## _030811

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### Executive Summary — Overview, Need, and Core Lessons
- Overview of IMF engagement:
  - The Fund supports developing countries’ revenue mobilization via program work, surveillance, and technical assistance.
  - The paper reviews experience and good practice, assesses prospects for strengthening tax systems—especially in lower-income countries—and draws lessons for policy and administration.
- Need for additional revenue and context:
  - Achieving the Millennium Development Goals may require low-income countries to raise their tax-GDP ratios by around 4 percentage points (United Nations, 2005).
  - Over 20 low-income countries have tax ratios under 15 percent.
  - Aid and international focus: advanced economies and multilateral initiatives (including a G-20 request in November 2010) increased focus on supporting revenue mobilization efforts.
- Lessons and prospects:
  - Progress is possible but depends on sustained political commitment from the highest levels; reforms must be entrenched to avoid slippage.
  - Econometric analysis suggests many lower-income countries could increase their tax ratios by 2–4 percent of GDP.
  - Past disappointments: early espousal of a global income tax and underuse of improved IT systems; yet several countries have improved tax performance rapidly.
- Core elements of successful reform (commonalities):
  - Build administrations that limit rent-seeking and implement voluntary compliance strategies, including risk management and taxpayer segmentation (starting with a Large Taxpayer Office).
  - Adopt clear laws and regulations embodying strong taxpayer protection and make them readily available; implementation is often the main problem.
  - Eliminate exemptions that forego revenue to little useful end—these can amount to several points of GDP.
  - Implement a broad-based VAT with a fairly high threshold; in lower-income countries where VAT performance is weakest, base-broadening and improved compliance might raise something in the order of an additional 2 percent of GDP.
  - Establish a broad-based corporate income tax (CIT) with rates competitive by international standards and extend the personal income tax (PIT) base while ensuring coherent treatment of capital income.
  - Levy excises on a few key items adequate to revenue needs and social concerns.
  - Implement simple but coherent regimes for taxing smaller businesses and strengthen real estate taxes for local government finance.
  - Develop capacity for tax expenditure analysis and wider policy analysis.

### Common Tax Challenges in Developing Countries
- Major common challenges:
  - Hard-to-tax sectors: small businesses, small farmers, professionals, and some state-owned enterprises.
  - Informality: “perhaps 40 percent of GDP on average, up to 60 percent in many.”
  - Non-compliance is the framing issue; micro traders may be informal but below tax thresholds; egregious evasion often by qualified professionals.
  - VAT compliance shortfalls: VAT “gaps” reported at “50–60 percent in Indonesia and Mozambique, for instance, compared to 13 percent in the United Kingdom.”
  - Weak revenue administrations, low taxpayer morale, and poor governance (including corruption functioning like a regressive tax).
  - Heavy reliance on receipts from multinational enterprises and difficulties with state-owned enterprises.
  - Shallow use of financial institutions as sources of tax-relevant information.
  - Pressures from trade liberalization, regional integration, and intensifying international tax competition.
  - Difficulty taxing international services that cannot be intercepted at the border.
- Important differentiators across countries:
  - Natural resource wealth, geography (small islands vs. landlocked), post-conflict status, and historical/constitutional legacies.
- Fund advice: combine near-universal practices (e.g., firm control of largest taxpayers) with country-specific adaptation of timing and design.

### Administration Reforms — Accomplishments, Trends, and Challenges
- Accomplishments and trends:
  - Administrative reforms have expanded since the early 1990s with mixed success; notable advances in Mozambique, Peru, Rwanda, Tanzania, and Vietnam; little progress in DRC, Haiti, Nicaragua, Sierra Leone.
  - Organizational moves: function-based structures, headquarters organizations, integrating domestic direct and indirect tax management.
  - Taxpayer segmentation: controlling the largest enterprises secures 60–80 percent of domestic taxes (more in island economies); LTOs are now common.
  - IT and business-process improvements critical but high failure rates in standalone computerization; moderate successes include Colombia, Peru, Rwanda, Tanzania.
  - Simplifying tax laws and adopting tax procedure codes (TPCs) can aid administration and protect taxpayer rights.
- Major challenges ahead:
  - Compliance costs: typical firms in Doing Business spend over 300 hours preparing and paying taxes in developing countries versus under 210 in high-income countries.
  - Under-resourcing and misallocation: legislatively-mandated financing by fixed percentages (example: the 3 percent in Ghana) has often failed to motivate stronger performance.
  - Poor coordination between domestic tax and customs administrations; customs often collects half or more of gross VAT.
  - Need clear strategies for “hard-to-tax” firms, avoid shortcuts (amnesty risks), and use practical measures (bank payment requirements, registration with unannounced visits, intelligence operations).
  - Corruption: progress possible through leadership, internal audit, staff investigation, codes of ethics, and processes minimizing taxpayer-official contact (example: Uganda Revenue Authority).
  - Political will: sustained commitment essential; where present (Peru, Ecuador, Guatemala, Rwanda), progress has been substantial.

### VAT — Design, Performance, and Potential
- Spread and performance:
  - Most developing countries have developed a VAT; VAT typically accounts for around one-quarter of all tax revenue.
  - No country has ever removed a VAT without subsequently reintroducing it.
  - Countries with VAT generally raise more revenue than those without; gains vary with openness and income levels.
- Design prescriptions and common issues:
  - Fund advice favors a broad base, single rate and fairly high threshold.
  - Exemptions and zero-rating remain common (financial services margins, government agencies, basic health and education; staple food exemptions are politically driven).
  - A relatively high registration threshold excludes low-revenue traders.
  - Single rate is more common in LICs though pressures for multiple rates exist.
- VAT efficiency and C-efficiency:
  - C-efficiency defined as RVAT/(τ · C); a single-rate VAT on a broad base would yield a C-efficiency of 100.
  - Median C-efficiency in LICs is about 36 percent.
  - Raising C-efficiency to the median—without changing the standard rate but through base-broadening and improved compliance—could raise, on average, nearly 2 percent of GDP.
  - Standard VAT rates already quite high in many developing countries; more potential lies in base-broadening and compliance than raising rates.
- Distributional considerations:
  - A proportional consumption tax is regressive relative to annual income but regressivity is mitigated by exemptions, thresholds, and use of revenue for progressive spending.
  - Evidence suggests VAT may be less regressive than trade and excise taxes it replaced and in some cases about as progressive as income tax.
  - Spending instruments often outperform rate differentiation for protecting the poor; examples cited include Ethiopia and the Philippines.
- Administration, refunds, and trade liberalization:
  - VAT introductions can catalyze administrative reforms, but design flaws include low thresholds, extensive exemptions, and inadequate preparation.
  - Refunding exporters requires balancing fraud risk; corrupt delays in refunds are common and a major business complaint.
  - Trade liberalization reduces trade tax revenue; replacement requires a mix of instruments and institutional capacity improvements in customs.

### Personal Income Tax (PIT), Corporate Income Tax (CIT), and Excises
- Personal Income Tax (PIT):
  - PIT receipts low and stagnant: since early 1980s PIT has raised 1–3 percent of GDP in developing countries versus 9–11 percent in developed.
  - Up to 95 percent of PIT revenue comes from wage withholding by public sector and large firms (compared to about 80 percent in developed countries).
  - Less than 5 percent of the population pay PIT (compared to nearly 50 percent in developed); only about 15 percent of income is reached (compared to 57 percent).
  - Evasion and avoidance by high-income individuals estimated at about $50 billion foregone annually (Tax Justice Network, 2005).
  - Options: legal provisions, real estate taxes, dedicated units for high-income/wealth individuals, strong audit powers, and collective action on tax havens.
  - ‘Global’ PIT is hard to implement in lower-income countries; coherent schedular structures or dual income tax lessons can help.
- Corporate Income Tax (CIT):
  - Statutory CIT rates have "tumbled worldwide," remaining somewhat higher in lower income countries.
  - CIT raises about 17 percent of total tax in developing (low-income) countries vs. about 10 percent pre-crisis in the OECD.
  - For LICs with CIT-productivity below their income-group median, raising it to the median would in 2002 have increased revenue by about 0.7 percent of GDP.
  - Incentives and tax holidays have proliferated in sub-Saharan Africa (tax holidays prevalence: about 40 percent of LICs in 1980 → about 80 percent in 2005); special treatment in free zones rose to 50 percent.
  - Costs of incentives vary by study: Cubeddu et al. (2008) estimate average revenue cost ≈ 5½ percent of GDP in 15 Caribbean countries; other estimates for Latin America range 0.5–6 percent of GDP.
  - Profit-shifting by multinationals and DTTs pose growing challenges; advanced-country actions can help or harm.
  - SOEs often not fully taxed by same rules as private firms, creating arrears and morale problems.
- Excises:
  - Excises significant but in trend decline (mainly due to declining real rates); bases include fuels, tobacco, alcohol, cars, and mobile phones.
  - Selected quantitative figures:
    - Tobacco raises around 8 percent of central government revenue in China P.R. and Indonesia.
    - Direct fuel subsidies in developing countries amounted to around $54 billion in mid-2009.
    - Net revenue foregone relative to a tax of $0.3 per liter ≈ $110 billion (Arze del Granado et al., 2010).
    - Cigarette tax increases could yield revenue and health gains of 0.3–0.4 percent of GDP in India and Vietnam.
    - Motor vehicle taxes raise about 0.1 to 0.15 percent of GDP in Botswana and Lebanon.
    - Liberia raises about 6 percent of its revenue from telecoms.
    - Potential regional gains: sub-Saharan Africa could increase excise revenue by an average of 0.5 percent of GDP; Middle East and Central Asia by an average of 1.3 percent of GDP, by increasing excises to the world average share.
  - Policy choices: specific vs. ad valorem excises, indexation of specific taxes, administrative controls to limit smuggling, and regional cooperation for harmonized approaches.

### Taxing Small Businesses, Real Estate Taxes, and Local Finance
- Small businesses tax regimes:
  - Heterogeneous population: micro firms through professionals and small employers.
  - Fund commonly advises around US$50–100,000 VAT threshold in developing countries to segment taxpayers.
  - Below threshold: micro businesses subject to simple “patente” (license fee) at local level; intermediate group taxed on cash flow or turnover with progressive rates for unincorporated businesses.
  - Practical issues: persuading small traders to share simple accounts.
- Withholding and advance collection:
  - Withholding at points of transaction and advance collection on imports common; examples: withholding on car imports accounted for 18 percent of direct tax revenue in Benin (2001).
  - Risks: schemes can reduce incentives for reform, amplify refund/credit problems, invite corruption, and undermine coherence.
- Real estate taxation:
  - Often yield under 0.1 percent of GDP, rarely more than 0.5 percent (examples: Bolivia, Cape Verde, Honduras, Kazakhstan).
  - Can account for more than 50 percent of local government revenues in Armenia, Lesotho, and Peru.
  - Barriers: exemptions, low rates, unclear property rights, poor cadastre coverage, undervaluation incentives.
  - Reforms: valuation techniques from simple unit land taxes to market-based systems; computer-assisted mass appraisal and satellite technology can help but take many years.
- Institutional, transparency, and sustainability considerations:
  - Simple, transparent tax laws and effective appeals processes are important but often problematic in implementation.
  - Tax expenditure analysis is vital (example: about 5 percent of GDP in Senegal).
  - Capable tax policy units within ministries of finance recommended.
  - Wider community engagement (CSOs, academics, media) improves trust and ownership.
  - Country-by-country reporting under study to promote transparency; clarification of objectives and value-added needed.
  - State-building: taxation can foster bargaining, build institutions, and increase accountability; strengthening perceived links between tax payments and public spending matters.
- Role of donors and technical assistance:
  - Donors should honor aid commitments, consider monitorable benchmarks to encourage revenue mobilization, coordinate TA, and ease requirements for donor-driven tax exemptions.
  - IMF Fiscal Affairs Department (FAD) FY11 activity: around 35 HQ-led missions on tax policy issues and around 61 in revenue administration; seven regional technical assistance centers with specialist advisors; two Topical Trust Funds on tax policy/administration and managing natural resource wealth; Legal Department provides about 25 short-term LEG missions annually and assisted in drafting about 200 tax laws/regulations enacted in about 60 countries over two decades.

