Developing countries worldwide could raise an extra US$198 billion a year if they were able to boost their tax revenue to a minimum of 15 per cent of national income, the anti-poverty charity ActionAid has calculated.

Anna Thomas, head of economic and social development at ActionAid, said: “The amount that could be raised on quite modest assumptions is much more than the $120 billion poor countries receive in aid. It would be enough to end hunger, get all children into school, stop AIDS and still have change left over.”

In a report published today, the charity argues that developing country governments could increase their tax revenues dramatically if they were able to clamp down on international tax avoidance and evasion. International tax rules should be changed to make it easier for poor countries to detect and clamp down on tax dodging, and developing countries should be supported in upgrading their revenue services, ActionAid says.

The report quotes Pravin Gordham, South Africa's finance minister: “Aggressive tax avoidance is a serious cancer eating into the fiscal base of many countries”.

In the current G20 discussions, most of the pressure on tax havens has come from rich countries like Britain. But tax havens are also an issue for developing countries. The South African revenue estimates that it loses up to R64 billion (£4.7 billion) each year through tax evasion in tax havens.

At a dinner hosted by Gordon Brown before the G20 summit in April, India’s prime minister Manmohan Singh said: “We should endorse sharing information and bringing tax havens and non-cooperating jurisdictions under closer scrutiny.”

Instead of a patchy network of bilateral information exchange agreements, the charity says there should be a global, multilateral system under which tax information is exchanged automatically. Company financial reporting should happen country by country.
 
Commenting on today’s speech by the financial secretary to the Treasury, Ms Thomas said: “This morning Stephen Timms mentioned automatic information exchange for the first time. The British government seems to be getting the message.

“In Pittsburgh the G20 leaders must keep their promise to deliver better tax cooperation for developing countries by the end of 2009. They have a once-in-a-generation opportunity to help countries which desperately need more tax revenue to fight hunger and disease.”

The report warns that tax breaks, tax holidays and enterprise zones are causing a 'race to the bottom' as countries compete to attract foreign investors. Zambia is named as a country which has lost millions in revenue by letting foreign mining companies pay royalties as low as 0.6 per cent.

While there is some evidence that offering tax breaks can attract investment, the report suggests that the practice undermines home-grown businesses and is unlikely to attract the kind of long-term investment that would help lift people out of poverty.

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