The OECD has prepared a report for G20 Finance Ministers and Central Bank Governors at the request of the Italian G20 Presidency, which considers the challenges and opportunities of developing public fiscal policy strategies as countries seek to “build back better”. The report highlights some of the key considerations that policymakers should take into account to ensure optimal tax policy design and the successful implementation of tax reform.
On tax expenditures, the report states that “developing countries should prioritise to abolish and redesign poorly targeted and ineffective tax expenditures. Many developing countries have narrow tax bases as a result of a wide range of special tax provisions. These provisions are often not well designed nor targeted and are often beneficial to households and firms that need the support the least.”
The report also underscores the importance of transparency and reporting as a crucial step for improving the design of tax expenditures. “As well as improving the equity of the tax system, broadening the tax base and improving the design of tax expenditures will be important to improve tax revenues. A crucial step in this process is developing an annual tax expenditure report that lists all tax expenditures and calculates their tax revenue foregone and, possibly, their distributional implications. Such a tax expenditure report should be made publicly available, as this increased transparency will lead to better-informed tax policy decision making.”
You can read the full OECD report here.