Revenue policy is the framework and foundation of the revenue system. It translates a government’s philosophy and outlook into practice regarding the distribution of income and wealth, the promotion of investment, the use of natural resources, the alleviation of poverty, the development of basic infrastructure and the overall sustainability of public finances.
Revenue policy formulation determines which revenue measures to apply and at what rates, including thresholds and exemptions. Policy formulation can also occur at a sub-national level, particularly in decentralised systems where states or provinces may have substantial revenue autonomy.
Policy formulation requires widespread consultation and agreement with stakeholders, including beneficiary government institutions involved in economic management, such as finance, planning and natural resources. It also involves donors and international finance institutions, especially the International Monetary Fund, which generally regards effective and fair revenue policy as a condition of its support.