draining development.pdf - Khazar University

The Practical Political Economy of Illicit Flows 469Table 14.1. Summary Statistics on Sources of Government Revenue, by Country CategoryCountry categoryLowincomeLowermiddleincomeUppermiddleincomeHighincomenon-OECDHighincomeOECDa. Government revenue, % of GDP 18.4 26.4 28.5 33.8 41.5b. Corporate income taxes, % of GDP 2.2 2.9 3.4 2.4 3.1c. VAT, % of GDP 4.9 5.0 5.2 6.2 6.8d. Trade taxes, % of GDP 3.7 4.9 4.6 2.7 0.6e. Corporate income taxes, % ofgovernment revenue 12.0 11.0 12.0 7.1 7.2f. Corporate income taxes, plus VAT,% of government revenue 38.6 29.9 30.2 27.2 23.9g. Corporate income tax rate % 39.0 33.5 33.3 28.9 33.8Source: IMF 2011.Note: The table covers 174 countries. The numbers show the means within each category and relate to recent years.dent for revenue on taxes paid directly to them by private companies. Thisphenomenon is measured in two ways in table 14.1. First, in row (e), wecan see that corporate income taxes account for a higher proportion ofgovernment revenue in poorer countries. But this is not the full story. TheVATs now nominally in place in virtually every poor country are often, inpractice, different from the formal model and the OECD practice. Theyoften cover only some parts of the economy, notably the larger firms in themore organized sector, and, in practice, resemble additional sales, excise,or import taxes. 13 To a significant degree, VAT collections have a corporatetax element. Therefore, in table 14.1, row (f) presents the figures on thejoint contribution of both corporate income tax and VAT to governmentrevenue.Both sets of figures illustrate the significant dependence of governmentson taxes paid directly by private companies. Yet, we know that formalor informal tax exemptions for companies are widespread in poorercountries, especially in Sub-Saharan Africa (Cleeve 2008; Keen and Mansour2010). 14 We can also assume that most illicit capital flows from weakstates pay no tax at home, for the major mechanisms used by companies,in particular transfer mispricing and possibly also the manipulation ofintragroup debt, seem explicitly designed to evade taxes through reassigningprofits to other jurisdictions. This information is consistent with