## The New DRM Action Plan (2024)

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**Canonical URL:** [The New DRM Action Plan (2024)](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025070.pdf)

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---

### Background
- DRM is critical for financing economic and social development and ensuring debt sustainability in WAEMU given rising interest, high security spending, and prospective reduction in foreign aid.
- WAEMU Convergence Pact (2015) included a secondary convergence criterion of tax-to-GDP floor being 20 percent; this "remains extremely important and should be preserved in a future adoption of a fiscal rule."
- Since 2001:
  - Total revenue (excluding grants) increased from 11 percent of GDP to 17 percent of GDP between 2001 and 2023.
  - Tax revenue increased from 10 to 14 percent of GDP over the same period.
  - Tax revenue accounts for most of total revenue in all countries (over 80 percent share on average), ranging from 9 percent of GDP in Guinea Bissau to 18 percent of GDP in Senegal.
- Heterogeneity and divergence:
  - Senegal and Mali had the highest tax collection as a share of GDP in 2001, improved significantly, and still rank in the top 3 in 2023.
  - Burkina Faso marked the strongest progress among peers; several other countries are closing the gap slowly or not at all.
  - From 2015 (when the 20 percent criterion was first set), countries closer to the 20 percent target in 2015 are closing the gap faster than those that started lower; Niger recorded a sharp reduction.
- Comparative outlook:
  - WAEMU lags peers in 2022 revenues: below other SSA and LIC countries for total revenue, slightly even for tax revenue, and significantly behind EM and AE.
  - Based on trend calculations via past trends and current staff projections, it will take WAEMU until 2048 to reach the 20 percent GDP tax revenue target; this timeline extends to 2061 if the trend is based only on historical data.

### Tax Revenue Sources
- The region is undergoing a tax transition from trade taxes to income and consumption taxes.
- Comparing 2015 and 2021:
  - Most WAEMU countries rely primarily on consumption taxes followed by income taxes, except Benin which still relies comparably more on trade taxes.
  - Property and other taxes are very low, albeit slightly growing in a few countries.
  - Income and consumption tax shares of GDP increased in most countries; trade tax stagnated or decreased in most countries.
- Regional tax harmonization (de jure advanced, de facto incomplete):
  - VAT: requirement of a VAT rate range at 15-20 percent, with exceptions at a lower rate 5-10 percent for up to 10 goods and services from an exhaustive list (Directive 02/98/CM, Directive 02/2009/CM).
  - CIT: requirement of a single CIT rate ranging 25-30 percent (Directive 08/2008/CM).
  - PIT: only partially subject to harmonization; highest statutory PIT rate ranges from 10 percent in Guinea Bissau to 60 percent in Côte d’Ivoire.
  - Many countries remain aligned with regional directives on VAT and CIT statutory rates, but some maintain very generous exemptions.
- Tax performance indicators highlight heterogeneity:
  - VAT/sales tax C-efficiency, CIT productivity, and PIT productivity reveal disparities across countries and tax types.
  - Examples: Senegal approaches EM levels in PIT productivity; Mali in CIT productivity; Togo in VAT C-efficiency.
  - Benin and Guinea Bissau show significant gaps across all three indicators (e.g., Benin has very generous CIT exemptions and multiple rates).

### Tax Potential
- Methodology:
  - Tax potential estimated using a stochastic frontier model (regression-based) to separate inefficiency effects from random noise; explanatory variables include GDP, trade openness, governance, and demographic features.
  - Non-tax revenue excluded due to outliers that can bias estimates.
  - Four model specifications produce varying estimates of maximum potential tax-to-GDP ratios (Tax potential 1–4).
  - Results are sensitive to specification assumptions and should be interpreted as broad policy indicators rather than precise policy targets.
- Findings on tax gaps and potential:
  - The tax gap is the difference between actual and potential tax revenue; its degree varies by country and over time.
  - Country-specific patterns:
    - Niger and Togo: tax gap fluctuated strongly and narrowed over time, but tax revenue still falls short of potential.
    - Guinea-Bissau: shows limited space for leveraging tax capacity, indicating structural limitations.
    - Benin and Burkina Faso: inefficiencies have widened in recent years, indicating opportunities for better revenue mobilization.
  - Cross-country 2021 tax gap (as percent of GDP) relative to benchmarks:
    - Benin has the highest tax gap (above the LIC median), indicating significant underperformance relative to potential.
    - Burkina Faso exceeds the SSA median but falls below the LIC median.
    - Guinea-Bissau has the smallest tax gap, suggesting limited scope for additional revenue given current fundamentals.
    - Côte d’Ivoire, Mali, Niger, Senegal, and Togo display varying tax gaps, indicating differing degrees of inefficiency or structural barriers.

