New IMF Blog and Research Paper related to PFM Board thread of May 6 2014
https://blogs.imf.org/2022/03/24/personal-income-tax-has-untapped-potential-in-poorer-countries/?utm_medium=email&utm_source=govdeliveryPersonal Income Tax Has Untapped Potential in Poorer Countries
MARCH 24, 2022
By Dora Benedek, Juan Carlos Benítez, and Charles Vellutini
Developing countries have shown remarkable progress in using the personal income tax.
"Many governments aiming to achieve a durable economic recovery from the pandemic must raise significant amounts of revenue in the fairest way possible. The personal income tax—levied on wages, salaries, and other income—is a suitable instrument for this challenge. In new research, we examine the scope for making greater use of this fiscal tool in developing countries, where many people earn a living at low incomes.
What drives revenue growth?
In examining the progress of the personal income tax in developing countries, we distinguish between observable tax policy changes and broader economic changes. Policy changes have targeted top and bottom statutory rates as well as the level of exempt income. Remarkably, we find that this hasn’t contributed much to the increase in revenue in low-income countries.
And in emerging market economies, this shift has sometimes actually reduced revenue. This is the case in part because many emerging markets have introduced flat tax systems with low rates and those with progressive schedules have reduced rates over the last two decades.
Economic variables, on the other hand, played a very important role. We looked at increases in per capita incomes and the size of the public-sector wage bill and the reduction in the size of the informal sector, as measured by the share of self-employed workers in the labor force and the share of agriculture in the economy. These developments have clearly been the driving force behind the growth in personal income tax revenues. As economies develop, we can expect this tax to take on greater importance.
Improvements in tax administration also potentially play a role in boosting revenues, though that also extends to other taxes. Moreover, the accelerated shift into digitalized services because of the pandemic can pave the way for better income tax design and enforcement."
https://www.imf.org/en/Publications/WP/Issues/2022/01/28/Progress-of-the-Personal-Income-Tax-in-Emerging-and-Developing-Countries-512234