Last week, we explored the OECD/G20 Inclusive Framework and the UN Tax Convention, outlining their implications for Zambia’s domestic resource mobilisation. This week, we focus on why the UN Tax Convention is a more advantageous choice for Zambia compared to the OECD framework and what this means for the country’s efforts to enhance domestic resource mobilisation.
The UN Tax Convention offers significant benefits for Zambia primarily due to its emphasis on inclusivity and fairness. Unlike the OECD framework, which has often been criticised for favouring high-income countries, the UN framework aims to create a balanced global tax system that considers the unique challenges faced by developing nations. For Zambia, this inclusivity ensures meaningful participation in international tax negotiations, facilitating the adoption of equitable policies aligned with the country’s interests.
Moreover, the UN Tax Convention advocates for simpler and more accessible tax rules. The complex requirements of the OECD/G20 Inclusive Framework can strain Zambia’s administrative resources, making it difficult to fully enforce and benefit from these measures. The UN framework’s emphasis on simplicity enables Zambia to adopt and implement the necessary tax policies more efficiently, thereby enhancing its ability to curb tax avoidance and evasion. This straightforward approach allows for efficient tax administration without overwhelming the existing infrastructure.
Another notable advantage of the UN Tax Convention is its emphasis on capacity-building and technical assistance for developing countries. This support is vital for Zambia, as it helps to strengthen the country’s tax administration and enforcement capabilities. The technical assistance provided under the UN framework can help Zambia acquire the requisite tools and expertise to implement international tax regulations effectively.
Furthermore, the UN Tax Convention places significant emphasis on the taxing rights of source countries, which is particularly relevant for resource-rich nations like Zambia. This emphasis ensures that profits generated from Zambia’s natural resources are taxed within the country, allowing Zambia to retain a fair share of the revenue. This approach contrasts with the OECD framework, which often favours residence- based taxation— potentially limiting Zambia’s revenue generation from its own resources.
Implications of the UN Tax Convention on Zambia’s Domestic Resource Mobilisation Agenda
Adopting the UN Tax Convention offers several advantages for Zambia’s domestic resource mobilisation efforts:
a) Enhanced Revenue Collection
By implementing simpler and more accessible tax rules, Zambia could more effectively curb tax avoidance and evasion, leading to increased revenue collection. The emphasis on source country taxing rights aims to help countries like Zambia retain a fair share of the revenue generated from its natural resources, providing a significant boost to the country’s fiscal capacity.
b) Improved Tax Administration
The capacity-building and technical assistance provided under the UN framework will help to strengthen Zambia’s tax administration and enforcement capabilities. This support enables Zambia to better monitor and enforce compliance with tax regulations, reducing the incidence of tax avoidance and evasion. A stronger tax administration translates to more efficient and effective revenue collection, enhancing Zambia’s ability to mobilise domestic resources.
c) Greater Fiscal Autonomy
The UN Tax Convention’s inclusive approach ensures that Zambia has a more significant say in international tax negotiations. This greater fiscal autonomy allows developing countries to advocate for tax policies that align with its specific needs and interests. By actively participating in the formulation of international tax rules, developing countries like Zambia can ensure that these policies support its domestic resource mobilisation efforts.
d) Sustainable Economic Development
Increased revenue collection and improved tax administration provide Zambia with the financial resources needed to invest in critical areas such as infrastructure, education, and healthcare. By enhancing its domestic resource mobilisation efforts, Zambia can support sustainable economic development and improve the overall well-being of its citizens.
In conclusion, the UN Tax Convention offers a more equitable and effective approach to international tax rules for developing countries like Zambia. By focusing on inclusivity, simplicity, capacity-building, and source country taxing rights, the UN framework provides Zambia with the tools and support needed to enhance its domestic resource mobilisation efforts. Ultimately, adopting the UN Tax Convention will enable Zambia to better harness its resources, achieve sustainable economic development, and improve the quality of life for its citizens.
About the Authors
Elijah Mumba is a development economist and public finance expert, currently serving as the Lead Researcher for Public Finance Management at the Centre for Trade Policy and Development. He holds a master’s degree in Development Economics from the University of Cape Town.
Nyasha Nigel Machiri is an international tax expert currently working as an Associate Director in charge of Tax Advisory services at HLB Zambia. He holds a BSc (Hons) in Applied Accounting from Oxford Brookes University, a postgraduate diploma in Applied Taxation, and an advanced diploma in international taxation from the Chartered Institute of Taxation.
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