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September 21, 2019

Developing countries must root out tax evasion

Tax evasion can have a major impact on the economies of developing countries. The more businesses and individuals that properly pay their taxes, the faster the country can liberate itself from poverty. If policy makers do not act against this problem, the success of tax evaders may encourage others to follow suit.
Diversion of nominally public money through corruption or tax evasion hinders economic development. The amount of uncollected taxes is more than the education or health budget in some countries, and almost as large as the revenue from the business sector in others.
Tax evasion exacerbates income inequality, widening the gap between rich and poor. It also siphons away money that can be used for investment in productive resources needed to diversify the economy and address urgent social problems.
Corruption and tax evasion are mostly interrelated, causing the loss of revenue and redirecting financial resources away from the state budget and towards private spending, which contributes less to development than public expenditures on agricultural inputs, education, health and infrastructure.
A World Bank study has shown that the losses caused by corruption and tax evasion are powerful examples of how criminal activities can have a tremendous negative impact on the economic development of a country.
In fact, when ill-gotten money is diverted from productive investments, it can have a multiplier effect on an economy. Therefore, any official strategy to alleviate poverty must include measures to address corruption and tax evasion.
If developing countries are to improve the standard of living for all citizens, it is vital that they establish mechanisms to pursue and punish tax evaders.

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