After many years of feeble growth, the International Monetary Fund (IMF) is expecting global economic activity to pick up this year and next, and across both the advanced and emerging economies, said Christine Lagarde, IMF managing director.

“However, this does not mean we are out of the woods. Conflicts and lower oil prices will continue to affect growth and, by extension, also government revenue,” she added, speaking at the second Arab Fiscal Forum, which opened in Dubai, UAE  yesterday (February 12).

A number of Arab Ministers of Finance, governors of central banks, presidents of financial institutions, and senior officials and experts from regional and international financial organisations are attending this year's forum is being held under the theme, Revenue diversification: outlook and challenges, reported Wam, the Emirates official news agency.

Jointly organized by the Arab Monetary Fund and the IMF, the event provides a platform for financial policymakers in the Arab region to discuss the latest challenges they face in diversifying state revenues in view of regional and international economic and financial issues, including the fall in world oil prices and the slow growth of world economy.

“While oil prices have increased recently, we do not expect them to return to levels we have seen before 2014. And there are, of course, questions about geopolitical developments in many regions of the world,” Lagarde said.

“So, today I would like to pose the question: how can countries build tax capacity to sow the seeds of a healthy and inclusive economy, for the benefit of all citizens? The momentum toward revenue mobilisation, and the associated work going on at the international level, present the region with a major opportunity. By creating state-of-the-art tax systems, countries can generate resources needed to tackle future challenges and do so in an efficient and equitable manner,” she explained.

“This, of course, requires a clear and comprehensive strategy that interlinks tax policy reform with revenue administration reform. In other words, what and whom to tax should go hand in hand with how you go about collecting these taxes.

“As a first step, countries are introducing VAT and other consumption taxes for example on tobacco and sugar-sweetened beverages. Over time, governments may also consider deriving additional revenue from income and property taxation,” Lagarde continued.

“Countries in the Gulf, for example, are working to introduce a harmonized VAT in 2018. These efforts, which the IMF has supported through technical assistance, could raise anywhere from 1 to 2  per cent of GDP, assuming a VAT rate of 5  per cent.

“The second step in designing a revenue strategy is interlinking tax policy reform with revenue administration reform. This coordinated, simultaneous effort can help countries avoid some of the time-consuming troubles of the past. Traditionally, policymakers would often start with new tax policies and worry about administrative capacity later. By interlinking the two elements right away, countries can ‘leapfrog’ to a more advanced development stage.

“So how can this be achieved? By boosting the capacity of tax administration early in the reform process. This is essential to ensure both efficiency and compliance. Based on our experiences in other countries, we see two main priorities: one is to simplify codes and regulations. This involves not only the laws on tax rates, but also the procedural laws establishing the powers of tax agencies and the rights of taxpayers. The second priority is to upgrade peoples’ skills and technical resources to improve tax compliance and enhance services to taxpayers. This is where your countries can take advantage of technological innovations to ‘leapfrog’ into the digital age.

“We are immensely proud to serve you, our members, and we strive to do the best possible job through our staff in Washington and our assets in this region, including the Middle East Technical Assistance Centre in Beirut, and the Centre for Economics and Finance in Kuwait which, on a regular basis, offers courses on the issues we are discussing here today.

“Let me conclude where I began with the need to sow the seeds of a more sustainable and more inclusive economy. Your efforts to build tax capacity are vital to achieving that goal. Your economies and societies will reap the benefits of reform.

“This means above all forging a comprehensive strategy that interlinks tax policy reform and administration reform to generate higher and more reliable revenue. That will make public finances more resilient and build economies that work of all citizens here in this region and across the world,” she concluded.