tools.
We have built up comprehensive diagnostics on weaknesses and inefficiencies in fiscal institutions.
These tools assist our members to track down shortcomings in their systems and help them design necessary reforms to improve oversight and control of public revenues and expenditures.
For example, in tax area, we have tools that can help countries assess the health of key components of their tax administration systems, and to estimate the size of non-compliance gaps for major taxes.
In sum, our assistance to member countries is guided by a simple principle: strong fiscal institutions are important to promote integrity and accountability.
They are key to restoring trust in government.
Towards a fairer international taxation system
This brings me to my second topic: international taxation.
The effective taxation of multinationals is one of the most prominent issues not just for practitioners but for society at large.
This is especially relevant for low-income countries. Why?
Many low-income countries rely on corporate income taxes as a source of revenue.
Yet, they are often under pressure to sacrifice potential corporate revenues in order to attract foreign direct investment.
So not only do these countries become exposed to profit shifting and tax competition, they also have limited alternatives for raising revenues.
And this limited capacity becomes further stretched by increased tax complexity.
The good news is that there has been progress on coordinated measures to deal with this issue, most notably the G20-OECD Base Erosion and Profit Shifting (BEPS) Project.
Under this initiative, a multinational agreement was achieved on new and improved standards, such as transfer pricing and treaty abuse.
These standards address some of the most egregious types of international corporate tax avoidance, and many countries are now amending their tax laws in line with the recommendations of the BEPS Project.
Despite these important initiatives, the international tax system remains uneven. For two reasons.
First, profit shifting is still a problem.
Limitations of the arm’s-length principle – and reliance on notions of physical presence of the taxpayer to establish a legal basis to impose income tax – have allowed apparently profitable firms to pay little tax.
Second, and equally important, tax competition remains largely unaddressed.
Views differ as to whether tax competition may be appropriate in certain contexts.
But for low-income and developing countries, we see all too clearly the damage that tax competition can do to much-needed revenues.
To further the debate on the issue of international corporate taxation, we recently published a paper that focuses on the perspective of emerging and low-income countries.
We examined several alternative international architectures, such as minimum taxation and the destination-based cash-flow tax.
And of course, we engage closely with our members on all tax issues within the context of our wider surveillance and capacity development work.
This conference provides an excellent opportunity to further explore the economic impact of current international tax arrangements, and the merits and drawbacks of alternatives now under discussion.
Let me conclude.
The global economic backdrop is shining a light on the importance of strong fiscal institutions and policies in navigating current challenges.
The topics of this conference strike a very timely chord.
So, I would like to welcome all participants, and wish you productive and engaging discussions.
I hope you will also have the time to enjoy Tokyo even if the beautiful Sakura season is over!