### Empirical Evidence, Data, and Quantitative Findings
- Trends and empirical assessments:
  - Revenue measures presented since 1980 show resilience in lower-income countries through the crisis; natural resource receipts have driven some strong performances but are not the sole factor.
  - Resource-rich countries exhibit “massively greater volatility” of receipts.
  - Some increase in lower-income countries’ tax revenues since mid-1990s: comparisons of 1990–95 and 2003–08 show median tax ratios increased; “Over this period, five or so countries raised their tax ratios to above 15 percent.”
  - Composition shifts since early 1980s: increased VAT receipts, strong CIT performance, and declining trade tax revenues.
- Assessing scope to raise more revenue:
  - Aid averaged around 4.4 percent of GDP over 2001–06 in recipient countries; in 25 countries aid “exceeded half of all tax revenue.”
  - Oil revenue displacement: Bornhorst et al. (2009) find an increase in hydrocarbon revenues of “$1 displaces about 20 cents of non-hydrocarbon tax revenue.”
  - Effort estimates: of 15 LICs and LMICs with tax ratios below 15 percent, 13 have estimated effort below their group median; raising them to that median would “increase their revenue by an average of about 3 percent of GDP.”
  - Demonstrated feasibility: some countries have increased domestic revenue mobilization substantially; Peru increased tax ratio “from 6 to 13 percent over the 1990s and to around 17 percent now”; some countries achieved sustained increases of “4–5 percent of GDP over just a few years.”
- Appendix III data construction and summary statistics:
  - Data sources: mix of GFS, WEO and other data from 1980 on; reporting basis heterogeneity noted (cash vs. accrual).
  - Key constructed variables: government revenue %GDP, non-grant revenue %GDP, tax revenue %GDP (inclusive of social security contributions), income taxes %GDP, taxes on goods and services %GDP, VAT revenue %GDP, trade tax revenue %GDP, statutory CIT rates (KPMG), resource-wealth dummy (rents > 10 percent of GDP).
  - Selected summary statistics (preserve exact formatting as in source table):
    - All countries in the sample
      - Government revenue, %GDP 480828.712.40.072.7
      - Government revenue excluding grants, %GDP 478327.812.80.072.7
      - Government taxes, %GDP 458720.510.90.061.4
      - Income Tax, %GDP 33616.95.60.146.3
      - Income Tax - corporate, %GDP 26423.02.50.024.2
      - Income Tax - individuals, %GDP24454.74.80.026.5
      - Tax on goods and services, %GDP32697.44.20.032.2
      - VAT revenue, %GDP 15885.92.50.014.5
      - Trade Tax, %GDP 42083.64.20.041.8
      - Resource wealth dummy53940.20.40.01.0
      - Corporate income tax rate308033.511.10.075.0
      - VAT rate, 2010430915.84.63.025.5
    - [Further disaggregated income-group statistics presented in Appendix III as in source.]
- Appendix V — Tax Effort estimates (stochastic frontier method over 1991–2006):
  - Concept: revenue R(x,p) = R(x) · ϕ(p) with ϕ(p*) = 1; effort ϕ ∈ (0,1).
  - Key medians from Appendix Table 4:
    - Low-income median: Tax Ratio 13.9; Estimated Effort 77.6
    - Lower middle-income median: Tax Ratio 16.5; Estimated Effort 63.2
    - Upper middle-income median: Tax Ratio 26.8; Estimated Effort 77.2
    - High-income median: Tax Ratio 36.0; Estimated Effort 78.4
  - Selected country observations:
    - Bangladesh: 8.14; 41.0
    - Ethiopia: 13.28; 81.0
    - Ghana: 22.4; 86.4
    - India: 16.45; 52.2
    - China, People's Republic of: 14.94; 42.6
    - Ukraine: 36.68; 87.1
    - Brazil: 34.29; 98.0
    - Russia: 32.38; 88.0
    - Sweden: 50.1; 98.1
    - United States: 27.3; 62.4

### Appendix VIII — Estimated Revenue Gains from Increasing VAT Efficiency
- C-efficiency and formula:
  - C-efficiency defined as RVAT/(τ · C).
  - Rearranged expression: Δ(R/Y) = τ · (θ*/θ) · Δ(C-efficiency) (notation preserved).
- Selected income-group results (from Appendix Table 5, values preserved from source):
  - Average high income: Standard VAT rate 17.1; VAT revenue 6.7; C-efficiency 55.6; Average estimated revenue gain reported as 0.95 0.60 1.96.
  - Average low income: Standard VAT rate 16.4; VAT revenue 5.5; C-efficiency 38.0; Average estimated revenue gain 1.77 1.45 2.11.
  - Average lower middle income: Standard VAT rate 17.4; VAT revenue 6.6; C-efficiency 46.6; Average estimated revenue gain 1.61 0.67 2.03.
  - Average upper middle income: Standard VAT rate 17.3; VAT revenue 6.6; C-efficiency 51.6; Average estimated revenue gain 1.05 0.97 1.87.
- Selected country examples (preserving table formats and numeric entries from source):
  - Australia: 10; 3.9; 52.8; 0.09--0.89
  - France: 19.6; 7.3; 46.1; 1.25--2.95
  - Italy: 20; 6.0; 37.8; 2.56 0.85 4.27
  - United Kingdom: 17.5; 6.7; 44.0; 1.50--3.13
  - Bangladesh: 15; 2.8; 23.4; 1.70 0.80 2.60
  - Central African Rep.: 18; 3.7; 20.6; 3.00 1.67 4.33
  - Chad: 18; 0.7; 5.1; 4.27 3.28 5.25
  - Nigeria: 5; 1.5; 47.9; ------ (no gain entries)
  - Tanzania: 20; 6.5; 38.6; ----1.10
  - Poland: 22; 7.5; 42.2; 1.47--3.28
  - Turkey: 18; 5.2; 35.2; 2.28 0.76 3.79
- Note: Standard rates and C-efficiency as at 2005; revenue gains correspond to raising C-efficiency to specified median benchmarks.

### Appendix IX — Zambia Case Study (VAT)
- Implementation timeline and changes:
  - VAT introduced in 1995 with a single rate of 20 percent and broad base; zero-rating only for exports initially.
  - Preferences later added for some agricultural products, foods, medical supplies and drugs; tourism preferences increased since 2002.
  - From 2008 the standard rate reduced from 17.5 percent to 16 percent.
- Revenue and efficiency outcomes:
  - VAT revenues peaked at 6.1 percent of GDP in 2001; since 2004 revenues declined to around 3.8 percent of GDP in 2009.
  - Efficiency ratio fell from about 29 percent in 2002 to around 24 percent in 2009.
  - Options to increase yield: tax fee-based banking and property and casualty insurance; remove exemption of passenger transportation services (raise about 0.1 percent of GDP); fully tax tourism (0.2 percent).
- Organizational and threshold reforms:
  - VAT division created separate from income tax under a semi-autonomous revenue authority; 2009 integration culminated in a specialized LTO.
  - Original VAT threshold K 30 million (then US$ 30,000); by 2001 equivalent to US$ 8,000 with half of 10,000 registered taxpayers below threshold and poor compliance.
  - Threshold increased in 2002 to K 200 million (then around US$75,000, now US$45,000) and voluntary registration removed; voluntary registration later reintroduced given practical transaction difficulties.
- VAT refunding and mineral exports:
  - Before 2007 monthly filing and payment required for all VAT taxpayers; in 2007 quarterly arrangements introduced for voluntary registrants.
  - In 2005 a robust refund mechanism was introduced: ring-fenced financing of refunds, refunds based on returns submitted by end of one month, refunds made from gross VAT collections in following month before net balance transferred to Treasury; refund processing times since averaged a few weeks.
  - Between 2004 and 2006 Zambia refunded approximately 38 percent of gross VAT collections.
  - LTO now includes a specialized mining audit unit.

### Appendices on Incentives, Regional Tax Principles, and Experience
- Appendix X — Dangers of Tax Holidays:
  - Tax holidays attract footloose firms, invite transfer pricing and abuse, can transfer revenue to investors’ residence countries, distort investment timing, signal untrustworthiness, and distract from administrative reform.
- Appendix XI — Proposed regional principles on corporate taxation:
  - Core principles: Freedom to Invest; National Treatment; Non-Discrimination; Repatriation; Expropriation rules; Transparency.
  - Investment incentives guidelines: incentives in law, non-discriminatory, not to undercut standard rates; monitoring and enforcement committee proposed.
- Appendix XII — Experience with Unilateral Removal of Tax Incentives:
  - China removed multi-tiered breaks in 2008 in favor of single 25 percent rate.
  - Egypt (mid-2005) reduced top marginal rates to 20 percent for individuals and 20 percent for corporations and phased out holidays, accompanied by administrative reforms; FDI into Egypt doubled between 2005 and 2006.
  - Mauritius removed most incentives, reduced standard corporate tax rate from 25 to 15 percent in July 2007; net FDI inflows and CIT revenue increased materially in subsequent years (CIT revenue rose from about 2½ percent of GDP in 2006/07 and 2007/08 to 3.8 percent in 2008/09).

*Source: IMF content unit _030811 (IMF PDF chapter).*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview
- The Fund has long supported developing countries’ efforts to improve revenue mobilization through program work, surveillance, and technical assistance.
- The paper reviews experience and good practice, assesses prospects for strengthening tax systems—especially in lower-income countries—and draws lessons for policy and administration.

### Need for Additional Revenue and Context
- Achieving the Millennium Development Goals may require low-income countries to raise their tax-GDP ratios by around 4 percentage points (United Nations, 2005).
- Over 20 low-income countries have tax ratios under 15 percent.
- Most developing countries face substantial spending needs (poverty relief, infrastructure, climate challenges) that cannot be met solely by foreign assistance.
- Advanced economies and multilateral initiatives (including a G-20 request in November 2010) have increased focus on supporting revenue mobilization efforts.

### Lessons from Experience and Prospects
- Progress is possible but depends on sustained political commitment at the highest levels; reforms must be entrenched to avoid slippage.
- Econometric analysis suggests many lower-income countries could increase their tax ratios by 2–4 percent of GDP.
- Some areas of past advice and practice have been disappointing (e.g., early espousal of the global income tax; underuse of improved IT systems), yet several countries have improved tax performance rapidly.

### Core Elements of Successful Reform (commonalities)
- Building administrations that limit rent-seeking and inappropriate behavior, and implement voluntary compliance strategies, including:
  - Risk management (allocating resources where revenue risks are greatest).
  - Taxpayer segmentation (tailoring interventions and services to distinct groups), starting with a Large Taxpayer Office (LTO).
- Adopting clear laws and regulations that embody strong taxpayer protection and making them readily available; implementation is often the main problem.
- Eliminating exemptions that forego revenue to little useful end—these can amount to several points of GDP.
- Implementing a broad-based VAT with a fairly high threshold; in lower-income countries where VAT performance is weakest, base-broadening and improved compliance might raise something in the order of an additional 2 percent of GDP.
- Establishing a broad-based corporate income tax (CIT) with rates competitive by international standards; more attention has been paid to rates than to base broadening.
- Extending the personal income tax (PIT) base and ensuring coherent treatment of alternative forms of capital income.
- Levying excises on a few key items adequate to revenue needs and wider social concerns.
- Implementing simple but coherent regimes for taxing smaller businesses.
- Strengthening real estate taxes to transform local government finance in the longer term.
- Developing capacity for tax expenditure analysis and wider policy analysis.

### Distributional and Governance Considerations
- Protection of the poorest, including through basic public spending, is an overarching concern.
- The fairness of a tax system must be assessed in conjunction with the spending it finances; a regressive tax may finance strongly progressive public spending.
- It is important to examine the distributional impact of tax reforms and to identify specific spending measures to address any adverse effects.
- Improving the management and quality of public spending can bolster taxpayer trust and compliance.
- Taxation is central to state power; improving tax systems can spearhead broader governance improvements and state-building.

### Emerging Concerns and Issues Requiring Greater Attention
- Challenges in international taxation and from regional integration are intensifying, calling for closer cooperation on tax policy and administration, and further capacity building.
- Continued trade liberalization will put pressure on revenue in many lower-income countries.
- Scope to meet revenue needs by raising standard VAT rates is becoming limited; greater potential lies in improving compliance and scaling back preferential treatments.
- Greater efforts are needed to tax elites and high-income/wealth individuals—this requires political will as much as technical capacity.