### Progress Achieved in DRM
- Overall assessment: Significant progress in DRM, but reforms pace remains insufficient to achieve the 20 percent of GDP regional tax revenue objective in the near future.
- Areas of advancement and concrete reforms:
  - Shift from international trade taxes to domestic revenue sources; some countries prioritized property taxation reforms (e.g., Niger abolished a two-year exemption on property taxes for income-generating real estate).
  - Limiting tax exemptions and preferential regimes:
    - WAEMU countries striving to produce annual tax expenditure reports (Decision 08/2015/CM) to quantify fiscal impacts of exemptions and special regimes.
  - Elimination of small, low-yield taxes with high administrative costs:
    - Mali reformed its General Tax Code and fiscal procedures.
    - Guinea-Bissau implemented a new VAT law and gradually deployed digital tax services.
    - Benin reformed its corporate income tax and personal income tax systems toward simpler, broader-based models.
  - Revenue administration improvements:
    - Strengthened fundamentals: reliable registers of large and medium-sized taxpayers; implemented central administration structures; introduced prerequisites for results-based management and risk analysis.
    - Digital tools: electronic declaration, telepayment, automated invoicing program.
    - Operational outcomes: increase in number of taxpayers filing regular returns; improved VAT return ratios; more geolocated taxpayers.
    - Customs improvements: enhanced valuation and post-clearance audit practices; adoption of risk-based clearance procedures.
  - WAEMU adopted a New DRM Action Plan in 2024, with improvements over the 2019 Plan.

### Box 1 — Overview and main change
- In 2024, WAEMU adopted a new DRM Action Plan, modifying the 2019 plan (Decision 02/2019/CM).
- The 2024 DRM Action Plan introduces a Medium-Term Revenue Mobilization Strategy (MTRS) aimed at coordinating reforms to promote efficiency and accountability.
- The deadline for MTRS adoption by all WAEMU countries is set for the end of 2025.
- Footnote definition: "Medium-Term Revenue Mobilization Strategy (MTRS) is a comprehensive national strategy to support revenue mobilization in the medium term, by coordinating reforms relating to legislation, tax policy, and tax and customs administrations."
- Current MTRS adoption status among WAEMU countries:
  - Benin, Burkina Faso, Cote d’Ivoire and Senegal have adopted MTRS.
  - Togo: MTRS is in the pre-formulation stage.

### Changes relative to 2019 Action Plan and rationale
- The 2024 Action Plan is mainly motivated by weak performance in terms of tax revenues and no longer refers to the non-compliance of member states with the secondary convergence criterion of 20 percent of GDP.
- Amendments to tax and customs policies are described as marginal, reflecting limited progress by member states in adopting DRM improvement measures.
- Notable exception: a study on methods of taxing agricultural profits was carried out at the request of the WAEMU Commission.
- The 2024 Action Plan no longer envisages a revision of Directive 03/2009 harmonizing excise duties (which had proposed expanding the number of taxable products from 8 to 12, generalizing excises on all passenger vehicles regardless of engine power, and increasing the ad valorem rate on non-alcoholic and alcoholic drinks).

### Property taxation and tax expenditures
- Property tax measures in the new Plan:
  - Improve knowledge of taxable land through census and digitalization.
  - Set up a one-stop shop to centralize land-related formalities.
- On tax competition and exemptions:
  - The 2024 Action Plan removes previous references to the Mining Code and to granting exemptions in the research phase.
  - For the investment phase, exemptions are limited to certain goods and services (without further specifications).

