Speaking in Abu Dhabi today, shortly after being confirmed as the IMF
chief for a second term, Lagarde said the OECD’s BEPS project, an
effort to overhaul the global tax architecture and close loopholes used
by multinational companies to shirk their tax dues, does not go far
enough in creating an effective international tax system – a "key
ingredient” of a successful 21st century economy.
While
she said the BEPS project had made "significant progress”, she added
that "much more work needs to be done both in terms of substance and
scope”.
Lagarde said the BEPS rules were designed to work within
the traditional architecture for international taxation, which was
developed nearly a century ago in a world when cross-border trade was
far less important and took place almost entirely in physical goods.
On
the contrary, today’s big challenges include the taxation of traded
services and the shifting of intellectual property across borders – a
shift she said is set to continue.
"This is why we need an international tax system truly fit for the 21st century,” she stated, adding that it should also work for all economies.
While
a major effort had been made to include developing economies in the
project, some of their specific needs went unaddressed, she said – a criticism voiced by NGO group Eurodad and many others when the BEPS project was finalised.
Along with effective international taxation, Lagarde highlighted revenue mobilisation as a "key ingredient” of all successful 21st century economies.
Higher
and more reliable government revenue would allow more spending on
things that drive potential growth, such as infrastructure, and help to
avoid volatility in public expenditure and pro-cyclical fiscal policy.
"This
is particularly important for oil-exporting countries that have been
heavily affected by the recent plunge in oil prices,” she said.
These
countries need to strengthen their fiscal frameworks and re-engineer
their tax systems to reduce their reliance on oil revenues and diversify
their economies.
They could do this through a simple system that
initially focuses on VAT and later adds a greater emphasis on corporate
income, property and excise taxes and by continuing to invest in
building tax administration capacity to allow for the eventual
introduction of personal income taxes, she added.
Middle-income
oil importers and low-income countries should also take note, she
continued, and make use of the scope to broaden the tax base, make
personal income tax more progressive and eliminate privileged corporate
tax regimes.
Low-income countries should also ensure their fiscal
institutions and public financial management enables efficient and
effective spending in support of inclusive growth, the IMF managing
director urged.
"My main message today is this: creating successful 21st century economies requires robust government revenues and an international tax system that works for everybody, she said.
"These
ingredients are essential for growth, fairness and development. They
provide the fertile ground for the prosperity of nations.”
On Friday, the IMF executive board was confirmed that Lagarde will continue for a second term as managing director of.
The
board praised her "strong and wise” leadership and said she had
strengthened the fund’s ability to support its members with policy
advice, capacity building and financing.
Looking ahead, the board
said it welcomed Lagarde’s emphasis on ensuring the IMF remains agile in
all its operations, well positioned to provide advice across the
full-spectrum of macroeconomic issues, and focused on meeting the needs
of its entire membership.
(www.publicfinanceinternational.org)