*Source: Executive Summary (IMF).*

### 6. Developing countries face many common tax challenges. Most are qualitatively the

### 6. Developing countries face many common tax challenges. Most are qualitatively the same as in advanced economies—but much larger.

### Major common tax challenges
- Sectors that are “hard-to-tax” everywhere (small businesses, including small farmers, professionals, and—in some cases—state-owned enterprises), especially where administrative capacity and compliance habits are weak.
- Informality: “perhaps 40 percent of GDP on average, up to 60 percent in many.”
- Non-compliance as the framing issue (micro traders may be informal but below tax thresholds; egregious evasion often by qualified professionals).
- VAT compliance shortfalls: VAT “gaps” reported at “50–60 percent in Indonesia and Mozambique, for instance, compared to 13 percent in the United Kingdom.”
- Weak revenue administrations, low taxpayer morale, and poor governance (including corruption functioning like a regressive tax).
- Heavy reliance on receipts from multinational enterprises and difficulties with state-owned enterprises.
- Shallow use of financial institutions as sources of tax-relevant information.
- Pressures on revenue from trade liberalization, regional integration, and intensifying international tax competition.
- Difficulty taxing international services that cannot be intercepted at the border, especially where administrations rely on physical controls.

### Important differences across developing countries
- Natural resource wealth is a major differentiator.
- Geography: small islands can better impose border taxes than landlocked countries, affecting VAT adoption and performance.
- Post-conflict countries and some successor states face particularly severe administrative and base-related constraints.
- Historical and constitutional legacies (example: constitutional restrictions dating to the 1935 Government of India Act constraining VAT design in India and Pakistan).
- Evidence that differing legal traditions (colonial pasts) associate with different revenue performance.

### Fund advice: commonalities and adaptation
- Criticism that Fund tax advice is “one size fits all” acknowledged; nevertheless, some tax practices are near-universal (e.g., firm control of largest taxpayers).
- Timing, relative importance, and precise design of reforms must vary substantially by country.
- Examples of countryspecific constraints affecting advice: substantial re-exporting in The Gambia affecting VAT recommendations; constitutional constraints shaping VAT design.

### Common elements of strategies for reform (Box 1)
- Establish effective revenue administrations, making proper use of withholding and third-party information, and capable of implementing voluntary compliance and self-assessment.
- Assure strong control of the largest taxpayers in a dedicated office, with specialized units for critical sectors, to enable risk assessment and taxpayer segmentation.
- Implement policies and procedures that limit opportunities for rent seeking and identify and punish inappropriate behavior in the revenue administration.
- Design and apply forceful and efficient strategies to deal with non-compliance.
- Ensure laws and regulations are reasonably simple, readily available, coherent across taxes, and provide good taxpayer protection (including effective appeals procedures).
- Replace inefficient production or sales taxes, after adequate preparation of administration and taxpayers, by a simple VAT—to catalyze administrative reforms.
- Levy a VAT on a broad base, with a high threshold and avoid multiple rates.
- Coordinate replacement of trade tax revenue losses with measures to raise domestic sources.
- Avoid exemptions under all taxes that jeopardize revenue and good governance, are hard to reverse, and generate no clear social benefit.
- Remove minor taxes and fees that are disproportionately costly to comply with and administer.
- Build corporate income taxes (CITs) that are simple in provisions (depreciation, carry forwards) and sufficiently broad-based to allow competitive statutory rates with reasonably low and uniform effective rates across investments.
- Strengthen capacity to deal with profit-shifting by multinationals, while recognizing the extreme difficulty.
- Extend coverage of the personal income tax (PIT), particularly to include smaller businesses and professionals, and establish coherent taxation of capital income consistent with distributional preferences.
- Exploit potential for regional cooperation in policy and administration—particularly on business taxation and excises—to limit mutually damaging competition.
- Balance royalties, auctioning and profit-related charges in taxing natural resources.

### Trends and recent experience
- Revenues in lower-income countries (especially LICs) showed resilience through the crisis; figures and trends presented since 1980 in three revenue measures (total, excluding grants, and tax revenue including social security contributions).
- Natural resource receipts have played an important role in recent strong performances but are not the sole factor.
- Resource-rich countries exhibit “massively greater volatility” of receipts, though tax ratios have increased in non-resource countries as well.
- Some increase in lower-income countries’ tax revenues since the mid-1990s; in comparisons of 1990–95 and 2003–08, median tax ratios show marked increases; “Over this period, five or so countries raised their tax ratios to above 15 percent.”
- Composition shifts since the early 1980s: increased VAT receipts, strong CIT performance, and declining trade tax revenues.
- Regional variation: tax revenue performance strengthened in sub-Saharan Africa since the mid-1990s but weakened in developing Asia (Figure 5 noted).

### Assessing scope to raise more revenue
- Econometric work links revenue performance (revenue/GDP) with structural, developmental and institutional features; many determinants (agricultural share, past political instability) are largely exogenous in the short term.
- Aid and resource wealth interactions:
  - Over 2001–06, aid in recipient countries “averaged around 4.4 percent of GDP”; in 25 countries it “exceeded half of all tax revenue.”
  - Evidence is mixed on whether aid displaces domestic revenue; findings differ by study and country context.
  - Strong signs that oil revenues displace own taxation; Bornhorst et al. (2009) find that an increase in hydrocarbon revenues of “$1 displaces about 20 cents of non-hydrocarbon tax revenue.”
- Empirical estimates of ‘effort’ (actual revenues relative to potential) show that effort is not low in all developing countries, but countries with the lowest tax ratios often have the lowest effort.
  - Of 15 LICs and LMICs in the sample with tax ratios below 15 percent, 13 have estimated effort below their group median; raising them to that median would “increase their revenue by an average of about 3 percent of GDP.”
- Demonstrated feasibility: several countries have substantially increased domestic revenue mobilization.
  - Peru increased its tax ratio “from 6 to 13 percent over the 1990s and to around 17 percent now.”
  - Some countries have achieved sustained revenue increases of “4–5 percent of GDP over just a few years.”
- Appendix references: case studies of El Salvador, Tanzania, and Vietnam are noted as detailing substantial progress; Appendix VII provides overview on taxing natural resources.

*Source: Excerpt from _030811 - 6. Developing countries face many common tax challenges. Most are qualitatively the same as in advanced economies—but much larger.*

### 18. It is expositionally convenient to focus in turn on distinct aspects of tax design—Box

### 18. It is expositionally convenient to focus in turn on distinct aspects of tax design—Box

### Overview
- Fundamental administrative reform issues overarch tax design and are dealt with first in the text.
- Design links across tax instruments matter; pressures from trade liberalization, regional integration and tax competition mean that, absent greater international coordination, additional revenue will likely focus on relatively immobile bases—most obviously labor, consumption, and real estate.

### Box 4. Key Challenges for Tax Reform
- Progress has been made in administrative reforms, but more on basic organizational structures than in developing and applying risk-management, and governance problems remain extensive.
- The VAT still has more obvious revenue potential than most other instruments, but realizing this requires expanding the base—by both policy change and improving compliance—rather than increasing standard rates.
- More systematic attention needs to be given to replacing revenue lost from trade liberalization.
- Incentives, including in free trade zones, continue to undermine revenue from CIT, which is any event likely to come under continued pressure from globalization in coming years.
- Profit-shifting by multinationals is an increasing concern; strengthening capacity and legislative frameworks is important, but, absent fundamental changes in international tax policies, there are no easy solutions.
- The PIT will likely remain poorly developed for some time, but movement to explicitly, and coherent, schedular structures can improve effectiveness and fairness.
- High-income individuals can be taxed more effectively by removing opportunities for avoidance and strengthening detection and enforcement.
- Establishing streamlined tax regimes for small businesses, and extending to them the methods of taxpayer segmentation, is unlikely to yield significant short-term revenue gains but is important for the longer-term development and perceived legitimacy of the tax system.
- Much remains to be done to make tax expenditure analysis routine.
- Capacity in tax policy analysis is often very weak, and a significant hindrance to better design and ownership.
- Greater transparency and consultation on tax matters—not least, improving the effectiveness and visibility of public spending it finances—can promote the trust on which voluntary tax compliance rests.
- Sustained political commitment from the highest level is essential for deep reform, which needs then to be entrenched to prevent backsliding.

*Box 4 continued:*
- See continuation of the above points in the source text.

### A. Core Administration Reforms — Accomplishments and trends
- Improving revenue administration is essential for enhanced and fairer revenue mobilization and for wider governance improvement; success is hard to evaluate.
- Key performance indicators include tax gaps, audit recovery rates and the level and pattern of arrears; developing capacity to monitor and analyze these is a central reform aim.
- Developing countries have implemented wide ranging administration reforms—more earnestly since the early 1990s—but with mixed success. Examples:
  - Impressive advances: Mozambique, Peru, Rwanda, Tanzania, and Vietnam.
  - Little progress (reflecting conflict or governance issues): DRC, Haiti, Nicaragua, Sierra Leone.
  - Mixed trajectories: Guatemala, Honduras, Zambia (progress followed by stagnation or decline); Bolivia, Ghana, Uganda (resurgence).
- Organizational improvements include moving away from tax-by-tax approaches to function-based organizational structures, establishing headquarters organizations, and integrating domestic direct and indirect tax management.
- Attempts to merge operational tax and customs administration processes have been less successful (example: Zimbabwe).
- Revenue authorities (RAs) as semi-autonomous entities aim to protect against political interference and enable operational flexibility; managerial and staff capacity and practice often improved in many cases, but institutional disruption sometimes delayed reforms (integration of direct and indirect tax administration only now getting underway in Anglophone Africa).
- Segmenting the taxpayer population (large, medium, small, micro) has enabled better allocation of administrative resources and risk-management:
  - Controlling the largest enterprises (usually a few hundred or thousand) can secure 60–80 percent of domestic taxes (more, in island economies).
  - Large taxpayer offices (LTOs) now the norm in many regions; they have accomplished much but can create distributional distortions or perceptions of unfairness.
  - Medium taxpayer offices are emerging (Indonesia and Francophone Africa); innovative small taxpayer approaches exist (Tanzania; small taxpayer offices in Algeria and some Francophone African countries).
- Improved business processes and effective IT systems are critical, but failures have been common. Examples of moderate success: Colombia, Peru, Rwanda, Tanzania.
- High failure rates and costs in standalone computerization could be mitigated through regional cooperation (emerging in East Africa and through customs harmonization in Central America).
- Simplifying tax laws and adopting tax procedure codes (TPCs) can ease administration and compliance; where effective they strengthen administrative powers while protecting taxpayer rights.

### A. Core Administration Reforms — Challenges ahead
- Compliance costs:
  - For the typical firm of the Doing Business exercise, time spent preparing and paying taxes exceeds 300 hours in developing countries, compared to under 210 for high-income countries.
  - In the East African corridor Mombasa-Kigali, customs’ handling costs per import container by road are $0.13 per km, compared to $0.05 per km along the Danang-Tak corridor in Asia (CPCS Transcom, 2010).
- Under-resourcing and misallocation:
  - Revenue administrations often suffer from under-resourcing, misallocation, and weak mid-level skills.
  - Rigid legislatively-mandated financing by a fixed percentage of collections (example: the 3 percent in Ghana) has often failed to motivate stronger performance.
- Coordination problems:
  - Coordination between domestic tax and customs administrations is generally poor.
  - Customs plays a critical role in managing VAT on international trade: half or more of gross VAT revenue in developing countries is collected by customs.
  - Information flow from customs to tax administration (e.g., VAT collected on imports and zero-rated exports) is often weak, limiting automatic cross-checking against VAT returns.
- Compliance management and "hard-to-tax":
  - Need for clear strategies addressing the most non-compliant businesses and individuals, including understanding the taxpayer/trader population, identifying compliance risks, clarity on accountability and resourcing of compliance activities, and specifying performance indicators and corrective actions.
  - Shortcuts often prove illusory: amnesty schemes can undermine compliance; limited voluntary disclosure programs with partial waiver of penalties and strong enforcement can help.
  - Practical measures: requiring large payments to go through the banking system, registration programs with unannounced market visits, follow-up of stopfiling, education and taxpayer services, and wider intelligence operations.
- Corruption:
  - Progress can be made addressing corruption through strong leadership, institutional measures (strong internal audit, staff investigation functions), visible implementation of a code of ethics (including prosecutions), and processes that limit rent-seeking opportunities (minimizing contact between taxpayers and tax officials).
  - Example: Uganda Revenue Authority’s forceful measures to purge staff and re-hire with zero tolerance for corruption.
- Political will:
  - Successful administrative reform requires sustained political will from the highest levels and over substantial periods to overcome resistance, ensure effective application of laws, assure funding, and drive complementary legal and tax policy changes.
  - Where sustained commitment has been present (Peru, Ecuador, Guatemala, Rwanda), progress can be substantial; where not, progress is minimal.
  - Partial approaches often disappoint as revenue gains from administrative improvements can be offset by base-narrowing exemptions.