### Tax administration
- No substantial differences from the 2019 Action Plan; the focus remains on generic revenue administration measures.
- Main challenge: tailor generic measures to the concrete situations faced by WAEMU members.

### Policy recommendations — Regional Authorities
- Strengthen revenue harmonization and surveillance of DRM reforms while enhancing regional cooperation on revenue administration and knowledge transfer, safeguarding WAEMU treaty objectives on tax neutrality for mobility of capital and goods and services.
- Specific actions:
  - Revise and Modernize DRM Directives:
    - Revise the VAT directive to improve refund mechanisms, broaden the tax base, and address digital economy taxation.
    - Update the CIT directive to align with global tax reforms (e.g., by adopting a minimum corporate tax), limit tax competition through regionally agreed constraints, and unify tax structure across sectors.
    - Revise capital income taxation directive to address cross-border tax avoidance, by simplifying and improving neutrality of portfolio income taxation.
    - Reassess excise tax directives' adequacy.
  - Consolidate and Evaluate Tax Incentives:
    - Simplify and consolidate tax incentives by removing them from Investment Codes and placing them under the General Tax Code.
    - Regularly review and assess the effectiveness of existing tax incentives.
    - Consider revising Decision 08/2015/CM (Art. 5) on expenditure.
    - Exclude from the benchmark tax system incentives granted through regional directives and ensure tax reliefs comply with regional frameworks.
  - Strengthen Surveillance of DRM Reforms:
    - Continue and enhance annual assessments of Member States’ reforms and conformity with regional regulations.
    - Accelerate introduction of DRM measures in the quintennial plan of the New Convergence Pact with all key elements: document the realization of the previous year, indicate objectives for the current year and the following years, and clarify measures taken and planned for each year.
    - WAEMU Commission should undertake regular analytical work on member states’ tax practices; for example, deepen revenue analysis in the quarterly report on multilateral surveillance.
    - Stronger commitment may be required in capacity building (e.g., impact assessment of tax measures), legal framework (WAEMU Commission’s mandate to enforce recommendations or sanctions), and institutional and political support for harmonizing tax policies and regulations.
  - Support Knowledge Transfer:
    - Hold periodical workshops/seminars to share best practices among WAEMU countries and from countries outside WAEMU.
  - Regional Cooperation and Exchanges in Revenue Administration:
    - Provide support to national bodies through direct capacity development or regional workshops to identify best practices.

### Policy recommendations — National Authorities
- Ramp up efforts to simplify tax systems, broaden the tax base, and improve compliance.
- Specific measures:
  - Ensure Compliance with Regional DRM Regulations:
    - Address both de jure compliance (e.g., tax incentives that deviate from directives) and de facto application (e.g., unequal enforcement of tax laws).
  - Conduct Regular Reviews of Tax Systems:
    - Identify opportunities to simplify tax systems and rationalize exemptions.
    - Focus taxation on taxes with highest potential to boost revenue and eliminate low-yield taxes.
    - Conduct thorough reviews of exemptions and special regimes to eliminate those without clear economic purpose while ensuring preserved ones comply with regional framework.
  - Strengthen Tax Sources Not Subject to the Regional Framework:
    - Property taxation: systematic property valuations, enhance local administrative capacities, simplify tax code.
    - PIT: enhance PIT progressivity by adjusting tax schedules, streamline complex regimes, rationalize income exemptions.
    - SME taxation: simplify SME taxation, consolidate schemes (entrepreneurs and micro-enterprises) into a single regime, smoothen the tax burden to remove obstacles to growth.
  - Strengthen Revenue Administration:
    - Improve management and governance mechanisms of revenue administrations (risk management, capitalization of investments in computerization and digitalization).
    - Improve tax functions (optimize tax registration procedures, invest in tax capacity building, boost tax literacy and awareness; implement large-scale automated cross-checking systems; modernize revenue accounting, tax arrears management and VAT credit refunds).
    - Improve customs functions (strengthen customs valuation and clearance, implement automated risk management system, strengthen post-clearance audit).
  - Ensure Good DRM Governance and Transparency, including anti-corruption measures to support trust in institutions and tax compliance.

