In poor nations, collecting taxes can be tough in the best of times.

Economists say in African and other developing countries, up to 800 billion dollars is lost each year to tax evasion – money that could go toward development, but instead makes Africa a net creditor to the rest of the world. 

Tightening loopholes

They say some multinational companies avoid paying high taxes by using what financial experts call transfer pricing -- improperly declaring high income and expenses in the low-tax countries they operate in, while under-declaring their levels of income and expenses in high-tax countries.

Economist Henri-Bernard Solignac-Lecomte, the head of the Africa desk of the Development Centre at the Paris headquarters of the the Organization for Economic Co-operation and Development (OECD) says the regulation of both transfer pricing and tax havens is important: "African governments often do not have the power to negotiate with multinationals whose turnover is sometimes a multiple of their own – terms and conditions that would make those companies fair contributors to the economies in which they are operating.

"So far, these are issues mainly discussed by representatives of richer countries who all want to make sure they get their fair share of taxation from multinationals . But Africans have been absent in this debate and need to be brought in. "

The global financial crisis has made things even more difficult. Slumping economies mean fewer goods and services for governments to tax.

The G20 may discuss ways to enhance revenues, and improve budgets for improving social programs.

The group has promised to crack down on tax havens. The Washington Post newspaper says according to its sources close to the G20, the group is considering imposing sanctions on Uruguay and Panama if they continue to shield tax dodgers.

Some economists have suggested the group consider a tax on international currency transactions to help developing nations build social safety nets. Solignac-Lecomte says, howver, that there’s no consensus on the issue: Europeans often favor international taxes, while the US opposes them.

In the long run, he says the G8 has given a clear mandate to the OECD to help African countries find solutions to tax collection issues.  

He says the Paris-based organization is helping African countries identify alternatives, including taxes on some urban properties. It’s also helping a number of countries and institutions set up an African Tax Administration Forum to be launched in Kampala, Uganda, in November.

"They would first principles," he explains, "and how much they lose from tax evasion. So they’d be joining forces . They would set up capacity building programs to help administrations become more effective at negotiating and implementing tax policies, including toward foreign economic agents . "

Coordinating finance

The G20 is also likely to discuss another issue that may affect taxation – the need for all countries to adhere to the same accounting practices.

John Kirton is the director of the G20 Research Group, based at the University of Toronto, Canada.

"There is a patchwork of accounting practices," explains Kirton, " which makes it difficult for the average investor or citizen to read a company’s balance sheets and compare them across countries -- even if it is the same company doing business in different countries. which standards are they following ?"

He says it’s not clear summit that delegates to the meeting will discuss the ultimate way to enhance the budgets of developing countries – additional aid.

So far, the G20 has promised US $50 billion to support social protection measures, boost trade and safeguard development in low income countries. The OECD estimates that Africa could get between $ 21 billion and $23 billion.

Industrialized countries have also agreed to provide $300 billion dollars over the next three years to multilateral development banks, including the African Development Bank (AFDB) in an effort to increase lending to low income countries. The World Bank and the AFDB have allocated up to 15 billion dollars to be used in Africa.