### B. The Value-Added Tax (VAT)
- Spread and adoption:
  - Most developing countries have now developed a VAT. Since the early 1990s, the VAT has spread rapidly beyond advanced economies.
  - The Fund has been active in promoting VAT adoption and implementation.
- Fund advice and common prescriptions:
  - Fund advice—largely followed—favors a broad base, single rate and fairly high threshold.
  - These prescriptions aim to raise significant revenue with less damage to economic activity, support equity objectives, and be relatively simple to administer and comply with.
  - Exemptions remain common for some items (financial services charged as a margin, government agencies, basic health and education); staple foodstuffs exemptions are politically driven.
  - A relatively high registration threshold excludes traders with little revenue potential relative to administrative and compliance costs.
  - A single rate is much more common in LICs than in higher income countries, though signs of pressure exist (example: WAEMU VAT directive amended to allow a second rate).
- Table 1. VAT Features by Income Group (as presented in source)
  - Income Class — Average VAT Rate — Number of strictly positive VAT rates — C-efficiency
  - Low-Income — 16 — 1.28 — 38.0
  - Lower Middle-Income — 13 — 1.94 — 46.6
  - Upper Middle-Income — 15 — 1.90 — 51.6
  - High-Income — 20 — 2.52 — 55.6
  - Note: Rates as at end -2010; C-efficiency (the ratio of VAT revenue to the product of the standard VAT rate and consumption), discussed below, as at 2005 (for reasons of sample size).

*Source: IMF staff (excerpt from PDF chapter).*

### 35. The VAT has established itself as a robust source of revenue, with signs that it has

### 35. The VAT has established itself as a robust source of revenue, with signs that it has

### VAT: revenue performance and efficiency
- The VAT typically accounts for around one-quarter of all tax revenue.
- No country has ever removed a VAT without subsequently reintroducing it.
- Keen and Lockwood (2010) find that countries with a VAT generally raise more revenue than those without, all else equal; the likely gain varies with countries’ openness and income levels (being less, for instance, in smaller countries, and perhaps lower in sub-Saharan Africa than elsewhere).

### Distributional impact and comparisons with alternatives
- A proportional tax on all consumption is regressive relative to annual income, but:
  - The regressivity is mitigated by common exemptions of sensitive food and other items.
  - The VAT threshold can confer a competitive advantage on smaller and presumably less well-off retailers and service providers or enable their customers, likely among the poorer, a de facto exemption.
  - The tax’s reach is less in poorer rural regions than in urban centers.
- Bird and Gendron (2007) find the VAT to be generally mildly progressive or mildly regressive.
- Zolt and Bird (2005) conclude that “the evidence is...that the VAT is likely on the whole to be less regressive than the trade and excise taxes it has replaced. Furthermore, in at least some developing countries, the VAT may be about as progressive as the income tax.”
- If the VAT finances increased expenditure, the final distributional outcome can be progressive even with a broad-based, single rate VAT, because:
  - The benefit of preferential rates/exemptions goes mainly to the better off (since they spend more on all items).
  - The poor can benefit from elimination of preferential rates if additional tax revenue is used to finance targeted spending measures.
- Effectiveness of targeting instruments is critical; even relatively blunt instruments can achieve much (example: Munoz and Cho (2004) find basic health spending to have a particularly strong effect in Ethiopia).
- Precise measures to address equity concerns from proposed tax reforms are often left unspecified.

### Box 5 — Exemptions, reduced rates, and spending instruments (summary)
- Reduced rates or exemptions on items important to the poor are inherently limited as distributional devices: even if the poor spend a larger proportion of income on an item, the better off may spend absolutely more.
- Evidence (Mexico example referenced) shows the bulk of the subsidy implicit in domestic zero-rating can accrue to the better-off.
- Spending instruments can outperform rate differentiation in protecting the poor; case studies cited include Ethiopia and the Philippines (Newhouse and Zakharova, 2007).
- The equity case for rate differentiation is generally stronger in developing countries than in advanced economies; desirability depends on government equity objectives and available protective instruments.

### Informality and the VAT
- Any tax encourages informality, and higher VAT rates tend to increase informality, so rates should be lower where informality is a greater concern.
- VAT offers some advantages over other taxes:
  - If a trader’s customers are registered for VAT, it is advantageous for the trader to register too.
  - Unregistered operators incur unrecovered input VAT on imports just as they incur customs duty; unlike tariffs, the VAT also reaches informal operators on their purchases from compliant domestic firms.
- ‘Bad’ VAT chains can form when customers are not registered, making it better for traders not to register.
- Some argue VAT may deal with informality less effectively than tariffs because unregistered traders will at least pay tariffs on imports; counterargument notes unrecovered input VAT and domestic reach.

### VAT administration, design flaws, and refunds
- VAT introduction can catalyze tax administration improvements: using thresholds for taxpayer segmentation, introducing self-assessment, spurring functionally-organized tax administrations and IT reform.
- Common design and implementation difficulties in developing countries include:
  - Low (sometimes, as in Nigeria, zero) thresholds that pressurize tax administrations and divert attention from higher value and riskier taxpayers.
  - Extensive exemptions and zero-rating that create classification disputes and increase compliance costs.
  - Inadequate preparations and public sensitization, increasing resistance.
  - Piecemeal implementation (example cited: Yemen).
- Refunding exporters requires balancing fraud risk against turning the VAT into a de facto export tax.
  - Significant and sometimes corrupt delays in refunding legitimate claims are commonplace and a major business complaint.
  - Developing effective refunding procedures is time-consuming and difficult but crucial; ITD (2005) and Harrison (2008) elaborate on methods.

### VAT revenue potential and C-efficiency
- Standard VAT rates are already quite high in many developing countries.
- ‘C-efficiency’ (ratio of revenue to the product of the standard rate and consumption):
  - A single-rate VAT on a broad base would yield a C-efficiency of 100.
  - C-efficiency is lower when reduced rates apply and compliance is imperfect.
  - In LICs, median C-efficiency is only about 36 percent.
  - Raising C-efficiency to that median—without changing the standard rate but through base-broadening and improving compliance—could raise, on average, nearly 2 percent of GDP (Appendix VIII).
  - Given sufficient base-broadening and improved compliance, a long-term objective could be lower standard VAT rates.

### VAT as work in progress
- Revenue commonly performs well immediately after adoption, but much remains to be done thereafter to develop audit and other capacities required for an effective VAT.
- Appendix IX recounts Zambia’s experience, illustrating the need for continued nurturing of the VAT.

### Trade liberalization and customs administration (linked implications)
- Trade tax revenues have been in trend decline for thirty years, tracking a decline in collected tariff rates.
- Further liberalization (including regional agreements and bilateral agreements) means the decline will continue.
- In sub-Saharan Africa, trade taxes still account for one-quarter of all tax revenue.
- Replacing trade tax revenues from domestic sources has proved problematic in some LICs; most middle-income countries have readily recovered revenue from domestic sources.
- The standard policy prescription for recovery is to combine tariff reduction with increased consumption taxes (exactly matching tariff reductions on excisable products with higher excises).
- Countries with a VAT have not been systematically more successful in replacing lost trade tax revenue (Baunsgaard and Keen, 2010); successful replacement has been associated with using a range of instruments, including the income tax.
- Institutional capacity in customs administration remains particularly weak in most lower-income countries:
  - Middle-income countries have pursued comprehensive reform programs (modernized customs codes aligned with the Kyoto convention; risk-based selective post-release audits; HR reforms; non-intrusive verification; single-window systems; WCO ‘SAFE’ guidelines).
  - Progress in many low-income countries has been much harder, with limited progress in the Kyoto convention.
  - Limited resources, lack of long-term commitment, and overall limitations in civil service institutional capacity are key challenges.
- Many customs administrations still struggle to control rent-seeking; regional integration raises further challenges in shifting fiscal control and in collecting import VAT and certifying export-related refund claims.

### Personal Income Taxation (PIT)
- PIT receipts are low and stagnant in developing countries, coming almost entirely from wage withholding on large enterprises and public sector employees.
  - Since the early 1980s, the PIT has raised 1–3 percent of GDP in developing countries, compared to 9–11 percent in developed (Peter, Buttrick and Duncan 2010).
  - Up to 95 percent comes from wage withholding by the public sector and large firms, compared to about 80 percent in developed countries.
  - Less than 5 percent of the population pay PIT (compared to nearly 50 percent in developed), and only about 15 percent of income is reached (compared to 57 percent).
- Top statutory PIT rates have been cut and rate structures simplified with no discernible behavioral impact.
- Mandating universal filing has increased workloads with disappointing collection and compliance outcomes in some cases (example: Kenya).
- Evasion and avoidance by high-income individuals are substantial concerns:
  - One estimate is that about $50 billion of tax revenue is foregone annually in developing countries (Tax Justice Network, 2005).
  - Policy responses include appropriate legal provisions, real estate taxes to reach the better off, dedicating units within tax administrations to high-income/wealth individuals, strong audit power including indirect methods, and collective action on abuse through tax havens.
- ‘Global’ PITs have proved especially hard to implement in lower income countries; many operate schedular systems in practice.
  - The global progressive personal income tax has often been “neither global or progressive, nor personal, not often even on income” (Zolt and Bird, 2005).
  - The ‘dual income tax’ (DIT) applied in several advanced countries—a progressive tax on labor income and a lower uniform rate on capital income—offers theoretical lessons.
  - Movement towards explicit and more coherent schedular taxation with limited discrimination between types of capital income can be a practical option, easing administration and compliance and limiting avoidance through relabeling income.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_030811.pdf*

### 52. CIT revenues—more important to developing than advanced economies—face

### 52. CIT revenues—more important to developing than advanced economies—face

### Developments in CIT rates and revenues
- Statutory CIT rates have "tumbled worldwide," though remaining somewhat higher in lower income countries.
- The CIT is relatively more important for developing countries:
  - The CIT raises about 17 percent of total tax in developing (low-income) countries.
  - The CIT raised about 10 percent (pre-crisis) of total tax in the OECD.
- In practice, CIT revenue in all income groups "has performed strongly in the face of rate reductions (at least until the crisis, in high-income countries)."
- For LICs with ‘CIT-productivity’ below the median for their income group, raising it to that median (by base-broadening or improved compliance) would in 2002 have increased revenue by about 0.7 percent of GDP.

### Incentives and preferential tax treatment
- Prevalence and trends:
  - In sub-Saharan Africa, tax holidays prevalence: about 40 percent of LICs in 1980 → about 80 percent in 2005.
  - Special tax treatment in free trade zones in sub-Saharan Africa: from nil → 50 percent (Keen and Mansour, 2010).
  - In Latin America and the Caribbean, the average length of holidays fell (Klemm and van Parys, 2009).
- Concerns about incentives:
  - Effectiveness, leakage (transfer pricing from non-holiday to holiday companies), governance and spillovers (special pleading, corruption).
  - Tax holidays generally agreed to be "the worst form of incentive" (Appendix X).
  - Assessing revenue scope from limiting incentives is difficult when holiday companies may not file returns.
- Available revenue cost estimates (methodologies differ; interpret with care):
  - Cubeddu et al. (2008): average revenue cost of CIT incentives in 15 Caribbean countries ≈ 5½ percent of GDP.
  - Latin America: cost of preferential treatments under the income tax estimated at 0.5–6 percent of GDP (Villela, Lemgruber, and Jorratt, 2010).
- Policy mechanisms:
  - Regional cooperation can block downward tax competition and reduce governance problems from preferential treatments; political difficulty in forming agreements observed (Central America, EAC).
  - Unilateral actions have also proved beneficial.