### Structural challenges to DRM in WAEMU (as noted)
- Sectors intrinsically difficult to monitor and tax correctly: both old sectors (informal) and new ones (e.g., e-commerce).
- High perception of corruption, complicating tax compliance (Afristat report, 2019; Figure 11 referenced).
- Security issues complicating tax collections.
- Increasing international tax competition; high dependence on large taxpayers, especially multinationals.

### Estimating tax potential (model specification and tax effort)
- Stochastic frontier model for tax revenue:
  - ln(TAXit) = β0 + β1 ln(Xit) + TTit − uit
  - Where:
    - TAXit is the tax revenue collected by country i in year t.
    - Xit represents explanatory variables affecting tax revenue, such as GDP, trade openness, or governance indicators.
    - TTit is a two-sided symmetric error term representing statistical noise (e.g., measurement errors, external shocks). It is assumed to be normally distributed.
    - uit is the one-sided non-negative tax inefficiency, capturing deviations from the frontier due to tax evasion, exemptions, and administrative weaknesses. It follows a half-normal distribution.
  - True Random Effects are used, assuming time-invariant heterogeneity is uncorrelated with explanatory variables.
- Tax effort computation:
  - TAX EFFORTit = TAXe − uit
  - Values close to 1 indicate higher efficiency.

*Source: sipea2025070 - The New DRM Action Plan (2024), INTERNATIONAL MONETARY FUND.*

### 1.   The New DRM Action Plan (2024) __________________________________________________ 11

### The New DRM Action Plan (2024)

### Background
- Domestic Revenue Mobilization (DRM) is critical for financing economic and social development and ensuring debt sustainability in WAEMU, especially given rising interest, high security spending, and the prospective reduction in foreign aid.
- The WAEMU Convergence Pact (2015)—suspended and expired in 2020—included a secondary convergence criterion on the tax-to-GDP floor being 20 percent, which "remains extremely important and should be preserved in a future adoption of a fiscal rule."
- Since 2001:
  - Total revenue (excluding grants) increased from 11 percent of GDP to 17 percent of GDP between 2001 and 2023.
  - Tax revenue increased from 10 to 14 percent of GDP over the same period.
  - Tax revenue accounts for most of total revenue in all countries (over 80 percent share on average), ranging from 9 percent of GDP in Guinea Bissau to 18 percent of GDP in Senegal.
- Heterogeneity and divergence:
  - Senegal and Mali had the highest tax collection as a share of GDP in 2001, improved significantly, and still rank in the top 3 in 2023.
  - Burkina Faso marked the strongest progress among peers; several other countries are closing the gap slowly or not at all.
  - From 2015 (when the 20 percent criterion was first set), countries closer to the 20 percent target in 2015 are closing the gap faster than those that started lower; Niger recorded a sharp reduction.
- Comparative outlook:
  - WAEMU lags peers in 2022 revenues: below other SSA and LIC countries for total revenue, slightly even for tax revenue, and significantly behind EM and AE.
  - Based on trend calculations via past trends and current staff projections, it will take WAEMU until 2048 to reach the 20 percent GDP tax revenue target; this timeline extends to 2061 if the trend is based only on historical data.

