Sustainable development and tax: the 17 SDGs, tax challenges in Africa and UNDP Tax for SDGs

A state in the north-east has no money for a clinic, a school or a water point. It cannot borrow more, and aid is shrinking. Its tax system collects very little from its informal traders, and large companies shift profit abroad. Meanwhile the United Nations asks it to deliver 17 development goals by 2030. The goals need money, and for most countries the only lasting source is tax. That is why the syllabus links tax to sustainable development.

This topic covers what sustainable development means, the 17 Sustainable Development Goals (SDGs), the role of tax in reaching them, the tax challenges of Africa and what they cost, and the United Nations Development Programme (UNDP) “Tax for SDGs” initiative of 2021. The previous topic covered current tax issues. The next covers tax issues in mergers and acquisitions.

Key terms in plain English

Syllabus check

This topic is in syllabus area D (current and emerging issues, 10% of marks). It covers:

• the core goals of sustainable development;
• the role of taxation in achieving sustainable development;
• the tax challenges of Africa and their effect, and the UNDP Tax for SDGs initiative.

CAMA 2020 and sustainable business

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Sustainable development

Sustainable development is growth that balances economic, social and environmental needs. It means economic growth that is friendly to the environment and open to all (economic); less poverty and inequality, with access to health, education and clean water (social); and protection of natural resources, biodiversity and ecosystems (environmental). Its two principles are intergenerational equity and environmental stewardship.

Ways of achieving it include renewable energy, sustainable farming and responsible consumption that cuts waste.

The 17 Sustainable Development Goals

The goals were adopted by the United Nations in 2015. They are linked: progress on one, such as health or education, supports others, and they aim to balance growth, social well-being and the environment. In the exam, state the goal and say in one line what it requires, for example Goal 1: end poverty in all its forms and promote inclusive and equitable growth.

The role of taxation

Tax is a dynamic form of social contract: citizens pay and the state delivers. Its roles are to:

• Raise revenue for infrastructure, education and health.
• Redistribute wealth by progressive tax and social programmes.
• Influence behaviour by discouraging pollution and encouraging renewable energy.
• Promote growth through incentives for investment, innovation and enterprise.
• Fund public goods and services that sustainable development needs.

Strategies. Green taxes on harmful activity; tax incentives for investment in renewable energy and sustainable infrastructure; progressive taxation to cut inequality; and tax transparency and accountability so that evasion is checked and revenue is spent on development. Nigeria’s economic development incentive, which replaced pioneer status, and its development levy, which funds education, technology and security, are examples of tax used for development goals.

General tax challenges

• Balancing growth with sustainability, so that development does not damage the environment.
• International co-ordination, because climate change and profit shifting cross borders.
• Tax capacity and administration: governments must build the skills and systems to apply the policy.

Africa’s tax challenges

• Limited tax capacity. Many countries cannot mobilise domestic resources well.
• Evasion and avoidance. Weak administration and low transparency lose revenue.
• The digital economy. Digital businesses must contribute fairly to the base.
• The informal economy. A large part of activity is hard to track and tax.
• Revenue mobilisation. Revenue is too low to fund public goods and services.

Their effect on sustainable development

• Reduced funding for health, education and infrastructure.
• Inequality. Those who evade gain over those who comply.
• Weak growth. Weak systems deter investment and innovation.

Dealing with the challenges

• Strengthen tax administration and transparency.
• Invest in tax capacity and domestic resource mobilisation.
• Promote international co-operation and sharing of good practice.

The UNDP Tax for SDGs initiative (2021)

The UNDP launched Tax for SDGs in 2021 to help countries use tax and mobilise domestic resources to reach the SDGs. It helps developing countries build resilience against external shocks and gives tax administrations and finance ministries the skills to fight evasion and align tax policy with the goals.

• Objectives: stronger tax policy and revenue administration; more domestic resource mobilisation; sustainable growth strategies that influence behaviour on climate, nature, well-being and governance.
• Implementation: work in many countries, including tax reform support in Uzbekistan; an assessment tool that shows how to align a tax system with the SDGs; and the Tax Inspectors Without Borders programme with the OECD.
• Tools: an SDG taxation framework for governments, and the annual Tax for SDGs Dialogue that brings together policymakers, diplomats, tax administrators and experts.
• Expected outcomes: more domestic revenue; better tax administration against avoidance, evasion and illicit flows; alignment of tax with the SDGs; digital tax services; gender equality through gender-neutral tax outcomes and the Gender Equality Seal; and more audit revenue through TIWB, which has helped to raise more than US$2 billion since 2015.
• Coverage: 25 countries in 2022, with a large increase in 2023.

Worked examples

1. (a) Goal 13, climate action: the levy prices the harm.
2. (b) Goal 7, affordable and clean energy: the incentive lowers the cost of investment.
3. (c) Goal 10, reduced inequalities: higher earners pay a higher share.

1. Shortfall = 100 − 40 = ₦60bn.
2. Collection of ₦40bn covers the ₦30bn need, but only ₦10bn remains for roads, water and everything else. Closing even half of the ₦60bn gap would add ₦30bn.
3. Raising the state’s own revenue in this way is domestic resource mobilisation, and it reduces reliance on aid and debt.

1. It uses the UNDP assessment tool to see where tax and goals are not aligned.
2. It uses the SDG taxation framework to plan reforms.
3. It requests a TIWB programme to raise audit capacity.

How to score full marks

• Define sustainable development with its three parts.
• Name goals by number and add one line on each.
• Link each tax role to a goal.
• Separate challenges, their effects and the remedies.
• Give the UNDP objectives, tools, outcomes and the 2021 date.

Common mistakes in the exam

• Defining sustainable development as economic growth only.
• Listing fewer than 17 goals or mixing goal names.
• Writing about taxes in general with no link to a goal.
• Confusing UNDP with the OECD; TIWB is a joint project of both.
• Giving only the challenges and no remedies.

Quick revision

• Three parts: economic, social, environmental. Two principles: intergenerational equity, environmental stewardship.
• 17 SDGs, adopted in 2015.
• Tax roles: revenue, redistribution, behaviour, growth, public goods.
• Strategies: green taxes, incentives, progressive tax, transparency.
• UNDP Tax for SDGs: 2021; DRM, alignment, TIWB.
• CAMA 2020: ss. 119, 305, 377(1), 378.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

Spotted a mistake? Tell us and we will check it.