### International tax issues, profit-shifting, and SOEs
- Multinational profit-shifting channels: intra-group transactions, financial arrangements and corporate structuring.
- Extent and revenue impact remain unclear; challenges greater where administrative capacity is weak.
- Double tax treaties (DTTs) can weaken a last line of protection for weak administrations due to low withholding taxes and high transaction costs of negotiating DTTs; multilateral treaty options discussed.
- Advanced-country actions can help or harm:
  - Reinvigorated G-20 action on tax havens can ease difficulties for developing countries.
  - Rate cuts in advanced economies can trigger cuts elsewhere; proposals to exempt foreign profits (in the U.S. and U.K.) might intensify global tax competition.
- State-owned enterprises (SOEs):
  - Transition to taxing SOEs by the same rules as private firms has sometimes been incomplete, especially in natural resource companies and sectors such as energy generation and transmission, telecommunications, and transportation.
  - Non-compliance by SOEs can undermine VAT and wage withholding revenue, taxpayer morale, and lead to large tax arrears diverting administrative resources.
  - Solutions typically extend beyond tax administration capacity; measures include identifying/quarantining arrears and targeted enforcement.

### Excises — role, trends, and policy scope
- Trend and regional variation:
  - Excises are a significant revenue source but in trend decline (mainly due to declining real rates).
  - Importance varies by region: much less in sub-Saharan Africa and Middle Eastern and Central Asian countries than in Asia and South America; Francophone Africa derives less from excises than Anglophone Africa.
- Main bases generating most excise revenue: fuels, tobacco, alcohol and other drinks, cars, and increasing contribution from mobile phones.
- Key quantitative figures and estimates:
  - Tobacco alone raises around 8 percent of central government revenue in China P.R. and Indonesia (Barber et al., 2008; Hu et al., 2008).
  - Direct fuel subsidies in developing countries amounted to around $54 billion in mid-2009.
  - Net revenue foregone relative to a tax of $0.3 per liter ≈ $110 billion (Arze del Granado et al., 2010).
  - Cigarette tax increases could yield revenue and health gains in developing countries on the order of 0.3–0.4 percent of GDP in India and Vietnam.
  - Motor vehicle taxes raise about 0.1 to 0.15 percent of GDP in Botswana and Lebanon.
  - Liberia raises about 6 percent of its revenue from telecoms.
  - Potential regional gains: sub-Saharan Africa could increase excise revenue by an average of 0.5 percent of GDP; Middle East and Central Asia by an average of 1.3 percent of GDP, by increasing the share of excises in total revenue to the world average.
- Policy and administrative considerations:
  - Excises can be simple to implement due to concentrated production and high import shares; often administered by a Large Taxpayer Office (LTO).
  - Choice between specific and ad valorem excises: specific better-suited to address externalities (quantities not prices) and historically simpler administratively, though advantages are narrowing as implementation moves away from physical control.
  - New implementation challenges: taxation of prepaid telecom airtime, auditing operators lacking necessary software/expertise.
  - Smuggling and illicit/small-scale production undermine excise revenue and can raise public health issues; administrative controls (bonded warehouses, transit shipment oversight) and regional policy cooperation (e.g., regionally-agreed maximum rates in CEMAC and WAEMU) can help.
  - Universal importance of automatic indexation of specific taxes highlighted.

### Taxing small businesses — limits, objectives, and rationale
- Characteristics and revenue potential:
  - Small businesses are highly heterogeneous: micro businesses (street traders, subsistence farmers) through professionals and small employers.
  - Highly skewed firm size distributions mean small firms are numerous but have limited revenue potential.
  - Egypt example: largest 4,000 companies account for about 90 percent of total turnover; even large proportional increases in receipts from 5 million small enterprises would have little impact on aggregate receipts.
- Common administrative experience:
  - Tax administrations often devote large resources to small firms hoping to uncover medium/large taxpayers; results tend to be poor and implementation costs high.
- Reasons for careful small-business tax treatment beyond revenue:
  - Ease competitive distortions and inefficiencies: taxation and compliance costs can deter formalization; high effective tax rates on new small-firm investments can incentivize firms to remain small or become “ghosts.”
  - A tax on small businesses—even if revenue-poor—can be desirable if it reduces distortions (Keen, 2010).
  - Enhance taxpayer morale: reasonable contributions by small firms support compliance norms among larger firms.
  - Contribute to state-building: inclusion in the tax net helps political participation and government accountability.
  - Bring non-tax benefits to small enterprises: improved record-keeping and financial sophistication can enhance access to capital and yield wider spillovers; these may justify administrative attention beyond revenue motives.

*Source: IMF staff analysis as presented in the provided content unit.*

### 65. Small businesses tax regimes vary widely,

### 65. Small businesses tax regimes vary widely

### Small business tax design and segmentation
- A coherent structure can be built around a relatively high VAT threshold: the Fund commonly advises around US$50–100,000 in developing countries.
- Firms above the VAT threshold can be assumed to have basic record-keeping capacity and serve as a natural reference point for taxpayer segmentation.
- Two groups below the VAT threshold:
  - Micro businesses:
    - Can be subject to a simple “patente,” akin to a license fee.
    - Likely best implemented at local level.
    - Aim: secure participation in the political process and gather information useful for eventual graduation to the standard tax system.
  - Intermediate group of taxpayers:
    - Can be taxed on their cash flow (i.e., with immediate expensing of investment and disallowance of financing costs) or on turnover, to broadly replicate the regular PIT.
    - Progressive rates, including standard exemptions, would apply to unincorporated businesses.
- Practical difficulty identified: not that small traders cannot keep simple accounts, but persuading them to share them.
- Footnote nuance preserved: “Where countries are reluctant to raise a VAT threshold set too low, this treatment might appropriately be applied to some above it.”

### Withholding taxes and advance collection schemes
- Withholding at points where small taxpayers transact with medium and large ones, and withholding on imports, can improve compliance.
- Advance collection on imports:
  - Common in Africa and found elsewhere.
  - Sometimes applied at higher rates for unregistered enterprises.
  - In most cases the advance payment is creditable only against income tax, though some apply forms of VAT withholding.
  - Some countries (Burkina Faso, Mali) have introduced advance collection on domestic transactions.
- Risks and trade-offs:
  - Such schemes often raise considerable revenue (illustrative extreme: withholding on car imports accounted for 18 percent of direct tax revenue in Benin (2001)).
  - Widely applied schemes can:
    - Reduce incentive to undertake hard reforms.
    - Amplify crediting and refund problems.
    - Invite corruption.
    - Become pervasive enough to undermine the coherence of the wider tax system.
  - Potential WTO-consistency issues if refund and crediting do not eliminate additional burden on imports by the tax-compliant.

### Real estate taxation: efficiency, equity, and local government finance
- Efficiency and equity:
  - Location-specific attributes provide a relatively immobile tax base, less vulnerable to tax competition.
  - Property values positively correlate with income and wealth, imparting progressivity.
  - Property values largely reflect the provision of local services, making them well-suited as instruments of local taxation.
- Revenue potential and significance:
  - Real estate taxes in developing countries often yield under 0.1 percent of GDP, and rarely more than 0.5 percent (Bolivia, Cape Verde, Honduras, and Kazakhstan).
  - Real estate taxes can account for more than 50 percent of local government revenues (Armenia, Lesotho, and Peru).
  - Potential to strengthen national revenues is limited in absolute terms, but potential to finance improved local government services and accountability is considerable.
- Reasons for low revenues and avenues for reform:
  - Base erosion from multiple exemptions; low rates; unclear property rights; poor cadastre coverage; property values not updated; incentives for undervaluation exacerbated by transfer and capital gains taxes; weak enforcement.
  - Valuation techniques range from simple unit land taxes (Vietnam, Nigeria) to market-based systems.
  - Computer-assisted mass appraisal systems (hedonic pricing) and satellite technology can reduce need for on-site inspections, but progress takes many years.
  - Building cadastres and developing local capacity are time-consuming; national agency takeover can undermine local accountability and divert attention from pivotal reforms.

### Institutions, transparency, and sustaining reform
- Political economy and institutional depth:
  - Political commitment and ‘champions’ are essential for progress, but lasting reform requires deep institutional change to sustain gains beyond individual tenures.
  - Sustaining change requires entrenching gains to withstand cyclical shocks—both adverse shocks that amplify resistance to base-broadening and favorable shocks that reduce pressure to change.
- Key elements of effective and fair revenue mobilization:
  - Simple and transparent tax laws; note that implementation can be problematic (e.g., slow and cumbersome appeals processes).
  - Quantification and analysis of tax expenditures:
    - Tax expenditure analyses inform debate on revenue costs of preferential arrangements.
    - Basic analyses are conceptually straightforward and increasingly frequent; example: about 5 percent of GDP in Senegal.
    - Data gaps (e.g., activities in free zones) often impede analysis.
  - Capable tax policy units:
    - Policy analysis often treated as an adjunct to tax administration and lacks specialist skills and a wider view.
    - A dedicated unit within the ministry of finance, working closely with revenue administration and empowered to collect information across agencies, is recommended to avoid hampering design and ownership of tax changes.
  - Involvement of the wider community:
    - Timely interaction between tax authorities and taxpayers educates both sides, fosters trust, and yields better-designed and more accepted measures.
    - Engagement with CSOs, local academics, and well-informed media coverage can guide reform priorities.
- Transparency initiatives under study:
  - ‘Country-by-country reporting’ examined by the European Commission and the OECD/DAC Task Force on Taxation and Development aims to:
    - Promote accountability of governments for revenues raised.
    - Promote public transparency in taxes paid by enterprises to help police transfer pricing abuses.
  - Clarification of objectives and value-added is needed; publicly-owned companies already have tax reporting obligations in many countries.
  - The issue is technical and merits further international discussion; it can spur thinking on promoting greater transparency within existing international tax architecture.
- State-building and taxation:
  - Literature links tax capacity to prior investment decisions, political stability, extent of common interests, and political consensus.
  - The ‘new fiscal sociology’ argues taxation can foster state-building by providing bargaining focal points and by developing quality institutions for tax collection.
  - Some dimensions (constitutional structures, political instability associated with low VAT C-efficiency) are beyond fiscal advice; standard tax recommendations are often driven by concerns beyond narrow fiscal considerations.
  - Improving perceived links between paying tax and enjoying public spending benefits matters; role for improved public financial management and transparency of spending decisions.
  - Earmarking of taxes is debated: can cause inflexibility or reduce transparency; many nuisance taxes originated as earmarked measures.
  - Implications for small business taxation: strengthening inclusion of small businesses in the tax system can increase government accountability, but trade-offs with other considerations exist.

### Role of donors and technical assistance
- Donor role:
  - Donors should honor aid commitments and consider structuring aid with monitorable benchmarks to encourage revenue mobilization.
  - Coordination in substance and processes of tax-related TA can be improved.
  - Case for easing the requirement of tax exemptions for donor-financed projects, which create administrative complexity and legitimize exemptions as routine policy tools.
- IMF Fiscal Affairs Department (FAD) TA activity and capacity:
  - In FY11, there will be around 35 HQ-led missions on tax policy issues, and around 61 in revenue administration.
  - Short-term support provided through seven regional technical assistance centers, each including a specialist advisor on revenue administration; a new center will soon be opened in Southern Africa, and another is planned for Central Asia.
  - FAD offers occasional workshops (e.g., taxation of small businesses and revenue forecasting) and periodic high profile conferences.
  - Two recently established Topical Trust Funds: on tax policy and administration, and on managing natural resource wealth.
  - The Legal Department provides extensive assistance in drafting tax laws; a typical year might see about 25 short-term LEG missions for drafting; over the past two decades LEG has assisted in drafting about 200 tax laws or regulations enacted in about 60 countries.
  - The Fund maintains links with associations of tax administrations and was a founding member of the International Tax Dialogue (ITD), which provides information, a biannual conference, and comparative information gathering.