### Tax Revenue Sources
- The region is undergoing a tax transition: shifting reliance from trade taxes to income and consumption taxes.
- Comparing 2015 and 2021:
  - Most WAEMU countries rely primarily on consumption taxes followed by income taxes, except Benin which still relies comparably more on trade taxes.
  - Property and other taxes are very low, albeit slightly growing in a few countries.
  - Income and consumption tax shares of GDP increased in most countries; trade tax stagnated or decreased in most countries.
- Regional tax harmonization (de jure advanced, de facto incomplete):
  - VAT: requirement of a VAT rate range at 15-20 percent, with exceptions at a lower rate 5-10 percent for up to 10 goods and services from an exhaustive list (Directive 02/98/CM, Directive 02/2009/CM).
  - CIT: requirement of a single CIT rate ranging 25-30 percent (Directive 08/2008/CM).
  - PIT: only partially subject to harmonization; wide variation with highest statutory PIT rate ranging from 10 percent in Guinea Bissau to 60 percent in Côte d’Ivoire.
  - Many countries remain aligned with regional directives on VAT and CIT statutory rates, but some maintain very generous exemptions.
- Tax performance indicators highlight heterogeneity:
  - VAT/sales tax C-efficiency, CIT productivity, and PIT productivity reveal disparities across countries and tax types.
  - Examples: Senegal approaches EM levels in PIT productivity; Mali in CIT productivity; Togo in VAT C-efficiency.
  - Benin and Guinea Bissau show significant gaps across all three indicators (e.g., Benin has very generous CIT exemptions and multiple rates).

### Tax Potential
- Methodology:
  - Tax potential estimated using a stochastic frontier model (regression-based) to separate inefficiency effects from random noise; explanatory variables include GDP, trade openness, governance, and demographic features.
  - Non-tax revenue excluded due to outliers that can bias estimates.
  - Four model specifications produce varying estimates of maximum potential tax-to-GDP ratios (Tax potential 1–4).
  - Results are sensitive to specification assumptions and should be interpreted as broad policy indicators rather than precise policy targets.
- Findings on tax gaps and potential:
  - The tax gap is the difference between actual and potential tax revenue; its degree varies by country and over time.
  - Country-specific patterns:
    - Niger and Togo: tax gap fluctuated strongly and narrowed over time, but tax revenue still falls short of potential.
    - Guinea-Bissau: shows limited space for leveraging tax capacity, indicating structural limitations.
    - Benin and Burkina Faso: inefficiencies have widened in recent years, indicating opportunities for better revenue mobilization.
  - Cross-country 2021 tax gap (as percent of GDP) relative to benchmarks:
    - Benin has the highest tax gap (above the LIC median), indicating significant underperformance relative to potential.
    - Burkina Faso exceeds the SSA median but falls below the LIC median.
    - Guinea-Bissau has the smallest tax gap, suggesting limited scope for additional revenue given current fundamentals.
    - Côte d’Ivoire, Mali, Niger, Senegal, and Togo display varying tax gaps, indicating differing degrees of inefficiency or structural barriers.

### Progress Achieved in DRM
- Overall assessment: Significant progress in DRM, but reforms pace remains insufficient to achieve the 20 percent of GDP regional tax revenue objective in the near future.
- Areas of advancement and concrete reforms:
  - Shift from international trade taxes to domestic revenue sources; some countries prioritized property taxation reforms (e.g., Niger abolished a two-year exemption on property taxes for income-generating real estate).
  - Limiting tax exemptions and preferential regimes:
    - WAEMU countries striving to produce annual tax expenditure reports (Decision 08/2015/CM) to quantify fiscal impacts of exemptions and special regimes.
  - Elimination of small, low-yield taxes with high administrative costs:
    - Mali reformed its General Tax Code and fiscal procedures.
    - Guinea-Bissau implemented a new VAT law and gradually deployed digital tax services.
    - Benin reformed its corporate income tax and personal income tax systems toward simpler, broader-based models.
  - Revenue administration improvements:
    - Strengthened fundamentals: reliable registers of large and medium-sized taxpayers; implemented central administration structures; introduced prerequisites for results-based management and risk analysis.
    - Digital tools: electronic declaration, telepayment, automated invoicing program.
    - Operational outcomes: increase in number of taxpayers filing regular returns; improved VAT return ratios; more geolocated taxpayers.
    - Customs improvements: enhanced valuation and post-clearance audit practices; adoption of risk-based clearance procedures.
  - WAEMU adopted a New DRM Action Plan in 2024, with improvements over the 2019 Plan.

