Almost a year after the Fourth International Conference on Financing for Development, the gap between political commitment and action remains. With aid budgets shrinking and debt vulnerabilities mounting, the USD $4 trillion governments forgo annually through exemptions, credits, and preferential rates demands greater transparency and accountability.
In this analysis, members of the Coalition on Tax Expenditure Reform, co-founded by ICTD, argue that minimum reporting standards are a precondition for reform and should be a priority for the G7 and G20.
A USD 4 trillion blind spot in public finance
According to official reports gathered in the Global Tax Expenditures Database, governments globally forgo an estimated 23% of their tax revenue through tax expenditures, including exemptions, deductions, credits, and preferential rates. Official revenue forgone figures amount to approximately 4 trillion dollars annually. Although this entire amount cannot or should not translate into increased revenue (as discussed below), tax expenditures remain one of the largest but least scrutinized sources of revenue leakage.
At a time of tight fiscal space, high debt burdens, and increasing demands for investment in climate action, infrastructure, health, and education, this scale of forgone revenue cannot be ignored. Disentangling tax expenditures that represent value for money from those that are redundant, ineffective, or too costly is vital to strengthening domestic resource mobilization and reallocating public resources to national development priorities.
This has been explicitly recognized at the international level. The Compromiso de Sevilla, the outcome document of the Fourth Financing for Development Conference (FfD4), and the Addis Tax Initiative (ATI) Seville Declaration on Domestic Resource Mobilisation, both underscore the importance of improving the governance and transparency of tax expenditures.
Yet, nearly 12 months after these commitments, progress in operationalizing tax expenditure reform remains limited.
This raises an important question: What is holding countries back?
Political and instititutional complexity of reform
A central constraint lies in the political and institutional complexity of reform. Tax expenditures often benefit specific constituencies, creating vested interests resistant to change. Administrative challenges further complicate reform efforts, particularly in contexts with limited human resources and financial capacity.
In addition, another fundamental barrier persists: the lack of regular, reliable, and comprehensive information. In many countries, governments do not have a complete picture of the fiscal cost, distributional impact, or effectiveness of their tax expenditures. Nor do they have sufficient insight into the practices of other countries. Without this, it is virtually impossible for governments to make informed decisions about which benefits to remove, adapt, or maintain—or to justify them politically.
The Compromiso de Sevilla nudged countries in this direction.
The ATI Seville Declaration took it further, with partner countries agreeing to “work toward the development and adoption of joint voluntary minimum standards for tax expenditure reporting.” The challenge now is to translate this commitment into concrete action.
From political commitment to practical standards: three core principles for vountary adoption
International processes, such as the annual deliberations of the G7 and the G20, represent critical political opportunities to advance this agenda. They provide a platform to move from broad commitments to specific, implementable measures.
The Coalition on Tax Expenditure Reform (COATE) is uniquely positioned to support this next step.
It is a global, multistakeholder initiative founded by five institutions:
- International Centre for Tax and Development (ICTD)
- Council on Economic Policies
- German Institute of Development and Sustainability
- International Institute for Sustainable Development (IISD)
- ODI Global.
It launched in 2025 as a Sevilla Platform for Action initiative and has been endorsed by the governments of Brazil, France, Guinea, Nigeria, Rwanda, Senegal, Spain, and the United Kingdom as well as, more recently, by the United Nations Development Programme.
Building on the momentum generated by FfD4, COATE is urging governments, international organizations, and multilateral initiatives to adopt global voluntary minimum requirements for tax expenditure reporting. Increasing access to information on the use of tax expenditures would enhance transparency and accountability, improve the evidence base for policymaking, and create conditions for effective reform.
COATE’s proposal builds on the normative approach behind the Global Tax Expenditures Transparency Index and is structured around three core principles:
1. Regularity
Regularity means that governments produce tax expenditure reports annually, so that political decision-makers and stakeholders know when to expect this information and which time span those reports are covering. Governments should link the reports to the budget cycle, to enhance coordination and organize the exchange of data and information among relevant governmental bodies.
- A minimum requirement would call on governments to produce annual tax expenditure reports and integrate these reports into the budget cycle.
2. Specificity
Specificity means that governments provide information at the level of individual tax expenditure provisions. Provision-level data is a prerequisite for TE evaluation and, hence, key to any informed debate about tax expenditure reform.
- A minimum requirement would call on governments to produce a comprehensive inventory of tax expenditure provisions as part of each report. The inventory should include information on the legal basis, policy objectives, and targeted beneficiaries for each provision as well as revenue forgone estimates for each tax expenditure covered, or an explanation when estimates are not available.
3. Transparency
Transparency means that governments publish information on all tax expenditures in use.
- A minimum requirement would call on governments to publish the tax expenditure report in a way that makes it easily accessible to political decision makers, legislators, and the public in general.
Taken together, these principles define a pragmatic and scalable approach to improving tax expenditure reporting globally.
Tax Expenditure Reform Is a Non-Starter Without Regular Reporting
At first glance, tax expenditure reporting might seem like a technical exercise. In reality, it is an essential foundation for identifying ineffective or harmful tax expenditures, assessing trade-offs, and designing credible reform strategies.
The stakes are substantial. The previously referenced USD 4 trillion in revenue forgone illustrates the scale of resources at play. However, it is important to approach this figure cautiously.
Not all tax expenditures could—or should—be eliminated. Some provisions are structural features of the tax system and cannot be removed. Others are designed to address specific market failures or achieve policy objectives, such as incentivizing investment in clean energy or supporting low-income households. Reform may only free parts of the revenue foregone in question. Governments may choose to replace certain provisions with direct spending measures. Taxpayers may also adjust their behavior in response. Finally, any additional fiscal space generated through tax expenditure reform does not automatically translate into more financing for development, as governments will use the revenue according to their own priorities.
Tax expenditure reform is not always low-hanging fruit. It can affect the interests of powerful groups. For it to happen and succeed, there must be political will, and reform processes must be enabled by finance ministries and tax administrations equipped to undertake careful, context-specific analysis and implement such reforms.
The support from international and regional organizations, such as the African Tax Administration Forum, the Inter-American Center of Tax Administrations, and the Economic Community of West African States, as well as other stakeholders such as COATE and its five founding organizations is vital.
These challenges cannot be overstated.
G7 and G20 are an opportunity to agree to minimum tax expenditure reporting standards
Tax expenditure reform – and its potential to strengthen domestic resource mobilisation – is a non-starter unless we create the necessary informational foundations.
The immediate required next step is to set standards for regular, specific, and transparent tax expenditure reporting. The annual deliberations of the G7 and G20 are the next major political moments to implement the commitments from FfD4. By agreeing on minimum standards for reporting, G7 and G20 members would lead the drive to improve tax expenditure reporting across the globe.