### Empirical examples and outcomes (selected)
- Benin (2001): withholding on car imports accounted for 18 percent of direct tax revenue (extreme case).
- Senegal: tax expenditure analyses point to significant revenue costs—about 5 percent of GDP.
- Real estate taxes:
  - Often yield under 0.1 percent of GDP, and rarely more than 0.5 percent (Bolivia, Cape Verde, Honduras, and Kazakhstan).
  - Can be more than 50 percent of local government revenues (Armenia, Lesotho, and Peru).
- IMF TA activity (FY11 planning): around 35 HQ-led missions on tax policy issues; around 61 missions in revenue administration.
- Liberia:
  - Revenue recovered from 6.2 percent of GDP in 2003 to almost 20 percent by 2009.
  - Initial focus on customs and a small number of larger businesses; subsequent multipronged administrative reforms and policy work, including a fiscal framework for natural resources.
- Mozambique:
  - Revenue collection (excluding receipts from natural resources) rose from about 8.5 percent of GDP in 1992/93 to around 15 percent.
  - Reforms: tariff simplification, customs overhaul, replacement of cascading taxes with a VAT and selective excises, strengthening domestic tax administration, unified CIT, move from schedular to global PIT, and creation of a revenue authority.
- FYR Macedonia:
  - Integrated collection of social insurance contributions (SICs) with PIT began in January 2009.
  - Declared workers increased by around 16 percent and the sum of PIT and SIC receipts increased by about 8 percent.
  - A flat tax introduced with a rate of 10 percent (both PIT and CIT); FAD advice to eliminate multiplicitous concessions and allowances had less impact.

### Policy implications and recommendations (synthesized from analysis)
- Adopt a relatively high VAT threshold (around US$50–100,000) to segment taxpayers and focus compliance efforts.
- Use simple local-level registration mechanisms (e.g., patente) to integrate micro businesses and gather information for eventual formalization.
- For intermediate small taxpayers, implement cash-flow or turnover-based regimes that mimic regular PIT structures and allow progressive treatment.
- Use withholding and advance collection sparingly and targetedly, recognizing revenue-raising appeal but also risks to system coherence, refunding/crediting, corruption, and reform incentives.
- Strengthen real estate tax design and implementation to harness local revenue potential through improved valuation, cadastres, and local administrative capacity, while avoiding centralization that undermines local accountability.
- Build institutional capacity for tax policy analysis within ministries of finance, prioritize transparent tax laws, and quantify tax expenditures to inform public debate.
- Foster wider community engagement (CSOs, academics, media) to build trust and ownership of reforms.
- Coordinate donor TA, reduce routine donor-driven tax exemptions, and use monitorable benchmarks to support domestic revenue mobilization.

*Source: IMF chapter “65. Small businesses tax regimes vary widely” (excerpt).*

### Appendix III. Data

### _030811 - Appendix III. Data

### Data sources, coverage, and challenges
- Analysis draws on a mix of GFS, WEO and other data, from 1980 on.
- Key challenges identified:
  - Reporting standards change: GFS moved from the 1986 manual to the new GFS framework in 2001, making consistency before 1999 difficult and producing breaks across time.
  - Terminology and composition differences across series and some scaling problems.
  - Reporting basis heterogeneity: data reported on a cash or an accrual basis; to maximize the sample of lower income countries, revenue data reported on a cash basis are used.
  - Alternative sources limitations:
    - WEO collects data from countries’ fiscal files but historic data formatting gaps exist.
    - OECD revenue data have better time coverage but limited country coverage.
  - Important compositional detail often missing: distinction between VAT and other indirect taxes; receipts related to natural resources.

### Construction of key fiscal variables
- Total government revenue, %GDP:
  - Primary source: WEO general government revenue data.
  - Prior to 2001, gaps are filled with an older WEO dataset compiled by FAD.
  - Where unavailable, GFS general government revenue is used; if that is unavailable, GFS consolidated central government is used.
  - Note: GFS2001 and GFS1986 differ; GFS1986 excludes social contributions by government as employer in the consolidation, potentially skewing early years downward.
- Non-grant government revenue, %GDP:
  - Calculated by extracting WEO and GFS grants from total government revenue using the same source hierarchy.
- Tax revenue, %GDP:
  - Defined as total tax revenue, inclusive of social security contributions, collected by the general government relative to GDP at market prices.
  - Main components: (i) taxes on income, profits, and capital gains; (ii) taxes on payroll and workforce; (iii) taxes on property; (iv) taxes on goods and services; (v) taxes on international trade and transactions.
  - Construction: start with OECD total tax revenue (comprehensive time coverage except last year of the sample which ran only to 2009), then fill gaps with the sum of tax and social contributions from WEO and GFS2010.
- Income taxes, %GDP:
  - Taxes on income, profits, and capital gains; data collected on total income tax, corporate and individual income tax.
  - Sources: OECD and WEO primary; remaining gaps filled with GFS.
- Taxes on goods and services, %GDP:
  - Includes VAT, sales taxes, turnover and excises, and other taxes on services and use of goods.
  - Constructed in order from OECD, WEO, and GFS.
- VAT revenue, %GDP:
  - Constructed from OECD and GFS only (WEO does not report at this level).
  - For Sub-Saharan African countries, when GFS unavailable, Keen and Mansour (2010) dataset is used.
  - If VAT exists and no source available, VAT proxied by revenue from general taxes on goods and services.
- Trade tax revenue, %GDP:
  - Includes customs and other import duties, export taxes, monopolies' profits, exchange profits, and exchange taxes.
  - Sources: OECD (sum of import duties and export taxes), WEO; remaining gaps from Baunsgaard and Keen (2010) and GFS.
- Statutory CIT rates:
  - From KPMG’s Corporate and Indirect Tax Survey 2010 from 2001 onward; FAD’s database of rates for years before 2001 (drawing on the World Tax Database) for earlier years.

### Resource wealth and classification
- Resource wealth dummy:
  - Calculated using resource rents from the World Bank’s Net Adjusted Saving framework.
  - Rents derived as difference between world prices and average unit extraction costs, multiplied by production volume.
  - Aggregated resource rents include oil, natural gas, bauxite, copper, lead, nickel, phosphate, tin, zinc, gold, silver, and iron.
  - Resource-rich classification: estimated rents of more than 10 percent of GDP at each date.
- Income groups:
  - Fixed groups: follow World Bank methodology using 2009 GNI per capita (World Bank Atlas Method). Groups:
    - low-income, $995 or less;
    - lower middle-income, $996–3,945;
    - upper middle-income, $3,946–12,195;
    - high-income, $12,196 or more.
  - Dynamic groups: defined using GNI per capita in each year (Atlas Method) with percentile cutoffs:
    - Low-income: bottom 25th percentile;
    - Lower middle-income: next 25th percentile;
    - Upper middle-income: next 25th percentile;
    - High-income: top 25th percentile.
  - Note on Atlas conversion factor: uses a three-year average of exchange rates adjusted for inflation differences (country GDP deflator vs. weighted advanced economies GDP deflator in SDR terms).

### Empirical context and interpretation guidance
- Literature findings summarized (common correlations and rationales):
  - Higher agriculture share in GDP associated with lower revenue (sector hard-to-tax and/or preferential treatment).
  - Increased openness tends to associate with higher revenue (ease of taxing trade or demand for social insurance); landlocked countries tend to raise less.
  - Income per capita positively associated with revenue performance, though many studies find income elasticity below unity (or negative) after controls—possible optimal decline in revenue share at higher incomes.
  - Demographics: larger populations associated with lower tax ratios (economies of scale); faster population growth associated with lower revenue; aging associated with higher tax effort in developed countries.
  - Higher inflation associated with lower tax revenue (seignorage, erosion when collection lags exist, indexation and deduction effects).
  - Public debt contemporaneous relation ambiguous; in this dataset, high debt appears to encourage higher tax collection (not reported in detail).
  - Deep financial sector associated with higher tax ratios (monitoring role, reduced cash transactions).
  - Governance, political and legal institutions matter: corruption, political instability, legal origins, political voice/accountability, and regime type show associations with revenue mobilization.
  - Decentralization impact unclear; central government tax focus often justified where local tax revenues are very low (less than 1 percent of GDP).
  - Links between own-revenue mobilization and aid and natural resource receipts discussed elsewhere in the main text (Box 3).
- Cautionary note on interpretation:
  - Regression residuals conflate feasibility constraints and policy choices; regressors that are exogenous are hard to change.
  - Reduced-form coefficients mix constraints and policy functions, making it problematic to infer country-specific scope for additional revenue solely from residuals.

### Selected summary statistics (Appendix Table 2)
- Column headings: Variable Obs Mean Std. Dev. Min Max
- All countries in the sample
  - Government revenue, %GDP 480828.712.40.072.7
  - Government revenue excluding grants, %GDP 478327.812.80.072.7
  - Government taxes, %GDP 458720.510.90.061.4
  - Income Tax, %GDP 33616.95.60.146.3
  - Income Tax - corporate, %GDP 26423.02.50.024.2
  - Income Tax - individuals, %GDP24454.74.80.026.5
  - Tax on goods and services, %GDP32697.44.20.032.2
  - VAT revenue, %GDP 15885.92.50.014.5
  - Trade Tax, %GDP 42083.64.20.041.8
  - Resource wealth dummy53940.20.40.01.0
  - Corporate income tax rate308033.511.10.075.0
  - VAT rate, 2010430915.84.63.025.5
- High income: OECD [N=30]
  - Government revenue, %GDP 88541.59.017.870.9
  - Government revenue excluding grants, %GDP 88541.49.017.870.9
  - Government taxes, %GDP 86435.47.38.452.2
  - Income Tax, %GDP 86112.95.24.031.2
  - Income Tax - corporate, %GDP 8553.11.80.313.0
  - Income Tax - individuals, %GDP8509.74.90.126.5
  - Tax on goods and services, %GDP85911.23.13.722.0
  - VAT revenue, %GDP 6916.82.11.014.5
  - Trade Tax, %GDP 7500.60.80.04.9
  - Resource wealth dummy9300.00.10.01.0
  - Corporate income tax rate83533.89.38.556.0
  - VAT rate, 201089918.05.75.025.5
- High income: nonOECD [N=18]
  - Government revenue, %GDP 51133.812.613.171.6
  - Government revenue excluding grants, %GDP 51133.712.613.171.6
  - Government taxes, %GDP 43015.710.80.149.3
  - Income Tax, %GDP 2975.95.60.139.3
  - Income Tax - corporate, %GDP 2412.43.30.024.2
  - Income Tax - individuals, %GDP1332.81.80.06.8
  - Tax on goods and services, %GDP2385.14.90.018.5
  - VAT revenue, %GDP 816.23.60.114.3
  - Trade Tax, %GDP 3872.73.20.022.5
  - Resource wealth dummy5580.40.50.01.0
  - Corporate income tax rate39328.916.90.055.0
  - VAT rate, 201027916.34.37.023.0
- Low income [N=37]
  - Government revenue, %GDP 102318.48.03.160.1
  - Government revenue excluding grants, %GDP 99615.27.00.152.8
  - Government taxes, %GDP 100813.05.50.036.5
  - Income Tax, %GDP 6193.52.50.415.4
  - Income Tax - corporate, %GDP 2832.22.20.113.9
  - Income Tax - individuals, %GDP3041.61.40.17.8
  - Tax on goods and services, %GDP5775.03.00.032.2
  - VAT revenue, %GDP 2244.92.10.011.1
  - Trade Tax, %GDP 9573.72.60.122.0
  - Resource wealth dummy11470.00.20.01.0
  - Corporate income tax rate30239.08.320.060.0
  - VAT rate, 201083716.22.710.020.0
- Lower middle income [N=48]
  - Government revenue, %GDP 129826.410.85.872.7
  - Government revenue excluding grants, %GDP 130025.610.55.872.7
  - Government taxes, %GDP 122317.77.91.161.4
  - Income Tax, %GDP 7805.04.70.246.3
  - Income Tax - corporate, %GDP 6392.92.50.116.5
  - Income Tax - individuals, %GDP5581.91.40.07.3
  - Tax on goods and services, %GDP7996.13.10.218.1
  - VAT revenue, %GDP 2435.02.40.414.4
  - Trade Tax, %GDP 11624.95.30.041.8
  - Resource wealth dummy14880.20.40.01.0
  - Corporate income tax rate78633.510.40.060.0
  - VAT rate, 2010120913.84.15.020.0
- Upper middle income [N=41]
  - Government revenue, %GDP 109128.59.50.070.1
  - Government revenue excluding grants, %GDP 109127.99.20.070.1
  - Government taxes, %GDP 106220.78.22.850.6
  - Income Tax, %GDP 8045.43.50.230.8
  - Income Tax - corporate, %GDP 6243.42.80.018.6
  - Income Tax - individuals, %GDP6002.31.80.09.4
  - Tax on goods and services, %GDP7967.14.00.119.6
  - VAT revenue, %GDP 3495.22.40.611.8
  - Trade Tax, %GDP 9524.64.70.137.9
  - Resource wealth dummy12710.20.40.01.0
  - Corporate income tax rate76433.39.710.075.0
  - VAT rate, 2010108515.74.13.022.0

*Source: _030811 - Appendix III. Data*

### Appendix V. Estimating Tax Effort

### Appendix V. Estimating Tax Effort

### Methodology and interpretation
- Revenue is conceived as a function R(x,p) of exogenous variables x and policy choices p, assuming a multiplicative form R(x) · ϕ(p), with normalization ϕ(p*) = 1 for some benchmark p*.
- Maximum revenue is R(x) and ϕ(p) ∈ (0,1) is an index of “effort.”
- Unobserved policy choices (exemptions, intensity of audit activities, etc.) imply effort functions as an error term bounded above by unity.
- Stochastic production frontier techniques are used to estimate country- and time-specific effort by comparing revenue raised in each country with that raised by others with similar characteristics.
- Variables treated as entering R include: income per capita, degree of openness, value added of agriculture as percent of GDP, public spending on education, and income inequality.
- Variables treated as entering ϕ include: corruption and inflation.
- Estimation details: unbalanced panel over 1991–2006, excluding countries with receipts from hydrocarbons of more than 30 percent of total tax revenue (see Pessino and Fenochietto (2010) for full details cited in source).