*Source: sipea2025070 - The New DRM Action Plan (2024), INTERNATIONAL MONETARY FUND.*

### Box 1. The New DRM Action Plan (2024)

### Box 1. The New DRM Action Plan (2024)

### Overview and main change
- In 2024, WAEMU adopted a new DRM Action Plan, modifying the 2019 plan (Decision 02/2019/CM).
- The 2024 DRM Action Plan introduces a Medium-Term Revenue Mobilization Strategy (MTRS) aimed at coordinating reforms to promote efficiency and accountability.
- The deadline for MTRS adoption by all WAEMU countries is set for the end of 2025.
- Footnote definition: "Medium-Term Revenue Mobilization Strategy (MTRS) is a comprehensive national strategy to support revenue mobilization in the medium term, by coordinating reforms relating to legislation, tax policy, and tax and customs administrations."
- Current MTRS adoption status among WAEMU countries:
  - Benin, Burkina Faso, Cote d’Ivoire and Senegal have adopted MTRS.
  - Togo: MTRS is in the pre-formulation stage.

### Changes relative to 2019 Action Plan and rationale
- The 2024 Action Plan is mainly motivated by weak performance in terms of tax revenues and no longer refers to the non-compliance of member states with the secondary convergence criterion of 20 percent of GDP.
- The amendments to tax and customs policies are described as marginal, reflecting limited progress by member states in adopting DRM improvement measures.
- Notable exception: a study on methods of taxing agricultural profits was carried out at the request of the WAEMU Commission.
- The 2024 Action Plan no longer envisages a revision of Directive 03/2009 harmonizing excise duties (which had proposed expanding the number of taxable products from 8 to 12, generalizing excises on all passenger vehicles regardless of engine power, and increasing the ad valorem rate on non-alcoholic and alcoholic drinks).

### Property taxation and tax expenditures
- Property tax measures in the new Plan:
  - Improve knowledge of taxable land through census and digitalization.
  - Set up a one-stop shop to centralize land-related formalities.
- On tax competition and exemptions:
  - The 2024 Action Plan removes previous references to the Mining Code and to granting exemptions in the research phase.
  - For the investment phase, exemptions are limited to certain goods and services (without further specifications).

### Tax administration
- No substantial differences from the 2019 Action Plan; the focus remains on generic revenue administration measures.
- Main challenge: tailor generic measures to the concrete situations faced by WAEMU members.

### Policy recommendations — Regional Authorities
- Strengthen revenue harmonization and surveillance of DRM reforms while enhancing regional cooperation on revenue administration and knowledge transfer, safeguarding WAEMU treaty objectives on tax neutrality for mobility of capital and goods and services.
- Specific actions:
  - Revise and Modernize DRM Directives:
    - Revise the VAT directive to improve refund mechanisms, broaden the tax base, and address digital economy taxation.
    - Update the CIT directive to align with global tax reforms (e.g., by adopting a minimum corporate tax), limit tax competition through regionally agreed constraints, and unify tax structure across sectors.
    - Revise capital income taxation directive to address cross-border tax avoidance, by simplifying and improving neutrality of portfolio income taxation.
    - Reassess excise tax directives' adequacy.
  - Consolidate and Evaluate Tax Incentives:
    - Simplify and consolidate tax incentives by removing them from Investment Codes and placing them under the General Tax Code.
    - Regularly review and assess the effectiveness of existing tax incentives.
    - Consider revising Decision 08/2015/CM (Art. 5) on expenditure.
    - Exclude from the benchmark tax system incentives granted through regional directives and ensure tax reliefs comply with regional frameworks.
  - Strengthen Surveillance of DRM Reforms:
    - Continue and enhance annual assessments of Member States’ reforms and conformity with regional regulations.
    - Accelerate introduction of DRM measures in the quintennial plan of the New Convergence Pact with all key elements: document the realization of the previous year, indicate objectives for the current year and the following years, and clarify measures taken and planned for each year.
    - WAEMU Commission should undertake regular analytical work on member states’ tax practices; for example, deepen revenue analysis in the quarterly report on multilateral surveillance.
    - Stronger commitment may be required in capacity building (e.g., impact assessment of tax measures), legal framework (WAEMU Commission’s mandate to enforce recommendations or sanctions), and institutional and political support for harmonizing tax policies and regulations.
  - Support Knowledge Transfer:
    - Hold periodical workshops/seminars to share best practices among WAEMU countries and from countries outside WAEMU.
  - Regional Cooperation and Exchanges in Revenue Administration:
    - Provide support to national bodies through direct capacity development or regional workshops to identify best practices.

