Advancing Domestic Revenue Mobilisation in the FFD4 process: Insights from the ATI at the to 3rd Prep. Comm. Meeting

Despite progress under the Addis Ababa Action Agenda (AAAA), there is a remarkable financial gap in the achievement of the Sustainable Development Goals (SDGs), especially in low-income countries (LICs). According to UN data, the annual SDG financing gap is estimated at $4 trillion. Tax revenue in nearly 80% of LICs remain below 15% of GDP — the regarded threshold for sustained economic growth.

The Addis Tax Initiative (ATI) hosted a side event on the sidelines of the Third Preparatory Committee for the Fourth Financing for Development (FFD4) Conference in New York last week. Organised in collaboration with the Permanent Mission of the Republic of the Gambia to UN, the Norwegian Agency for Development Cooperation (Norad), and the Trust, Accountability, and Inclusion (TAI) Collaborative, the event spotlighted domestic resource mobilisation (DRM) as a cornerstone to finance the SDGs and reaffirmed the case for advancing DRM in the FFD4 process.

The event featured a diverse panel of experts, government and revenue administration representatives, and international organisations who examined challenges and opportunities in mobilising domestic revenues to support sustainable development.

Opening remarks by the First Secretary of the Gambian Permanent Mission to the UN, Binta Jeng, highlighted the urgent need for global collaboration amidst rising inequality, climate challenges, and conflicts, stating, "We need to focus on DRM to achieve stronger and lasting impact."

An expert presentation by Matt Davis, from the International Monetary Fund’s (IMF) Fiscal Affairs Department (FAD), introduced a “fiscal trilemma,” emphasising the balance needed between debt control, increased spending for SDGs, and navigating political resistance on taxation. “But here is hope”, he continued, “There is potential, but it requires working both in policies and institutions”. Davis outlined key tax policy recommendations aimed at broadening the tax base, such as reconsidering tax expenditures, addressing the tax gap, and leveraging underutilised taxes like property and excise taxes, with the latter advancing not only the overall progressivity in the tax system but also the climate agenda. On institutional strengthening, he emphasised the relevance of building the capacities of tax administrations to operate autonomously, transparently, and accountably. He mentioned the digital transformation of revenue administrations, adding IMF’s estimate of 0.5 and 0.7% of GDP in tax increase, respectively, through measures like e-invoicing and electronic fiscal devices.

He concluded by emphasising the need for coordination in DRM technical assistance efforts to minimise transaction costs for recipients.

Partner country perspectives

Representatives from ATI partner countries, the Gambia and Pakistan, shared their DRM priorities and challenges. Both countries shared a common need for revenue strategies to formalise their substantial informal economies, improve digitalisation, and strengthen tax administration.

Ansumana Sanneh, Deputy Permanent Secretary at the Gambia’s Ministry of Finance, highlighted the country’s reliance on DRM to finance its development, with about 65% of government revenue coming from taxation. To strengthen the foundation for sustainable development financing, the Gambia has prioritised reforms, including streamlining processes to widen the tax base, particularly for the informal sector, and developing a comprehensive DRM strategy. This strategy aims to guide tax policies, formalise tax procedures, reduce exemptions, and support medium-term reform plans to widen the tax base, while transparently communicating government tax policies which allows for a predictable investment landscape.

Priority areas for the Gambia include introducing an integrated tax system for filling and payments aimed at enhancing tax administration’s capacity, addressing excessive tax exemptions, strengthen tax policy analysis, and building capacity in specialised growing sectors like telecommunications and finance. Efforts also focus on using big data analytics to enhance compliance. Among identified challenges and weaknesses, Sanneh highlighted poor data analytics, unreliable taxpayer information, inefficient procedures, and weak tax policy design causing extensive tax exemptions and revenue losses. Overall, Ansumana Sanneh emphasised tax exemptions as one of the key DRM priority areas for the Gambia.

Nayab Azhar, Deputy Collector of Customs at Pakistan’s Federal Board of Revenue (FBR), explained that Pakistan faces a $25.4 billion tax gap, equivalent to 10.8% of its economy, which has led to repeated IMF bailouts. She listed several tax loopholes at the core of the problem. For instance, the textile sector, which makes up 30% of the economy, contributes a $2.5 billion shortfall largely because of the predominance of informality in this sector and the gap in registering and paying taxes. Similarly, exemptions in transportation linked to agriculture and forestry result in $2.7 billion in lost revenue. Individual income tax is also a major issue, with 95% of the gap coming from the wealthiest 5%, including over $1 billion from the top 1%. Smuggling across the porous border with Afghanistan adds another $2.7 billion in revenue losses. Beyond these, structural issues such as sales tax exemptions, incomplete visibility of supply chains, limited digitalisation, a shortage of 1,600 audit officers, and a lack of sectoral expertise continue to hinder progress. Pakistan has initiated a transformation plan to address these challenges, focusing on long-term reforms rather than short-term fixes.

Global cooperation and support for DRM

Volker Hey, Deputy Head of Division for Financing for Development and Coordinator for FfD4 from the German Federal Ministry for Economic Cooperation and Development (BMZ), celebrated a decade of ATI's contributions to international tax cooperation. He explained Germany’s approach to helping partner countries (PCs) mobilise resources and optimising their spending through three levels of action.

