International co-operation can play a critical role in supporting developing countries to strengthen taxation capacity, increase the fairness of their tax systems and reduce the sustainable development financing gap. Recognising this, Finland has made support for domestic resource mobilisation in partner countries a priority, taking an approach that deploys Finnish expertise for peer-to-peer learning, advocating internationally for partner countries’ taxation interests, and ensuring the coherence of Finnish policy and actions undertaken by the private sector.
Finland’s support for domestic resource mobilisation combines advocacy, expertise and policy coherence
Abstract
International co-operation to strengthen the ability of developing countries to mobilise domestic resources is critical to achieving the 2030 Agenda. OECD analysis shows mixed progress on increasing revenues, with ratios of tax to gross domestic product rising in many countries and as an average across all regions but remaining below the key 15% threshold in many developing countries. Given its own domestic taxation expertise, research and experience, Finland supports domestic resource mobilisation (DRM) as a key development co-operation objective despite reduced official development assistance (ODA) resources for this priority and challenges in mobilising different actors across government and civil society.
Support to DRM has been a consistent priority of Finland’s development co-operation. Finland’s approach has featured several elements:
A clear political commitment translated into multi-year action plans. Finnish governments since 2015 have identified DRM as a development co-operation priority, as further articulated in taxation for development action plans for 2016-19 and for the 2020-23 period. A third action plan is currently being prepared in line with Finland’s July 2024 development policy report. The plans, which help guide and direct Finland’s DRM efforts, state that Finland’s DRM work aims to support developing countries in strengthening their own tax systems to generate resources for poverty eradication and to reduce economic inequality.
Deployment of Finnish technical expertise through institutional co-operation. The Finnish Tax Administration (VERO), for instance, has shared Finnish expertise with the revenue authorities of Kenya and the United Republic of Tanzania, providing support on strengthening tax registration, corporate tax compliance, audit examination selection processes and overall change management. VERO has worked with the Tanzania Revenue Authority since 2018; this continuity has been key to nurturing a successful institutional relationship. Finland also provides financial support for the joint OECD-UNDP Tax Inspectors Without Borders programme, which helped tax administrations in developing countries generate an additional USD 2.30 billion in tax revenues and USD 6.05 billion in tax assessments.
Engagement on international taxation policy. Recognising that strengthening the position of developing countries in global tax policy is key to ensuring a fair global tax system, Finland has supported OECD tax and development work and other initiatives and provides support to regional institutions such as the Africa Tax Administration Forum (ATAF) to facilitate the inclusion of African countries’ voices in international tax discussions.
Ensuring policy coherence. Finland’s tax responsibility principles for development co-operation funding that is channelled via the private sector, introduced by the Ministry for Foreign Affairs (MFA) in 2021, aim to ensure the tax responsibility of Finnish companies receiving ODA. Finland sometimes requests exemptions from local tax and customs duties on ODA-funded goods and services and makes this information available on the OECD Digital Transparency Hub on the Tax Treatment of ODA. Finland also integrates gender considerations in its taxation-related work including by emphasising the need for gender-disaggregated data and also funding research and advocacy on links between gender equality and tax policy.
Funding research and advocacy work to support policy goals. Finland’s 2020-23 action plan required the MFA to co-operate with partners to identify areas, such as new regulation, for research funding. The Finnish Centre of Excellence in Tax Systems Research also undertakes research relevant to Finland’s priority partners countries.
Improved tax administration capacity in partner countries. Finland’s support to the Tanzania Revenue Authority contributed to an increase in the number of registered taxpayers and in online filing, which led to a 15% increase in total taxable income. Work with the Kenya Revenue Authority is contributing to building a sustainable taxpayer base and increasing revenue.
Greater public awareness and stronger networks and accountability mechanisms in partner countries. A 2023 independent evaluation found that Finland’s support to basket fund programmes, civil society advocacy and research led to some successes on pushing for tax policy reforms in partner countries, particularly in Africa.
Strengthened global tax systems. Finland’s partnership with the ATAF contributed to strengthened regional tax co-ordination, exchange of information and transparency and helped ensure that tax policy negotiations at the United Nations and OECD included African countries’ voices. Finland also contributed to strengthening the World Bank’s DRM approach, including a stronger focus on progressive taxation.
Finnish tax responsibility policy enabled partner countries to generate revenue. In line with the MFA’s tax responsibility principles, Finland’s development finance institution Finnfund assesses whether its investee companies follow responsible tax practices before making funding decisions. As noted in the 2023 evaluation of Finland’s DRM initiatives, Finnfund reported that in 2021 its investee companies contributed EUR 692 million in tax and tax-like fees.
