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Domestic revenue mobilization has been a longstanding challenge for
countries in the Middle East and Central Asia. Insufficient revenue
has often constrained priority social and infrastructure spending,
reducing countries' ability to reach the Sustainable Development
Goals, improve growth prospects, and address climate related
challenges. Moreover, revenue shortfalls have often been
compensated by large and sustained debt accumulation, raising
vulnerabilities in some countries, and limiting fiscal space to
address future shocks. The COVID-19 pandemic and the war in Ukraine
have compounded challenges to sustainable public finances,
underscoring the need for revenue mobilization efforts. The recent
global crises have also exacerbated existing societal inequalities
and highlighted the importance of raising revenues in an efficient
and equitable manner. This paper examines the scope for additional
tax revenue mobilization and discusses policies to gradually raise
tax revenue while supporting resilient growth and inclusion in the
Middle East and Central Asia. The paper's main findings are that
excluding hydrocarbon revenues, the region's average tax intake
lags those of other regions; the region's fragile and
conflict-affected states (FCS) face particular challenges in
mobilizing tax revenue; In general, there is considerable scope to
raise additional tax revenue; countries have made efforts to raise
tax collection, but challenges remain; tax policy design, notably
low tax rates and pervasive tax exemptions, is an important factor
driving tax revenue shortfalls; weak tax compliance, reflecting
both structural features and challenges in revenue administration,
also plays a role; and personal income tax systems in the region
vary in their progressivity—the extent to which the average tax
rate increases with income—and in their ability to redistribute
income. These findings provide insights for policy action to raise
revenue while supporting resilient growth and inclusion. The
paper's analysis points to these priorities for the region to
improve both efficiency and equity of tax systems: improving tax
policy design to broaden the tax base and increase progressivity
and redistributive capacity; strengthening revenue administration
to improve compliance; and implementing structural reforms to
incentivize tax compliance, formalization, and economic
diversification.
This paper aims to contribute to the European policy debate on
corporate income tax reform in three ways. First, it takes a step
back to review the performance of the CIT in Europe over the past
several decades and the important role played by MNEs in European
economies. Second, it analyses corporate tax spillovers in Europe
with a focus on the channels and magnitudes of both profit shifting
and CIT competition. Third, the paper examines the progress made in
European CIT coordination and discusses reforms to strengthen the
harmonization of corporate tax policies, in order to effectively
reduce both tax competition and profit shifting.
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