Collecting taxes is vital for the developing countries: by tax revenues countries can provide public well-being, such as healthcare, education and infrastructure as well as reduce dependence on development assistance. The tax system in Sub-Saharan Africa is much less diverse as in industrial countries. Taxation in Sub-Saharan Africa is dominated by indirect taxes, meaning taxes on goods and services: in 2012 VAT alone formed 22% of revenues in Africa and as being a regressive tax, has had a negative distributional impact. In industrial countries direct taxes, such as income tax and corporate taxes are utilized more to collect revenues.
In most least developed countries public revenues account for 10-20% of GDP; in comparison, in 2013 the average revenue percentage of the OECD countries was 34,1%. This is due to lower income levels, smaller taxes, limited collection capacity and illicit capital outflows, in which alone Africa loses twice as much as it receives international aid. In fact, it has been estimated that many developing countries would need substantial additional revenue to finance poverty reduction: according to an IMF working paper, in many low-income countries an additional 4% of GDP would be needed just to meet the United Nations Millennium Development Goals. What then should be done to improve taxation in Sub-Saharan Africa?
a. Economic growth is a political process. It is obvious that corruption can dampen even the brightest taxation structure. Trustworthy, well-paid revenue authorities that are separated from political leaders are a key factor. On the longer haul, critical media and educated population can help monitoring the non-corrupted tax system.
b. The formal fiscal arrangement needs to be inviting. The informal sector, the micro- and small-sized enterprises (MSEs) as well as individuals, should be integrated into the formal sector since MSEs constitute 80-90% of taxpayers but only 5-10% of revenues, according to the IMF. However, it is important that this relationship is bilateral: when entering the formal system, people and MSEs need to have immediate gains (such as legitimacy and protection) as well as long-term gains (like wider markets, stability and functional public services). In other words, people need to get something concrete for the taxes they pay.
c. The tax base needs to be widened, also in resource-rich countries. Even they should not rely solely on their natural resources. The participation of the state is important: when involved in natural resource production, bigger revenues can be collected. This means also adopting a new perspective on foreign investments: companies shouldn’t simply be attracted by low taxes. Instead, a long-term, sustainable industrial policy should be created by national ownership. Besides this, indirect taxes have a big influence on the poor but don’t really make a difference to the rich whereas collecting progressive direct taxes have a positive distributional impact. According to UNCTAD, taxation should be focused on higher incomes and higher value urban properties as well as luxury goods, financial transactions and import tariffs, whereas VAT should be reduced. It is important that the tax system is fair and plausible: people with no wealth or outside the formal sector cannot be taxed.
Clearly, these suggestions aren’t simple to follow but in many countries it would be beneficial, as they can contribute to building sustainable and self-reliant nations.
The course on global poverty is about to complete. Read the teacher’s view to the course on the GHD-blog. http://blogs.uta.fi/ghd/2015/05/22/never-underestimate-the-power-of-students/
Mikko Perkiö, University instructor, responsible teacher at the course
Powerful learning should mix the roles of students and teachers. This came evident at a course on Global Poverty, the latest course organized by the Program for Global Health and Development (GHD). 24 students from 7 different UTA schools completed the course. Students were active in commenting each other’s work along the course. This took thinking forward and made a great contribution to learning achievements. To complete this multidisciplinary course, local and international students alike had to write 2000-word essays. See below the list of essay topics.
The students were expected to be active and use their imagination in academic debate with fellow students and teachers throughout the course. Fast learning was possible when most course elements – be they live or virtual – were enjoyable and included some fun, no matter these tackle burning issues of the world’s poorest countries. The first half of the course aimed each student to find a personally motivating angle to write an essay on global poverty.
The second half of the course consisted of process writing of an essay on a freely chosen topic. Every student participated in two 3-hour live seminars that supported each one’s writing process. The results of the process writing are visible below. Furthermore, we will publish four blog posts based on the best essays at this blog site in weekly intervals. Never underestimate the capacity of students to teach themselves or their fellow students!
Authors and titles of the essays on global poverty
|Last Name||First Name||Title of the essay||School|
|Islam||Zahedul||Reducing poverty by microfinance banking||BMT|
|Paulamäki||Lauri||Is the solution for the lifting developing world into prosperity in the assets?||BMT|
|Virtanen||Henri||Innovative development finance – Using global financial system as a tool to redirect money for developmental aid||BMT|
|Kinyaduka||Bryson||Role of formal education in reducing micro level income poverty in low-income countries: Drawing experience from sample studies||EDU|
|Adam||Adam||Increasing obesity epidemic in Somalia?||HES|
|Heikkilä||Matias||Different forms of basic income||JKK|
|Honkonen||Tanja||Multiple definitions of poverty||JKK|
|Jonouchi||Dai||The relation between economic level and Multidimensional Poverty Index||JKK|
|Kivisalo||Kalle||The increasing population and the reduction of poverty||JKK|
|Lehtinen||Vilma-Lotta||Fighting for women: NGO propositions aiming to eradicate causes exposing women to sex trafficking and violence in Central America||JKK|
|Malkamäki||Katariina||The interrelation between climate change and poverty, How can nature be used in a sustainable way to overcome poverty?||JKK|
|Musabbir||Dewan||Is capitalism the problem in Bangladesh? The Rana Plaza collapse||JKK|
|Tervo||Anni||Taxation in Sub-Saharan Africa: Building Sustainable Fiscal Politics||JKK|
|Toivanen||Milla||Dynamics of conflicts and poverty||JKK|
|Tuominen||Senni||Missing girls in India – why economic progress is not a solution?||JKK|
|Vierinkari||Johanna||Cash transfer as a form of social policy in developing countries||JKK|
|Peltola||Sofia||How does poverty hinder education in Mexico?||LTL|
|Aaltola||Maria||Successful practices in volunteer development||MED|
|Hiltunen||Jenni||Improving maternal health||MED|
|Miettinen||Juho||Pouring assets into the sea: obsolescence in the phosphorus economy||MED|
|Yonga||Jean-Jacques||The effect of poverty in child mortality in developing countries||MED|
|Kiviluoto||Henna||The economic growth as solution to poverty is in question||YKY|
|Kukkohovi||Hanna-Maija||Localization against globalization. Global well-being and sustainability by self-sufficiency||YKY|
|Paakkinen||Karoliina||The human development and the economy of Cuba||YKY|
Global Health Next Generation Network will hold its 2nd Annual Summer Conference in Barcelona, June 25-26, 2015. The title of the conference will be:
Ensure the Voice of Young Professionals in Global Health
The goal of the Global Health Next Generation Network is to be the voice of the next generation in Global Health that ensures the integration of young professionals in the sphere of Global Health.
For more information on the Conference, click here.
For more information on NGN, click here.
Coursera offers a preview course of Jeffrey Sachs course “The Age of Sustainable Development”. This course is self-paced course comprises of three main modules of the original course (about five hours of videos and quizzes) and will give the participant a understanding of the challenges of sustainable development.