### Policy recommendations — National Authorities
- Ramp up efforts to simplify tax systems, broaden the tax base, and improve compliance.
- Specific measures:
  - Ensure Compliance with Regional DRM Regulations:
    - Address both de jure compliance (e.g., tax incentives that deviate from directives) and de facto application (e.g., unequal enforcement of tax laws).
  - Conduct Regular Reviews of Tax Systems:
    - Identify opportunities to simplify tax systems and rationalize exemptions.
    - Focus taxation on taxes with highest potential to boost revenue and eliminate low-yield taxes.
    - Conduct thorough reviews of exemptions and special regimes to eliminate those without clear economic purpose while ensuring preserved ones comply with regional framework.
  - Strengthen Tax Sources Not Subject to the Regional Framework:
    - Property taxation: systematic property valuations, enhance local administrative capacities, simplify tax code.
    - PIT: enhance PIT progressivity by adjusting tax schedules, streamline complex regimes, rationalize income exemptions.
    - SME taxation: simplify SME taxation, consolidate schemes (entrepreneurs and micro-enterprises) into a single regime, smoothen the tax burden to remove obstacles to growth.
  - Strengthen Revenue Administration:
    - Improve management and governance mechanisms of revenue administrations (risk management, capitalization of investments in computerization and digitalization).
    - Improve tax functions (optimize tax registration procedures, invest in tax capacity building, boost tax literacy and awareness; implement large-scale automated cross-checking systems; modernize revenue accounting, tax arrears management and VAT credit refunds).
    - Improve customs functions (strengthen customs valuation and clearance, implement automated risk management system, strengthen post-clearance audit).
  - Ensure Good DRM Governance and Transparency, including anti-corruption measures to support trust in institutions and tax compliance.

### Structural challenges to DRM in WAEMU (as noted)
- Sectors intrinsically difficult to monitor and tax correctly: both old sectors (informal) and new ones (e.g., e-commerce).
- High perception of corruption, complicating tax compliance (Afristat report, 2019; Figure 11 referenced).
- Security issues complicating tax collections.
- Increasing international tax competition; high dependence on large taxpayers, especially multinationals.

### Estimating tax potential (model specification and tax effort)
- Stochastic frontier model for tax revenue:
  - ln(푇푇푇푇푇푇푇푇푇푇푇푇푖푖푖푖) = 훽0 + 훽1 ln(푋푋푖푖푖푖) + 푇푇푖푖푖푖 − 푢푢푖푖푖푖
  - Where:
    - 푇푇푇푇푇푇푇푇푇푇푇푇푖푖푖푖 is the tax revenue collected by country 푖 in year 푡.
    - 푋푋푖푖푖푖 represents explanatory variables affecting tax revenue, such as GDP, trade openness, or governance indicators.
    - 푇푇푖푖푖푖 is a two-sided symmetric error term representing statistical noise (e.g., measurement errors, external shocks). It is assumed to be normally distributed.
    - 푢푢푖푖푖푖 is the one-sided non-negative tax inefficiency, capturing deviations from the frontier due to tax evasion, exemptions, and administrative weaknesses. It follows a half-normal distribution.
  - True Random Effects are used, assuming time-invariant heterogeneity is uncorrelated with explanatory variables.
- Tax effort computation:
  - 푇푇푇푇푇푇 푇푇푒푒푒푒푒푒푒푒푡푡 = 푇푇푇푇푒푒 − 푢푢푖푖
  - Values close to 1 indicate higher efficiency.

*Source: sipea2025070 - Box 1. The New DRM Action Plan (2024).*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025070.pdf_