Success in meeting international tax and development commitments. Finland was one of the countries that committed under the Addis Tax Initiative to double its support to DRM from 2015 onwards. Cuts to the ODA budget impacted Finland’s ability to meet this goal in the years following 2015, but it met this commitment in 2022.
Action plans need to be underpinned by clear priorities and a plan for results monitoring. The 2023 evaluation of Finland’s DRM initiatives found that the first two global action plans were relevant but overly ambitious as they were formulated with the expectation that more resources (and staff) would be available for implementation. The plans would also have benefitted from clearer priorities to guide decisions on where to allocate resources in the face of budget cuts and from a results framework as it was difficult to capture and communicate results without one.
Whole-of-government engagement and buy-in for DRM are critical. Effective engagement on tax and development requires action from across the Finnish government as well as with non-government actors in Finland, such as civil society organisations and the private sector, meaning that securing buy-in is key. The 2023 evaluation found scope for improvement in this respect. For example, the MFA faced difficulties getting buy-in on the DRM agenda from the Ministry of Finance and other line ministries for various reasons including lack of a shared government agenda on tax and development. Plans to form an external working group with government and other Finnish actors also did not materialise as foreseen under the second action plan.
Given the global nature of taxation, synergies across country, regional and global efforts as well as coalition building are key. The 2023 evaluation recommended that the MFA ensure that its support remains conducive to synergies and coalition building at country, regional and global levels, with a continuous emphasis on promoting South-South co-operation.
Scope for more extensive mainstreaming of cross-cutting issues in initiatives. Finland’s efforts to mainstream gender considerations into DRM programming have been effective, but the 2023 evaluation found scope for better integration of issues of non-discrimination and climate.
Particip GmbH and NIRAS Finland Oy (2023), Evaluation of Finland’s Initiatives Focused on Enhanced Domestic Resource Mobilization (DRM), Ministry for Foreign Affairs, Helsinki, https://um.fi/documents/384998/0/DRM_evaluation%20report.pdf/02f2c302-ef94-30ba-a2ab-f3ca3314b424?t=1702629120408.
Ministry for Foreign Affairs of Finland (2020), Taxation for Development: Finland’s Action Programme 2020-2023, https://um.fi/documents/35732/0/Finland_Tax4D_Action_program_050620.pdf/cf6f8dae-434c-96e5-be1c-b9e79e0dc102?t=1591620474451.
Ministry for Foreign Affairs of Finland (2016), Tax and Development: Finland’s Action Programme 2016-2019, https://um.fi/documents/35732/48132/tax_and_development_finland%E2%80%99s_action_programme_2016%E2%80%932019.pdf/b720eebf-343b-aca6-e8b3-fc99b1f108bc?t=1560450206884.
Addis Tax Initiative (2020), “Support for DRM from Finland at a glance”, in 2020 ATI Monitoring Report, https://www.addistaxinitiative.net/sites/default/files/drm-profile-documents/Finland_0.pdf.
OECD (2024), OECD Development Co-operation Peer Reviews: Finland 2024, OECD Development Co-operation Peer Reviews, OECD Publishing, Paris (forthcoming).
OECD (2024), Tax and development (webpage), https://www.oecd.org/en/topics/tax-and-development.html.
OECD (2024), Tax and Development at the OECD: A Retrospective (2009-2024), OECD Publishing, Paris, https://doi.org/10.1787/9db734bc-en.
OECD (2022), “International diplomacy and partnerships to address global challenges”, TIPs Fundamentals, Development Co-operation TIPs – Tools, Insights, Practices, https://read.oecd-ilibrary.org/view/?ref=1160_1160773-q4eygvatlx&title=International-diplomacy-and-partnerships-to-address-global-challenges.
OECD (2022), Tax Capacity Building: A Practical Guide to Developing and Advancing Tax Capacity Building Programmes, OECD Forum on Tax Administration, OECD Publishing, Paris, https://doi.org/10.1787/c73f126f-en.
To learn more about Finland’s development co-operation see:
OECD (2023), "Finland", in Development Co-operation Profiles, OECD Publishing, Paris, https://doi.org/10.1787/dbcd0a36-en (accessed 16 July 2024).
See more In Practice examples from Finland here: www.oecd.org/development-cooperation-learning?tag-key+partner=finland#search.
