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Taxation in Developing Countries

Taxation in Developing Countries: Six Case Studies and Policy Implications

EDITED BY Roger H. Gordon
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    Taxation in Developing Countries
    Book Description:

    Taxes are a crucial policy issue, especially in developing countries. Just recently, proposals to raise middle-class taxes toppled the Bolivian government, and plans to extend or increase the value-added tax caused political unrest in Ecuador and Mexico. Despite the impact of tax policy on developing countries, a comprehensive study has yet to be written. Treating Argentina, Brazil, India, Kenya, Korea, and Russia as key case studies, this volume outlines the major aspects of current tax codes and explores their economic and political implications.

    Examples of both the poorest and wealthiest developing countries, Argentina, Brazil, India, Kenya, Korea, and Russia uniquely demonstrate the diverse fiscal problems of tax reform. Each economy relies heavily on indirect and corporate income taxes, though recently some have reduced their tariff rates and have switched from excise to value-added taxes. There is a large, informal economy in most of these countries, and tax evasion by firms is a significant concern. As a result, tax revenue remains low, even though rates are as high as those in developed economies. Also, unconventional methods to collect revenue have been implemented, including bank debit taxes, state ownership of firms, and implicit taxes on individuals in the informal sector.

    Exploring these and other concerns, as well as changes in tax law, administration, and fiscal pressures, this comprehensive anthology clarifies the current landscape of tax administration and the economic future of the world's poorer economies.

    eISBN: 978-0-231-52007-2
    Subjects: Business, Political Science

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-x)
    (pp. xi-xiv)
  5. Introduction: Overview of Tax Policy in Developing Countries
    (pp. 1-10)
    Roger H. Gordon

    This volume provides a detailed assessment of the current tax structure in six developing countries: Argentina, Brazil, India, Kenya, Korea, and Russia. Each of the six case studies lays out the current statutory provisions, how they have evolved over time, the resulting changes in tax revenue, and the key fiscal pressures faced currently looking forward.¹ The volume also includes two overview chapters that reassess the conventional wisdom about the appropriate design of tax policy in developing countries.

    As is seen from Table I.i, these six countries include both some of the poorest and some of the richest developing countries. As...

  6. CHAPTER 1 Development-Oriented Tax Policy
    (pp. 11-36)
    Joseph E. Stiglitz

    No public policy issue is more important than the structure and level of taxes. Governments have fallen because of tax reform. Proposals to extend the value-added tax (VAT) or increase its rates have caused political agitation in many countries, including Ecuador and Mexico. In many less-developed countries, a shortage of funds impedes development efforts, yet attempts to increase tax revenues not only meet enormous political resistance but are often futile. Simplistic recommendations to increase the power of the tax police often backfire, generating substantially more revenue for the tax collectors but very little extra for the public fisc.

    Part of...

  7. CHAPTER 2 Taxes and Development: Experiences of India vs. China, and Lessons for Other Developing Countries
    (pp. 37-61)
    Roger H. Gordon

    The rapid and sustained economic growth experienced by India and China, the two most populous countries in the world, during the last 15 to 25 years is probably the most momentous change in the world economy in our lifetimes. Both countries were among the poorest in the world before the start of their economic reforms. The rapid changes since the beginning of these reforms have been breathtaking.

    What policy changes helped initiate the sharp improvement in these two countries’ economic performance? What further policy changes have been needed to sustain it? To what degree are there common lessons to be...

  8. CHAPTER 3 Tax Policy in Argentina: Between Solvency and Emergency
    (pp. 62-108)
    Oscar Cetrángolo and Juan Carlos Gómez Sabaini

    At the turn of the century, Argentina experienced a serious economic crisis, brought about by the forced abandonment of the monetary convertibility regime and characterized by sharp changes in relative prices and income, as well as by widespread breaches of contracts.¹ This economic crisis proved to be different from previous crises, however, as Argentina managed to recover quickly and significantly (see Figure 3.1).

    The recovery presents some exceptional features. At few times in Argentina’s economic history has the country experienced such external and fiscal surpluses. More importantly for the purposes of this study, Argentina’s tax burden is far higher than...

  9. CHAPTER 4 Tax System Reform in India
    (pp. 109-152)
    M. Govinda Rao and R. Kavita Rao

    Many developing countries have embarked on tax reforms in recent years. Such reforms have been motivated both by local factors and by rapid internationalization of economic activities. The need to correct fiscal imbalances and the transition from a centralized plan to a market economy were the important local factors hastening tax reforms. Difficulties in compressing expenditures necessitated that tax system reform take an important role in fiscal adjustment strategy. The transition from plan to market required the substitution of administered prices with market-determined prices, the replacement of physical controls with financial controls, and the substitution of public enterprise profits with...

  10. CHAPTER 5 History of Russian VAT
    (pp. 153-197)
    Sergei Koulayev

    On December 6, 1991, Russia adopted a value-added tax (VAT). The new tax system, which was meant to replace preexisting turnover and sales taxes, became effective as of January 1, 1992. Thus, fiscal year 1992 was the first year in Russian history when the VAT was collected. In this chapter, we present the history of legislation, revenue performance, and administration of the Russian VAT during the fiscal years of 1992—2005. Today, the VAT is one of Russia’s major taxes, bringing in about one-third of total tax revenue, only second to revenue generated by the enterprise-profit tax. The history of...

  11. CHAPTER 6 Tax Reform in Kenya: Policy and Administrative Issues
    (pp. 198-219)
    Nada O. Eissa and William Jack

    Kenya’s tax system has undergone almost continual reform over the last 20 years. On the policy side, rate schedules have been rationalized and simplified, a new value-added tax has been introduced, and external tariffs have been brought in line with those of neighboring countries in East Africa. At the same time, administrative and institutional reforms have taken place. Most notable among these reforms was the creation of the semiautonomous Kenya Revenue Authority (KRA) in 1995, which centralized the administration of tax collection.

    Kenya has the trappings of a modern tax system, including, for example, a credit-invoice VAT, a Pay As...

  12. CHAPTER 7 Korea’s Tax System: A Growth-Oriented Choice
    (pp. 220-254)
    Joosung Jun

    Korea’s tax system does not much resemble systems found in developed countries. The tax bases are narrow, and the overall tax burden is relatively low. Tax revenue as a fraction of GDP has increased steadily over the past decades, but at around 20 percent it is still among the lowest in the Organisation for Economic Co-operation and Development (OECD; Table 7.1).¹ Including social security contributions, Korea’s tax burden amounted to 25.3 percent of GDP in 2003, about two-thirds of the OECD average of 36.3 percent. Three decades ago, the gap was even wider, with Korea collecting only half of the...

  13. CHAPTER 8 Tax Structure and Tax Burden in Brazil: 1980—2004
    (pp. 255-294)
    José Teófilo Oliveira and Ana Carolina Giuberti

    This chapter describes and illustrates the main features of the Brazilian tax system from 1980 to 2004. During this period, the Brazilian economy experienced a faulty economic growth process in the presence of very high rates of inflation, and a significant upward movement of the total tax revenue collected by the central, state, and local governments from a level of 25 percent of GDP to an all-time high of 32.8 percent in 2004. This effort to raise additional revenue occurred in the 1990s and is primarily explained by social security expenditures and by interest payments on public debt.

    The data...

    (pp. 295-298)
  15. INDEX
    (pp. 299-306)