• National efforts in PCs to broaden the tax base, reduce gender inequalities through their tax systems, and increase overall progressivity of fiscal systems (like through property and wealth taxes).
• Development partners (DPs) support by providing needs-based assistance for DRM efforts in PCs.
• Global cooperation towards fairer international tax systems and supporting the work of existing fora like the OECD and support the negotiations of the United Nations Framework Convention on International Tax Cooperation (UNFCITC).

Hey reaffirmed the undeniable role of taxation in reducing inequalities and financing sustainable development: “DRM should be a core priority in ODA, and this assistance has to be needs-driven”, and reinforced “Supporting DRM is one of the most cost-effective investments in development cooperation”. He also called both ATI PCs and DPs to support the strengthening and implementation of global standards under discussion, such as Exchange of Information (EOI), Country-by-Country Reporting (CbCR), a Global Minimum Tax (GMT).

“The ATI should continue to be strongly linked to the FFD4 process and the outcome document”.

Volker Hey, Deputy Head of Sustainable Development Financing Division​ BMZ.

Ahtesham Khan from UNDP’s Tax for SDGs Initiative started his intervention by reflecting on the joint work with the ATI on the ground, in the ATI regional workshop on TEs with a focus on Asia in Manila and its follow up technical meeting in Nepal, to which UNDP took part as a local implementing partner.

He highlighted that while the SDGs are widely accepted and belong to the global community, representing the milestone achievement of an international legal framework, only 15% of the SDGs have been achieved – a sobering reality with just five years remaining until 2030.

Taxation plays a crucial role in achieving the SDGs, not only as a revenue source but also as a tool for redistribution and recalibration. For instance, Armenia’s tobacco taxes are projected to raise $100 million by 2027, he argued, and Egypt is analysing carbon pricing impact. However, tax incentives can adversely affect sectors with higher concentrations of women-owned businesses, underscoring the need for gender-sensitive tax policies. Khan emphasised the catalytic potential of investing in tax systems, with programmes like TIWB yielding over $100 for every dollar invested, yet current ODA spending on domestic resource mobilisation remains below 0.2% of total ODA.

“We need to invest 0.2% of ODA on DRM”. 

Ahtesham Khan, UNDP Head of Tax for SDGs.

Reflecting on the broader context of public finance, he stressed the importance of integrating revenue and expenditure through public finance reforms. For example, fossil fuel subsidies, amounting to $7 trillion globally, significantly contradict climate targets and highlight the need for a development-oriented focus. He noted the role of philanthropy and international cooperation in bridging gaps, urging better alignment between philanthropic efforts, ODA, and public finance initiatives to create synergies for sustainable development. Looking ahead, UNDP plans to launch new initiatives on public finance and the SDGs, with a focus on fostering collaboration and securing relevance for the next decade of global development efforts.

Open discussion and future commitments

The side event concluded with an open discussion which highlighted key issues raised by civil society organisations, including the need for stronger resource taxation frameworks, especially for extractive industries, to address gaps in domestic resource mobilisation (DRM) and social accountability. Alexandra Readhead, the International Institute for Sustainable Development (IISD), stressed the importance of balancing tax exemptions with long-term revenue strategies and addressing inequities in multinational corporation (MNC) taxation, particularly in resource-rich but capacity-limited countries. Concerns were raised about over-reliance on regressive taxes like VAT and the lack of progressive tax reforms, as well as the need for transparency in beneficial ownership and illicit financial flows (IFFs). Representatives of civil society organisations emphasised CSO’s role in fostering accountability, equity, and efficient tax administration, urging for more funding and capacity-building to support these efforts, while ensuring commitments to equity and sustainability are central to the FFD4 agenda.

“CSOs hold governments accountable. We need to see them clearly included in the outcome document”. 

Matti Kohonen, Financial Transparency Coalition (FTC).

“There is no achieving the SDGs without DRM”.

Rhiannon McCloskey, International Center for Tax and Development (ICTD).

“Specific measurable commitment in the FFD4 outcome document is essential to make an impact”, Michael Javis, Executive Director, TAI Collaborative

In his closing remarks, Michael Jarvis, Trust, Accountability, and Inclusion (TAI) Collaborative’s Executive Director, emphasised the critical role of trust, accountability, and inclusion in building strong fiscal systems that support democracy and a healthy planet. He highlighted the need for greater funding for civil society, parliaments, and oversight bodies, stressing that informed debates on tax policy require broad support. However, he pointed out the limited funding for tax justice, with only $55 million globally over the past five years, and noted that DRM remains a tiny fraction of ODA, which itself is under pressure. Jarvis called for making a stronger case to philanthropies to support DRM, despite their complicated relationship with tax issues. One encouraging sign is that climate-focused donors are beginning to recognise the importance of equitable DRM to fund climate action. He warned against over-reliance on International Financial Institutions, advocating instead for increased bilateral support to civil society, who will be all the more important partners in building case for tax amid shrinking aid envelopes. Finally, he underlined the importance of setting an ambitious agenda for DRM at FFD4 and a renewed ambition for DRM funding post-2025, urging stakeholders to safeguard and expand these commitments.

The event was moderated by Toril-Iren Pedersen, Norad’s head of section for Governance and member of the ATI Steering Committee.

The ATI's continued commitment to enhancing DRM highlights its crucial role in tackling global financing challenges and advancing the SDGs—an effort that becomes even more significant as FFD4 approaches.

In case you missed the live event, you can rewatch it for a limited time following the link here