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This article is authored by Everlyn Kavenge, Policy Officer at Tax Justice Network Africa
The Financing for Development Conference (FfD4) is a Member State-led process where governments, alongside other stakeholders, come together to develop a framework for financing sustainable development. There have been three such conferences in the past, each resulting in an outcome document that provided a framework for financing for development. Previous outcome documents included the Monterrey Consensus of 2002, the Doha Declaration of 2008 and the Addis Ababa Action Agenda of 2015. In 2025, the fourth conference shall be taking place in Seville, Spain.
In the lead to Seville, an intergovernmental preparatory committee was established in 2023; and in June 2024, Mexico, Norway, Nepal and Zambia were announced as the co-facilitators of the negotiations of this process. In December 2024 an Elements Paper was prepared and discussed during the Second Session of the Preparatory Committee (PrepComm). Consequently, a zero draft of the outcome document building on the Elements Paper was released and served as the subject of discussions during the Third Session of the PrepComm.
The zero draft of the outcome document, as with previous such documents, spans several areas of economic cooperation including debt, taxation, private finance, official development assistance, climate finance and trade amongst others. This commentary provides reflections on the domestic public resources chapter of the outcome document (paragraphs 28 - 32) which was discussed on the second day of the Third Session of the PrepComm for FFD4.
Moving on from the Addis Ababa Action Agenda
The world has changed since 2015 when the AAAA was released. In the face of various factors such as the global COVID-19 pandemic, the increasing impact of climate change, and the impact of conflicts such as the Russia – Ukraine, Sudan and DRC wars, the global economic landscape has significantly altered. Within the African context, Africa’s median public debt ratio has been on an upward trajectory since the beginning of this decade from 54.5% of GDP in 2019, to 64% in 2020, moving to around 63.5% from 2021–23 according to the Africa Economic Outlook 2024 report. In addition to this, the flow of FDI, ODA, portfolio investments and remittances dropped by 19.4 % in 2022. With high debt servicing costs, and strained tax capacities as evidenced by a median of a tax to GDP ratio of 14% in Africa, this region is experiencing constrained fiscal space which is crowding out financing for critical public services such as health and education.
The unfortunate truth is that both public and private resources have not been enough to finance the development needs of Africa and other Global South countries, especially in the wake of major economic shocks. Access to finance through the global financial architecture has been particularly difficult for many developing countries with little to no access to concessional loans/grants, higher financing costs and limited representation in international financial institutions. It is for this reason, that civil society has been calling for an FFD4 outcome document that reflects the times and has higher ambition in comparison to the AAAA.
Domestic resource mobilisation (DRM) versus international tax cooperation (Paragraphs 28-29 and 30-31)
The chapter on domestic public resources contains provisions on both DRM (paragraphs 28-29) and international tax cooperation (paragraphs 30 and 31). It was notable, however, that during the discussions on paragraphs 28 and 29, submissions by several Member States leaned towards ensuring that there was a balance between the two and that the DRM section was not too prescriptive, particularly for developing countries.
For example, Pakistan expressed concerns about the prescriptiveness of paragraph 29 and called for the need for a balance between DRM and international tax cooperation. Algeria in this regard, called for the explicit recognition that developing countries are failing to mobilise resources due to systemic issues and historical inequities which make it difficult for countries to expand their tax bases. China called for adherence to the principle of national ownership noting that paragraph 29 should ensure that domestic measures should be free from both external interference and a one-size-fits-all approach. The US, on the other hand, was of a contrary opinion and argued that the section on international tax cooperation (paragraph 30) should be reframed to focus more on DRM as it was too wide in scope.
While recognising that domestic public resources are central towards financing for development, the FfD process is ultimately about transforming the global economic system. It is important, therefore, that paragraph 29 should avoid simply asking developing countries to expand their tax bases by improving their tax administrations and introducing new taxes, such as on environment and climate, without acknowledging the systemic issues that are a barrier towards DRM. Indeed, it is inadequate to recognise the need to design tax systems and public expenditure that is progressive and gender responsive, without acknowledging the systemic debt-tax cycle that many developing countries are in. Overly emphasizing the reform of domestic systems is a missed opportunity towards truly addressing the issues within the global economic system that keep developing countries from being unable to expand their tax bases and mobilise revenue for development.
Climate finance and capacity support (Paragraph 29)
This prescriptiveness is most notable in paragraphs 29(g) and (k) on the provisions on environmental and climate considerations in fiscal programming, as well as capacity support. Some of the proposals provided include green budgeting, taxation and fiscal rules, carbon pricing, and taxes on environmental contamination and pollution. During the discussions, several Member States noted, however, that this paragraph ignored the critical principle of common but differentiated responsibility (CbDR).
In reference to this section, Angola, speaking on behalf of the G77, asked that developing countries not be overburdened with climate mitigation measures. Pakistan, Bangladesh, Cuba, Yemen, amongst others called for the inclusion of the CbDR with Cuba going as far as to call for the deletion of options in this section.
It is important to note that climate finance is not about solidarity, but reparations and justice. The responsibility to raise resources for the impact of climate change should not be placed on taxpayers in climate-vulnerable states who have been the least emitters yet are disproportionately affected by climate change. While many developing states, particularly the Alliance of Small Island States (AOSIS) were in support of this framing, some countries such as the US expressed reservations on the inclusion of issues of climate within this paragraph.