### Key findings from Appendix Table 4 — Estimated Tax Effort (selected entries and medians)
- Low-income median: Tax Ratio 13.9 (in percent of GDP); Estimated Effort 77.6 (in percent)
- Lower middle-income median: Tax Ratio 16.5; Estimated Effort 63.2
- Upper middle-income median: Tax Ratio 26.8; Estimated Effort 77.2
- High-income median: Tax Ratio 36.0; Estimated Effort 78.4

- Selected country observations (Tax Ratio; Estimated Effort):
  - Bangladesh: 8.14; 41.0
  - Ethiopia: 13.28; 81.0
  - Ghana: 22.4; 86.4
  - India: 16.45; 52.2
  - China, People's Republic of: 14.94; 42.6
  - Ukraine: 36.68; 87.1
  - Brazil: 34.29; 98.0
  - Russia: 32.38; 88.0
  - Sweden: 50.1; 98.1
  - United States: 27.3; 62.4

- The technique has limitations (e.g., endogeneity, extension to resource wealth) but results are suggestive and often align with widely held presumptions.

### Implications for analysis and policy
- Effort estimates can identify countries that collect less revenue than peers with similar structural characteristics, highlighting scope for policy and administrative changes.
- Because effort is bounded above by unity, estimated shortfalls signal room for improvement rather than unrestricted error.
- Care is required in interpreting estimates where resource wealth or unobserved policy differences are important.

*Source: FAD, based on Pessino and Fenochietto (2010), Table 3, truncated normal.*

---

### Appendix VIII. Estimated Revenue Gains from Increasing VAT Efficiency

### Concepts and formula
- C-efficiency is defined as RVAT/(τ · C), where R denotes VAT revenue, τ the standard rate and C consumption.
- Rearranged expression for change in revenue associated with increasing efficiency at an unchanged standard rate:
  Δ(R/Y) = τ · (θ*/θ) · Δ(C-efficiency)
  (notation preserved from source: θ*, θ, τ, R, Y as presented)

### Selected results from Appendix Table 5 (VAT Efficiency by Income Group)
- Average high income: Standard VAT rate 17.1; VAT revenue (in percent of GDP) 6.7; C-efficiency 55.6; Average estimated revenue gain reported as 0.95 0.60 1.96 (values appear in source table format).
- Average low income: Standard VAT rate 16.4; VAT revenue 5.5; C-efficiency 38.0; Average estimated revenue gain 1.77 1.45 2.11 (values as in table).
- Average lower middle income: Standard VAT rate 17.4; VAT revenue 6.6; C-efficiency 46.6; Average estimated revenue gain 1.61 0.67 2.03.
- Average upper middle income: Standard VAT rate 17.3; VAT revenue 6.6; C-efficiency 51.6; Average estimated revenue gain 1.05 0.97 1.87.

- Selected country-level examples (Standard VAT rate; VAT revenue (in percent of GDP); C-efficiency; illustrative revenue gain band from raising C-efficiency to 100%/80%/120% median where provided):
  - Australia: 10; 3.9; 52.8; 0.09--0.89
  - France: 19.6; 7.3; 46.1; 1.25--2.95
  - Italy: 20; 6.0; 37.8; 2.56 0.85 4.27
  - United Kingdom: 17.5; 6.7; 44.0; 1.50--3.13
  - Bangladesh: 15; 2.8; 23.4; 1.70 0.80 2.60
  - Central African Rep.: 18; 3.7; 20.6; 3.00 1.67 4.33
  - Chad: 18; 0.7; 5.1; 4.27 3.28 5.25
  - Nigeria: 5; 1.5; 47.9; ------ (no gain entries)
  - Tanzania: 20; 6.5; 38.6; ----1.10 (as formatted in source)
  - Poland: 22; 7.5; 42.2; 1.47--3.28
  - Turkey: 18; 5.2; 35.2; 2.28 0.76 3.79

### Notes from the table
- Standard rates and C-efficiency as at 2005, calculated using final consumption expenditure.
- Revenue gains reported correspond to raising C-efficiency to specified median benchmarks; the table provides country-by-country potential gains in percent of GDP.

*Source: IMF staff estimates.*

---

### Appendix IX. Zambia: Building and Maintaining a VAT

### Rate, base, and exemptions
- VAT introduced in 1995 with a single rate of 20 percent and a broad base; zero-rating only for exports initially.
- Over time preferences added for some agricultural products, foods, medical supplies and drugs, and since 2002 increasing numbers of tourist activities.
- From 2008 the standard rate was reduced from 17.5 percent to 16 percent.

### Revenue and efficiency outcomes
- VAT revenues peaked at 6.1 percent of GDP in 2001.
- Since 2004 revenues declined steadily to around 3.8 percent of GDP in 2009.
- Efficiency ratio (relative to GDP) fell from about 29 percent in 2002 to around 24 percent in 2009.
- Options to increase yield cited: bring fee-based banking and property and casualty insurance into tax; remove exemption of passenger transportation services (raising about 0.1 percent of GDP); fully tax tourism (0.2 percent).

### Organizational and threshold reforms
- Zambia created a VAT division separate from income tax administration under a semi-autonomous revenue authority created a year earlier.
- In 2009 integration of VAT and income tax administration culminated in creation of a specialized large taxpayer office.
- Original VAT threshold was K 30 million (then US$ 30,000); by 2001 it was equivalent to only US$ 8,000.
  - Half of the then 10,000 registered taxpayers were below the threshold and had registered voluntarily, with very poor compliance.
- Threshold was increased in 2002 to K 200 million (then around US$75,000, now US$45,000) and voluntary registration removed.
- Given difficulties small businesses faced in transacting with registered VAT taxpayers, voluntary registration was reintroduced (as reported in source).

*Source: IMF staff text in Appendix IX.*

### 2007. As commonly found elsewhere in Anglophone Africa, all VAT taxpayers were required to

### 2007. As commonly found elsewhere in Anglophone Africa, all VAT taxpayers were required to

### VAT administration and mineral-export refunding (Zambia)
- Before 2007, all VAT taxpayers were required to file and pay monthly; in 2007 quarterly arrangements were introduced for voluntary VAT registrants.
- Mineral exports made effective VAT refunding especially important.
- Initial attempt to defer VAT on imports resulted in revenue leakage and noncompliance.
- In 2005 a robust refund mechanism was introduced:
  - Financing of refunds has been ring-fenced.
  - Refunds are based on returns submitted by the end of one month.
  - Refunds are made from gross VAT (domestic and import) collections in the following month, before the net balance is transferred to the Treasury.
  - Refund processing times have since averaged a few weeks.
- Between 2004 and 2006 Zambia refunded approximately 38 percent of gross VAT collections, a much higher ratio than many African countries, and consistent with more developed exporting economies.
- Given the revenue importance of the sector and of managing its refunds appropriately, the LTO now includes a specialized mining audit unit.

### Appendix X — Dangers of Tax Holidays
- Tax holidays are time-limited exemptions from the CIT, which may or may not be renewable.
- Key dangers and observations:
  - Unless offered for periods so long that investors are likely to doubt their credibility, they are most attractive to the most footloose firms, which are those likely to bring the least benefit to the wider economy (such as textiles and assembly of light manufacturing goods).
  - They are open to abuse, undermining tax revenue by providing entrepreneurs with a strong incentive to use transfer pricing and financial arrangements to shift taxable profits into holiday enterprises (for example, arranging for taxpaying companies to borrow from holiday companies). Such devices can operate across national borders and between domestic firms. Even the most developed tax administrations have great difficulty dealing with such abuse.
  - For foreign investors resident in countries operating a foreign tax credit system, the benefits of the holiday will be undone when profits are repatriated unless a double tax agreement provides for ‘tax sparing’ (now rarely the case). The holiday may simply transfer tax revenues to the residence country.
  - Unless depreciation allowances can be carried forward out of the holiday period, the incentive to invest towards the end of a holiday may be lower than under the regular corporate tax system, as investors defer investment to take full advantage of such allowances (Mintz, 1990).
  - Offering tax holidays can signal a government’s untrustworthiness in tax matters: a firm intending to stay beyond the holiday would prefer a low, constant tax rate implying a lower present value of payments than a holiday.
  - Many companies find holidays attractive because they spare them the necessity of dealing with corrupt or inefficient tax administrations; offering a holiday can itself signal a corrupt or inefficient tax administration and distract from addressing underlying problems.

### Appendix XI — Regional Agreement on Corporate Taxation: Possible Principles
- Core principles:
  - Freedom to Invest: All investors, domestic and foreign, can invest in all sectors, subject to investment registration, with a short negative list as exception.
  - National Treatment: Domestic and foreign investors entitled to make investments on the same terms.
  - Non-Discrimination: No discrimination between foreign investors and domestic.
  - Repatriation: Each country will permit prompt transfer of funds related to foreign investment in freely convertible currency.
  - Expropriation: Investments will not be expropriated except for a public purpose and on a non-discriminatory basis, with prompt payment of adequate compensation if expropriated.
  - Transparency: Investment incentive systems (laws, regulations, guidelines, administrative procedures) shall be transparent and readily available.
- Investment Incentives guidelines:
  - Any incentives must be in the law and available to all investors on the same terms and not subject to administrative discretion.
  - Countries agree not to compete by offering tax holidays or profit-tax rates below the standard rate in each country.
  - Any investment tax incentives must be directly related to the amount of investment (such as accelerated depreciation, investment allowances, or tax credits) and cannot favor particular sectors or activities.
- Standard Tax Rate: Each country commits not to reduce the standard corporate tax rate below [insert rate].
- New Investment Tax Incentives: Countries agree not to introduce new investment tax incentives or extend the scope of or increase existing ones inconsistent with the guidelines above.
- Rollback of Existing Investment Tax Incentives:
  - Countries commit to amend existing laws and practices to eliminate inconsistent incentives by [insert date].
  - Companies awarded incentives prior to [date] that are counter to these principles should be ‘grandfathered’ and continue to enjoy the incentives during the promised period, assuming conditions continue to be met.
- Tax Expenditures: Each country will develop and publish tax expenditures that will cover, at a minimum, all tax incentives inconsistent with these principles.
- Monitoring and Enforcement: A committee will be established to monitor compliance, identify non-conforming tax measures, allow complaints by countries, permit responses, and issue a non-binding opinion.

