By Ali Reza Sarwar
On June 22, the World Bank reported that Tunisia is losing at least US$1.2 billion due to tax evasion by enterprises belonging to well-connected elites. The report comes after the Tunisian government conducted a number of policy reviews to improve the tax collection system and stop further fraud.
The World Bank’s Development Policy Review explains that Tunisia’s tax collection system is fraught with complexity and under reports exports and imports. Furthermore, the system fails to capture revenue from the massive informal businesses sector, which has grown larger in recent years. Currently, tax revenues contribute to 20 percent of GDP and 80 percent of corporate taxation is made by only 1 percent of firms. This means that many corporations receive some form of political treatment or simply manage to operate outside of tax collection regulations.
Tunisians protest elite capture of the government during the Arab Spring. Photo courtesy of the World Bank.
This update on tax fraud comes at a time when Tunisia, once the region’s most thriving economy, is grappling with slow economic growth, rising unemployment, and frequent interruptions in overseas export markets. This includes Libya, Tunisia’s second economic partner after the European Union. Libya committed to supplying 25 percent of Tunisia’s fuel needs at a subsidized price, but cannot honor this agreement now. Additionally, a spate of recent terrorist attacks against tourists will serve as a blow to Tunisia’s tourism sector, which accounted for 15.2 percent of GDP in 2014.
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By Ariel Gandolfo
While the ambitious, 169-point Sustainable Development Goals are still being solidified, the next big question in development will most certainly be how to finance them. Official development assistance (ODA) as a share of national GDP in many developing countries has been steadily shrinking, and identifying other sources of financing is crucial. Already, discussions here at the CSIS Project on U.S. Leadership in Development have focused on Domestic Resource Mobilization (DRM) and the importance of strengthening national tax bases and collection systems to increase the funds available for investment in national economic growth.
Western Union is one of the largest remittance services in the world. Pictured here, an outlet in Angeles City, Philippines.
Another source of overseas assistance with potential to impact national development is remittances. Remittances from diaspora populations are usually sent to families of the migrants working abroad, and as such have a limited, micro level effect. Yet global remittances already triple the value of official foreign assistance. Leveraging these inflows – which total in the millions and billions of dollars per country each year – to invest in public funds for infrastructure and social entrepreneurship may, however, contribute to more long-term, macro level economic growth. Continue reading →