In addition to problems of harmonization between tax systems, there are also internal problems within individual, national tax systems. National systems, particularly in developed countries, are usually highly complex and tend to be modified frequently and in an uncoordinated manner in response to particular political situations and revenue opportunities. This results in a progressive accumulation of fiscal measures, which in their totality give rise to many internal inconsistencies, tax loopholes (facilitating tax avoidance), and differing degrees of inequity. The latter is usually to the disproportionate advantage of those individuals and corporations already privileged by the system.
[Industrialized countries] As an example, it was estimated in 1974 that the USA would lose in 1975 $78 billion through tax loopholes. This is $13.3 billion more than had been lost three years previously.
[Developing countries] In developing countries the tax administration does not always carry out the intent of tax legislation, but makes its own policy. On average, about 70% or more of the tax revenue of the majority of developing countries comes from indirect taxes (i.e. customs duties). Since many indirect taxes tend to be both regressive in incidence and inelastic in yield as income rises, their preponderance in the tax structure calls for frequent revisions of the basic rate structure if the share of tax revenue in total income is to be maintained, for which revisions the developing countries are administratively ill equipped. In addition, although most developing countries levy direct taxes on income, defective legislation and inefficient administration mean that tax collections fall far short of amounts due. In many countries there is no single comprehensive tax on all income except the regular system of income taxation, which leaves important sources untaxed.