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Supporting fair tax systems

An analysis of EU aid to domestic revenue mobilization.

The EU is currently the largest provider of aid to DRM amongst the donors

How can countries in the Global South mobilise the needed revenues for investments to fight the spread of the COVID-19 pandemic, save lives and protect people’s livelihoods? Later on, how can they rebuild their economies in a sound and just basis and lay the foundations for a stronger universal public health system?

According to the OECD, although aid remains critical, domestic resource mobilisation (DRM), and taxation in particular, will remain as the only long-term viable source of financing for the emergency response and recovery from this crisis. DRM is key for governments to fund their own development goals, finance gender-responsive public services such as health and education and to reduce economic, social and gender inequalities.

Aid can support low-income countries to strengthen and build fairer tax systems so that the wealthiest individuals and companies contribute to the crisis response and recovery, as well as to public services that will make countries more resilient and prepared for future crises.

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The European Union is currently the largest provider of aid to DRM amongst the donors. This joint ActionAid and Oxfam report examines how the EU’s aid to DRM is disbursed looking at what we consider essential for a good quality DRM project: country and regional ownership of DRM, fairness, inclusiveness and local empowerment. Essentially: more revenue collected in a more progressive way, under a robust and inclusive process locally.

For this paper, ActionAid and Oxfam analysed the European Commission’s DRM allocations for 2016 and 2017 as reported in the Addis Tax Initiative DRM database. Overall, the analysis shows that while the EU is leading the way when it comes to the quantity of aid it provides towards domestic revenue mobilisation, there is significant room for improvement when it comes to the quality of the aid provided.

Although the research was carried out before the COVID-19 pandemic, the recommendations are now more relevant than ever as countries from the Global South need revenues to rebuild their economies and lay the foundations for stronger universal public health systems.