The Right To Develop: How Tax Policy Can Empower Or Undermine National Growth

The human right to development encompasses the right of peoples to self-determination and full sovereignty over their natural wealth and resources. Central to this declaration is the ideal that every nation should have the autonomy to design policies that foster economic growth and social progress. Underpinning this principle is taxation and its profound influence on economic development.

The right to development empowers countries to control their own economic, social, cultural and political progress. This includes setting national priorities and policies without undue influence. In a global economy, this right requires equal participation in international systems: fair access to global markets, control over domestic resources, and a voice in global governance. Key principles include equality, citizen participation, international cooperation, and sustainable practices. For developing nations, aligning with these principles is critical for economic advancement on the regional and global stage.

Taxation As A Sovereign Right

On its face, taxation may appear merely as a technical and procedural function of a government; however, its significance and purpose go much deeper, supporting the existential attributes of a nation and its people. By designing tax policies tailored to their specific needs, governments shape their economic path and global contributions. This fiscal sovereignty is integral for developing countries, which rely on tax revenue as their primary source of funds to finance development initiatives. Without it, poverty, public service degradation, social unrest, and political instability, threaten the capacity for development. Simply put, taxation is at the foundation of national independence and self-determination, two essential components for ongoing financial resilience.

The OECD’s publication on Addressing the Tax Challenges of the Digital Economy emphasises several considerations when developing a tax policy framework, such as neutrality, efficiency, and certainty. In particular, it highlights the importance of equity, including horizontal (similar taxpayers, similar burdens) and vertical (higher earners, higher burdens), as well as ‘inter-nation equity’ (fair revenue sharing from cross-border transactions). This last point is especially relevant to a country’s right to development in a global economy. For developing nations, fiscal sovereignty of tax policies encourages equity vis-à-vis our fellow nations, including the more wealthy and industrialised nations. The significance of this was recognised by the OECD: “Any adaptation of the existing international taxation principles should be structured to maintain the fiscal sovereignty of countries, […] to achieve a fair sharing of the tax base …” (OECD, 2001: 228).

International Tax Framework

The current international tax framework, designed primarily by developed countries, often disadvantages developing nations. For example, prioritising the ‘residence principle,’ where taxes are paid in the country where a corporation is based, rather than the ‘source principle,’ which focuses on taxing income in the country where economic activity occurs, deprives developing countries of rightful tax revenue from activities within their borders. Consequently, international tax policies tend to favour developed countries.

The current framework lacks equitable representation and balanced decision-making, hindering the development of fair and effective solutions for both developed and developing countries. This conundrum raises the question of whether wealthier, industrialised countries should shoulder a proportionally larger tax burden, reflecting their greater capacity. Finding a balance between efficient revenue collection and a more just distribution of the global tax burden is a complex but necessary challenge. While a primary function of taxation is maximising government revenue, there is an argument for incorporating distributive justice principles to address international inequalities.

Economically developing countries, which account for a significant share of the world's population and possess the majority of its natural resources, continue to suffer from an inequitable distribution of global tax revenue. This imbalance perpetuates significant challenges such as chronic financial hardship, widening inequality, increased vulnerability to climate change, and sociopolitical turbulence. Despite their consistent efforts to adhere to global financial regulations, these nations are often subjected to arbitrary punitive actions, such as blacklisting, which aggravate their economic struggles. The absence of meaningful representation within influential bodies like the OECD and the G20 leaves them with limited recourse, further marginalising their voices in shaping fair and inclusive global tax policies.

The Push For Global Tax Reform

Given the inadequacies in the current system, there is a growing movement to reform international tax principles to better address base erosion and profit shifting (BEPS) and create a fairer global tax environment. In December 2023, the UN General Assembly passed Resolution 78/230 promoting inclusive international tax cooperation. Strongly supported by the Global South, economically developing countries of the world in Africa, Latin America, The Caribbean, Oceania and parts of Asia, the resolution addressed key areas for tax policy reform, including:

• Accounting for the needs, priorities and capacities of all countries, particularly developing countries.
• Utilising a holistic, sustainable development perspective that considers interactions with other important economic, social and environmental policy areas.
• Ensuring flexibility and resilience in the system for equitable results as technology and business models evolve.
• Leveraging additional forums and synergies with existing tools, strengths and expertise available at the international, regional and local levels.
• Developing early protocols for intermediate progress in parallel with longer-term comprehensive reforms.

This historic resolution unified the Global South. When addressing the UN’s Economic and Social Council (ECOSOC) on 18 March, Senator the Honourable L. Ryan Pinder K.C., Attorney General and Minister of Legal Affairs of The Bahamas, emphasised that the UN Framework Convention on International Tax Cooperation “should initiate a process that increases the legitimacy, stability, resilience, and fairness of international tax rules. It should establish the legal basis for a fully inclusive and more effective international tax cooperation…”

Subsequent negotiations resulted in the finalised terms of reference in August 2024. The Global South had successfully advocated for considerations for developing nations, including addressing the connection between environmental concerns and global tax policy; pursuing international tax cooperation in alignment with international human rights law, an essential element in the fight against unilateral blacklists; and creating protocols to address effective prevention and resolution of tax disputes.

The Bahamas' commitment to actively engaging in global tax reform negotiations, and advocating for equitable solutions on the international stage, underscores the pressing and detrimental impact of these issues. As a Small Island Developing State (SIDS), The Bahamas is compelled to allocate its limited resources to mitigate the adverse effects of inequitable tax treatment, thereby hampering its ability to fully realise its right to development, and constraining progress in areas essential for sustainable growth and societal wellbeing.

Sustainable Development Goals (SDGs) And Tax Justice

Currently, the progress here is far from where we need to be. The UN’s 2024 SDGs Report reveals a widening income gap between vulnerable and wealthy nations, and confirms developing countries’ underrepresentation in international economic decision-making. With IMF quotas unchanged, the 2025 Financing for Development Conference offers the next opportunity for increased influence from developing country. The report also identifies a $4 trillion annual investment gap for developing countries. While official development assistance (ODA) and other foreign direct investments have been flowing to developing countries in recent years, especially post-pandemic, it has not been enough. In September 2023, the UN Secretary-General proposed an additional $500 billion annually in financial assistance to help close the gap needed to fulfill the SDGs.

Tax justice directly supports the SDGs, particularly Goal 10 (reduced inequalities), and Goal 17 (domestic resource mobilisation). Tax justice ensures that countries, especially developing ones, have the resources needed to fund public goods and achieve sustainable development. To fully contribute to the SDGs, developing countries need adequate resources and tax policy control, including a seat at the table of the international governing bodies that are determining international tax principles that contribute to the equitable distribution of wealth and resources.

Recent national elections in developed nations and other emerging policy challenges globally will surely further influence and impact the ongoing collaboration and scrutiny required to strengthen international tax and development policies.

Upholding The Right To Development Through Equitable Global Tax Policies

The right to development, enshrined in the UN Declaration on the Right to Development and affirmed by international consensus, underscores every nation’s prerogative to shape its economic and social progress. This includes the sovereign right to develop tax policies. As the OECD has recognised, maintaining fiscal sovereignty is essential for fair sharing of the tax base. However, the current international tax framework often undermines this right, particularly for developing nations. By working together to reform the current system, including the promotion of inclusive global tax governance, we can ensure that all countries have the resources and autonomy they need to prosper.

Niekia Horton
Niekia is the CEO and Executive Director of Bahamas Financial Services Board. She is an experienced senior executive with over two decades of experience in the financial services industry.