Departmental Papers

Building Tax Capacity for Growth and Development: Evidence-Based Analysis for Mobilizing Domestic Revenue

By Katherine Baer, Matthieu Bellon, Matt Davies, Ruud de Mooij, Vitor Gaspar, Andrea Lemgruber, Mario Mansour, Fayçal Sawadogo, Misa Takebe, Charles Vellutini

October 9, 2025

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Katherine Baer, Matthieu Bellon, Matt Davies, Ruud de Mooij, Vitor Gaspar, Andrea Lemgruber, Mario Mansour, Fayçal Sawadogo, Misa Takebe, and Charles Vellutini. "Building Tax Capacity for Growth and Development: Evidence-Based Analysis for Mobilizing Domestic Revenue", Departmental Papers 2025, 007 (2025), accessed October 21, 2025, https://doi.org/10.5089/9798229027298.087

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Disclaimer: The views expressed herein are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Tax capacity is fundamental to state-building and sustainable development. Achieving a tax-to-GDP ratio of at least 15 percent—endorsed by the UN’s Compromiso de Sevilla—is critical for institutional strength, financial market depth, and economic growth. However, many developing countries fall short of this benchmark, with 71 nations below the threshold, including fragile states and resource-rich economies. Comprehensive tax reform could mobilize an additional 5 percent of GDP in revenue, though institutional capacity remains a key constraint. The ‘tax system approach’—integrating tax policy, law, and administration—is essential for effective revenue mobilization. Reform strategies include broadening tax bases, improving indirect taxes, rationalizing incentives, and simplifying tax design. Enhancing compliance involves cultivating taxpayer trust, simplifying procedures, managing compliance risks, and leveraging digital tools. Strong governance and leadership underpin successful revenue administration. Ultimately, building tax capacity is a domestic political endeavor, supported by international capacity development. The IMF plays a central role through integrated support, exemplified by the Global Public Finance Partnership, which aligns domestic revenue mobilization with the Sustainable Development Goals.

Subject: Customs administration core functions, Fiscal policy, Revenue administration, Revenue mobilization, Tax administration core functions, Tax law, Tax policy

Keywords: Building tax capacity, Capacity Development, Compliance Risk Management, Customs administration core functions, Domestic Revenue Mobilization, Education program, Estimated tax, Global, Rationalizing tax expenditure, Revenue mobilization, Sustainable Development, Tax administration core functions, Tax Capacity, Tax Compliance, Tax design, Tax law, Tax Policy Design, Tax Potential, Tax ratio, Tax Revenue, Tax tipping point, Tax-to-GDP ratio

Publication Details

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