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Maya Forstater is a visiting fellow at the Center for Global Development and a researcher and advisor on business and sustainable development. Her work focuses on the intersection of public policy, business strategy and sustainability including questions around tax and development, financing for low carbon investment and multi-sector partnerships and standard setting.
From 2014-2016 she was Senior Researcher for the UNEP Inquiry into the Design of a Sustainable Financial System. She has also worked with the Transparency and Accountability Initiative (for the Open Government Partnership), the South African Renewables Initiative, the Global Green Growth Initiative, AccountAbility and the World Business Council for Sustainable Development. She started her career at the New Economics Foundation, and was involved in setting up the Ethical Trading Initiative. She has published reports and articles on issues including the scale of international tax avoidance and evasion, corporate responsibility by Chinese businesses in Africa, the design of pay-for-performance climate finance mechanisms and the governance and effectiveness of multistakeholder partnerships.
Earlier this year, The Centre for Research on Multinational Corporations (“SOMO”; a Dutch NGO) issued a report about an international mining company they said had avoided paying $232 million USD in taxes in Mongolia. The Oyu Tolgoi mine is considered a big deal in Mongolia and has been subject to lengthy negotiations on how to split the risks, costs, and profits of the project between the company and the government. While this question is of primary interest to the people of Mongolia, I think that delving into the detail of individual cases like this is also important for clarifying the broader debates and understanding of tax issues.
The SDGs include a target to “significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime”. However, there is no globally agreed upon definition for “illicit financial flows.” My new CGD paper looks at why there is so much disagreement and confusion over this term.
Illicit financial flows (IFFs) connected with corruption, crime, and tax evasion are an issue of increasing concern. However, there is not yet a clear consensus on how to define illicit financial flows, and even less on how to measure them.
This paper looks at estimates of the potential gains from taxing across borders, alongside largely domestic measures such as property tax, personal income tax, VAT, and tobacco taxes. It finds that while action on cross-border taxation could yield additional tax take in the region of one percent of GDP, in many countries measures targeting the domestic tax base might deliver something in the region of nine percent. The main enabler is political commitment.
Domestic measures have greater potential for raising tax yields over time. Rough estimates indicate that there may be $9 of additional tax capacity from domestic policy measures for every $1 from international action. The main enabler is political commitment.
Discussion on tax and development can be incoherent, both within and between different sectors. A symptom of this is the tendency for inflated expectations about the scale of revenues at stake in relation to multinational corporations and misunderstandings and contested definitions on the issue of illicit financial flows.
In May, President Magufuli of Tanzania appointed two special committees to investigate the contents of 277 containers stuck at Dar-es-Salaam. The committees' belief that they have uncovered a case of massive misinvoicing (i.e., misrepresentation of the value or quantity of exports) does not seem plausible for five reasons. For starters, the scale of mineral smuggling required for it to be true is implausible.
In the search for sustainable sources of finance for development, the potential for developing countries to collect more domestic revenues from taxation has risen to prominence in recent years. International tax evasion and avoidance and the role of tax havens have been raised as critical barriers, and transparency is often advocated as a key solution. This briefing offers a short outline of the key issues, terms, and numbers involved.
Over the past couple of weeks Malawi has become the latest poster child for UK campaigns arguing that changes to the international tax system can deliver outsize returns for development. Specifically, Action Aid is calling on the UK government to renegotiate a 60-year-old tax treaty. Questions were also raised about this issue in the House of Commons.
International debates on taxation and development have been informed by a popular narrative that there is a large ‘pot of gold’ for funding which could be released by cracking down on the questionable tax practices of multinational enterprises, and which could bridge the gap towards funding the sustainable development goals. How much of this is wishful thinking and how much really reflects what we know? This paper looks at the 'big numbers' that have shaped this debate and seeks to clarify the emerging evidence.