Tax capacity is fundamental to state-building and sustainable development. Achieving a tax-to-GDP ratio of at least 15 percent—endorsed by the UN’s Compromiso de Sevilla—is critical for institutional strength, financial market depth, and economic growth. However, many developing countries fall short of this benchmark, with 71 nations below the threshold, including fragile states and resource-rich economies. Comprehensive tax reform could mobilize an additional 5 percent of GDP in revenue, though institutional capacity remains a key constraint. The ‘tax system approach’—integrating tax policy, law, and administration—is essential for effective revenue mobilization. Reform strategies include broadening tax bases, improving indirect taxes, rationalizing incentives, and simplifying tax design. Enhancing compliance involves cultivating taxpayer trust, simplifying procedures, managing compliance risks, and leveraging digital tools. Strong governance and leadership underpin successful revenue administration. Ultimately, building tax capacity is a domestic political endeavor, supported by international capacity development. The IMF plays a central role through integrated support, exemplified by the Global Public Finance Partnership, which aligns domestic revenue mobilization with the Sustainable Development Goals.
Baer et al. (Wed,) studied this question.