Paragraph 29(k) refers to targeted support to countries that need to reach at least 15% tax to GDP ratio. The risk of this proposal lies in that it can be used as an ODA conditionality. Yemen was in favour of deleting this reference to a specific threshold and rather called for concrete commitments on international support on capacity building. Ghana, speaking on behalf of the African Group proposed that 10% of ODA should go towards capacity support for DRM. This was also supported by Burkina Faso, speaking on behalf of least developed countries (LDCs).
Raising ambition on international tax cooperation
Throughout the Third PrepComm session, several Member States asked for the inclusion of concrete actionable steps in the outcome document. Indeed, they indicated that some of these steps could include kickstarting intergovernmental processes leading to binding commitments in the form of conventions.
The domestic public resources section of the zero draft is unique because an intergovernmental process is already underway to develop binding commitments through the UN Framework Convention on International Tax Cooperation (UNFCITC). As such, Ghana on behalf of the African Group indicated that there was a need to strengthen the language in paragraph 30c on support for the UNFCITC.
The main risk that lies in paragraph 30 is the watering down of hard fought for positions that were secured through negotiations on the development of terms of reference (TORs) for the UNFCITC. For instance, subparagraph 30(a) speaks to the need to ensure that international tax cooperation is of equal benefit to all parties and ensure that developing countries have equal footing within the international tax architecture. In response to this, Japan stated that developing countries already have voices within the existing fora and that it is the lack of adequate capacity that keeps them from participating effectively.
This approach is problematic as it trivialises the problems of inclusivity in the current international tax architecture which were articulated in the Secretary-General report. The UNFCITC process began as a way of addressing inclusivity and effectiveness in the international tax architecture.
There was also pushback against subparagraph 30 (b) which embodies the principle that multinational corporations should pay taxes where economic activity/value is created. The EU cautioned that this paragraph may be pre-empting the negotiations on the UNFCITC. However, this was not a new statement to the FFD process, in fact this very same principle was embodied in the AAAA back in 2015 as seen in paragraph 24.
On sub-paragraph 30 (c) which is the main provision calling for support for the UNFCITC, several Member States including Japan as well as the EU called for the UNFCITC to be based on consensus decision-making. This was problematic as the suggestion was in contradiction to the decision-making decision that was made in the Intergovernmental Negotiation Committee of the UN Tax Convention the week before.
All in all, some of the issues highlighted above could be addressed by outrightly noting and endorsing the TORs which were adopted by the General Assembly in December 2024.
Tax transparency (Paragraphs 30 e and f)
The sub-paragraphs (30 e and f) highlighting tax transparency were highly disputed. 30e is perhaps one of the most remarkable sections as it attempts to create special and differential treatment (SDT) for developing countries with regard to implementing tax transparency standards. It does so by proposing grace periods for full reciprocity under automatic exchange of information as well as easing of other standards. Additionally, it proposes public country by country reporting.
The principle of SDT is one of the key principles highlighted in the TORs for the UNFCITC. Tax transparency is one of the key areas in which SDT could be applied in as African countries have long struggled to meet tax transparency standards. In 2022, only 4 African countries were able to implement country-by-country reporting fully. Only 4 countries accounted for 84% of all exchange of information requests sent in 2023. In 2023, only 5 African countries benefited from automatic exchange of information. This requires solutions beyond capacity support. This section received much pushback on the basis of concerns regarding confidentiality, data safeguards and reciprocity. These concerns were forwarded by the EU, Canada, Australia, Japan amongst others. It was, however, most notable, that Australia remained silent on the issue of public country by country reporting considering the progress made within the country.
Innovative taxes and global solidarity levies (Paragraph 30h)
Paragraph 30(h) had a lukewarm reception. It sought to introduce global solidarity levies and other innovative taxes with the caveat that they would be implemented on a voluntary basis. These levies have been primarily proposed in other fora such as the Global Solidarity Levies Taskforce. Their main purpose is to raise finance for climate and development action.
For developing countries, the main concern was that these levies could potentially violate the principle of CbDR as articulated by India. Indeed, preliminary studies show that a carbon levy on shipping could disproportionately affect Africa. On the other hand, developed states expressed the need to clearly define what was the scope of these innovative taxes and solidarity levies before committing to anything further as articulated by the UK.
There is need for the development of such levies and innovative taxes to take place in democratic spaces such as under the umbrella of the UNFCITC to enable inclusive discussion. It is also critical to ensure that the principle of polluter pays and CbDR are adhered to, in order to avoid developing countries from being adversely affected.
Conclusion
Discussions on the domestic public resources section contained several areas of divergence as highlighted above. These issues will need to be addressed before the next stage of negotiations.
Indeed, tax remains the most sustainable source of financing for development and much progress has been made particularly through the kickstarting of the UNFCITC process. Member States must be careful to ensure that the outcome document does not detract from the positions/commitments that have been and will be concluded through the UNFCITC.
For more information on the TJNA and the Fourth International Conference on Financing for Development (FFD4), please contact Everlyn Muendo at emuendo[@]taxjusticeafrica.net.