### Appendix XII — Experience with Unilateral Removal of Tax Incentives
- China:
  - Removed in 2008 a five-year break for foreign investors (two years at zero percent, then three at half the standard rate of 33 percent), in favor of a single rate of 25 percent.
  - Reduced CIT rates (of 15 percent and 24 percent) were also eliminated in favor of the single 25 percent rate.
- Egypt:
  - Passed a new income tax law in mid-2005 that reduced the top marginal tax rates on income and profits from 32 to 20 percent for individuals and from 40 to 20 percent for corporations and partnerships (rates for petroleum, the Suez Canal authority, and the central bank were left at 40 percent).
  - Reform increased the personal exemption threshold, liberalized normal depreciation (equipment and machinery are now eligible for a 30 percent deduction in the first year of use with normal depreciation rates applying therefore to the remaining balance), and provided for the phasing out of tax holidays while grandfathering current beneficiaries.
  - Reforms accompanied by extensive and continuing reforms of tax administration, including introduction of self-assessment and reform of tax treatment of small- and medium-size enterprises.
  - Between 2005 and 2006, FDI into Egypt doubled.
- Mauritius:
  - Removed most existing tax incentives (tax holidays, exemptions and investment tax credits) for companies with the exception of those already granted.
  - Remaining notable incentive: a four-year tax holiday for income derived by a small enterprise or handicraft enterprise under the Small Enterprises and Handicraft Development Authority Act of 2005.
  - Standard corporate tax rate was reduced from 25 to 15 percent from July 2007, harmonizing it with the prevailing rate on tax-incentive companies. (The PIT rate structure was also changed to a flat rate of 15 percent).
  - Foreign direct investment outcomes:
    - Net inflows as a percent of GDP doubled in 2006 over 2005, to about 1 2/3 percent.
    - Net inflows almost tripled in 2007, to 4½ percent of GDP.
    - The share of net inflows was similar for 2008 and 2010, with a slight dip in 2009.
    - Most of the increase in FDI was in tourism, real estate (including purchase of property by nonresidents), and especially the financial services and insurance sectors.
  - CIT revenue increases:
    - From about 2½ percent of GDP in 2006/07 and 2007/08 to 3.8 percent in 2008/09.
    - 3.6 percent of GDP for the six-month period July–December 2009.

*Source: IMF content unit _030811 - 2007. As commonly found elsewhere in Anglophone Africa, all VAT taxpayers were required to*

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- Crawford, Ian, Michael Keen, and Stephen Smith, 2010, “VAT and Excises,” in Dimensions of Tax Design: The Mirrlees Review James Mirrlees, ed. by Stuart Adam, Timothy Besley, Richard Blundell, Stephen Bond, Robert. Chote, Malcolm Gammie, Paul Johnson, Gareth Myles, and Jim Poterba, pp. 275–362 (Oxford: Oxford University Press for Institute for Fiscal Studies).  
- Ebrill, Liam, Michael Keen, Jean-Paul Bodin, and Victoria Summers, 2001, The Modern VAT (Washington: International Monetary Fund).  
- Jenkins, Glenn P., Jenkins Hatice P., and Chun-Yan Kuo, 2006, “Is the VAT Naturally Progressive?” mimeo (Queens University).  
- Keen, Michael, 2008, “VAT, Tariffs, and Withholding: Border Taxes and Informality in Developing Countries,” Journal of Public Economics, Vol. 92, pp. 1892–906.  
- Keen, Michael, and Ben Lockwood, 2010, “The Value-Added Tax: Its Causes and Consequences,” Journal of Development Economics, Vol. 92, pp. 138–51.  
- Newhouse, David, and Daria Zakharova, 2007, “Distributional Implications of the VAT Reform in the Philippines,” IMF Working Paper 07/153 (Washington: International Monetary Fund).  
- Harrison, Graham, 2008, “VAT Refunds,” in VAT in Africa, ed. by Richard Krever (Pretoria: Pretoria University Law Press).

### Revenue mobilization, tax effort, and revenue administration
- African Development Bank, and Organization for Economic Cooperation and Development, 2010, “Public Resource Mobilization and Aid in Africa,” in African Economic Outlook, pp. 79–122 (Paris: Organization for Economic Cooperation and Development).  
- Baer, Katherine, and others, 2002, Improving Large Taxpayers’ Compliance, Occasional Paper 215 (Washington: International Monetary Fund).  
- Baer, Katherine, and Eric Le Borgne, 2008, Tax Amnesties: Theory, Trends, and Some Alternatives, (Washington: International Monetary Fund).  
- Bahl, Roy, 2009, “Property Tax Reform in Developing and Transition Countries,” Andrew Young School of Policy Studies (for USAID ; Atlanta : Georgia State University).  
- Bodin, Jean-Paul, 2010, “Revenue Administration: Developing a Simplified Tax Regime for Small Businesses,” FAD Technical Notes and Manuals (forthcoming; Washington: International Monetary Fund).  
- Bornhorst, Fabian, Sanjeev Gupta, and John Thornton, 2009, “Natural Resource Endowments and the Domestic Revenue Effort,” European Journal of Political Economy, Vol. 25, pp. 439–46.  
- Crandall, William, and Jean-Paul Bodin, 2005, “Revenue Administration Reforms in Selected Middle Eastern Countries, 1994–2004,” IMF Working Paper 05/203 (Washington: International Monetary Fund).  
- Kidd, Maureen, and William Crandall, 2006, “Revenue Authorities: Issues and Problems in Evaluating their Success,” IMF Working Paper 06/240 (Washington: International Monetary Fund).  
- Russell, Barrie, 2010, “Revenue Administration: Developing a Taxpayer Compliance Program,” IMF Technical Note 10/17 (Washington: International Monetary Fund).  
- Kloeden, David, forthcoming, “Revenue Administration Reforms in Anglophone Africa Since the Early-1990s,” IMF Working Paper (Washington: International Monetary Fund).  
- Michielse, Geerten, and Victor Thuronyi, 2010, “Overview of Cooperation on Capacity Building in Taxation,” mimeo (Washington: International Monetary Fund).  
- Biber, Edmund, 2010, “Revenue Administration: Taxpayer Audit—Use of Indirect Methods,” FAD Technical Notes and Manuals, available at www.imf.org.  
- Baunsgaard, Thomas, and Michel Keen, 2010, “Tax Revenue and (or?) Trade Liberalization,” Journal of Public Economics, Vol. 94, pp. 563–77.

### Trade reform, customs, and international tax issues
- International Monetary Fund, 2005, “Dealing with the Revenue Consequences of Trade Reform,” IMF Policy Paper, Supplement 2 (Washington: International Monetary Fund).  
- Keen, Michael (ed.), 2003, Changing Customs: Challenges and Strategies for the Reform of Customs Administration (Washington: International Monetary Fund).  
- Mullins, Peter, 2006, “Moving to Territoriality? Implications for the U.S. and the Rest of the World,” Tax Notes International, Vol. 43, September 4, pp. 839–53.  
- Thuronyi, Victor, 2001, “International Tax Cooperation and a Multilateral Treaty,” Brooklyn Journal of International Law, Vol. XXVI, pp. 1641–681.  
- Fuest, Clemens, and Nadine Riedel, 2010, “Tax Evasion and Avoidance in Developing Countries: The Role of International Profit Shifting,” Oxford University Centre for Business Taxation, Working Paper No. 10/12.  
- Tax Justice Network, 2005, “The Price of Offshore,” available online at http://www.taxjustice.net/cms/upload/pdf/Briefing_Paper_-_The_Price_of_Offshore_14_MAR_2005.pdf

### Natural resources, petroleum, and resource revenue management
- Coady, David, Robert Gillingham, Rolando Ossowski, John Piotrowski, Shamsuddin Tareq, and Justin Tyson, 2010, “Petroleum Product Subsidies: Costly, Inequitable, and Rising,” IMF Staff Position Note 10/05 (Washington: International Monetary Fund).  
- Davis, Jeffrey, Rolando Ossowski and Annalisa Fedelino, 2003, Fiscal Policy Formulation and Implementation in Oil-Producing Countries (Washington: International Monetary Fund).  
- Daniel, Philip, Michael Keen, and Charles McPherson, 2010, The Taxation of Petroleum and Minerals: Principles, Practices and Problems (Routledge: Abingdon).  
- McPherson, Charles, 2010, “State Participation in the Natural Resource Sectors: Evolution, Issues and Outlook,’ in The Taxation of Petroleum and Minerals: Principles, Practices and Problems, ed. by Philip Daniel, Michael Keen, and Charles McPherson, pp. 263–88 (Abingdon: Routledge).  
- Venables, Anthony J., 2010, “Resource Rents; When to Spend and How to Save,” in International Tax and Public Finance, Vol. 17, pp. 340–56.  
- International Monetary Fund, 2010b, “A Multi-Donor Trust Fund for IMF Capacity Building Technical Assistance in Managing Natural Resource Wealth:  Draft Program Document” available at www.imf.org

### Tax incentives, investment, and business taxation
- Cubeddu, Luis, Andreas Bauer, Pelin Berkman, Magda Kandil, Koffie Nassar, and Peter Mullins, 2008, “Tax Incentives and Foreign Direct Investment: Policy Implications for the Caribbean,” in The Caribbean: Enlarging Economic Integration, ed. by Andreas Bauer, Paul Lashin, and Sanjaya Panth, pp. 44–84 (Washington: International Monetary Fund).  
- Klemm, Alex, and Stefan van Parys, 2009, “Empirical Evidence on the Effects of Tax Incentives,” IMF Working Paper 09/136 (Washington: International Monetary Fund).  
- Mintz, Jack, 1990, “Tax Holidays and Investment,” World Bank Economic Review, Vol. 4, pp. 81–102.  
- Van Parys, Stefan, and Sebastian James, 2009, “Why Tax Incentives May Be an Inefficient Tool to Encouraging Investment? The Role of the Investment Climate,” mimeo (Washington: World Bank).  
- McKinsey Global Institute, 2003, New Horizons: Multinational Company Investment in Developing Countries (McKinsey and Company: San Francisco).

### Informality, shadow economy, and tax evasion
- de Paula, Aureo, and José Scheinkman, 2006, “The Informal Sector,” mimeo (Princeton University).  
- Kanbur, Ravi, 2009, “Conceptualising Informality: Regulation and Enforcement,” Department of Applied Economics and Management, Cornell University, WP 2009–11.  
- Schneider, Friedrich, Andreas Buehn, and Claudio Montenegro, 2010, “Shadow Economies All over the World: New Estimates for 162 Countries,” Policy Research Working Paper 5356, World Bank.  
- Gauthier, Bernard, and Mark Gersovitz, 1997, “Revenue Erosion and Evasion in Cameroon, 1993,” Journal of Public Economics, Vol. 64, pp. 407–24.  
- Gauthier, Bernard, and Ritva Reinikka, 2006, “Shifting Tax Burdens through Exemptions and Evasion: An Empirical Investigation of Uganda,” Journal of African Economies, Vol. 15, pp. 373–98.  
- Fuest, Clemens, and Nadine Riedel, 2010, “Tax Evasion and Avoidance in Developing Countries: The Role of International Profit Shifting,” Oxford University Centre for Business Taxation, Working Paper No. 10/12.

### Property tax, land valuation, and local revenue
- Bahl, Roy, 2009, “Property Tax Reform in Developing and Transition Countries,” Andrew Young School of Policy Studies (for USAID ; Atlanta : Georgia State University).  
- Plimmer, Francis, and William J. McCluskey, 2010, “The Basis and the Administration of the Property Tax: What Can Be Learned from International Practice?” Presentation to the XXIV International Federation of Surveyors Congress 2010 (Sydney, Australia).  
- Eckert, Joseph, 2008, “Computer-assisted Mass Appraisal Options for Transitional and Developing Countries,” in Making the Property Tax Work: Experiences in Developing and Transitional Countries, ed. by Roy Bahl , Jorge Martinez-Vasquez, and Joan Youngman (Cambridge MA, Lincoln Institute of Land Policy).  
- Mikesell, John L., and C. Kurt Zorn, 2008, “Data Challenges in Implementing a Market Value Property Tax: Market and Market-Informed Valuation in Russia, Ukraine, and the Baltic States,” ed. by Bahl et al.

### Tobacco taxation and public health-related taxes
- Barber, S., S. Ahsan, M. Adioetomo, and D. Seytonaluri, 2008, “Tobacco Economics in Indonesia” (Paris: International Union Against Tuberculosis and Lung Disease).  
- Hu, T.-W., Z. Mao, J. Shi, and W. Chen, 2008, “Tobacco Taxation and its Potential Impact in China” (Paris: International Union against Tuberculosis and Lung Disease).  
- Ross, Hana, and Frank J. Chaloupka, 2000, “The Effect of Cigarette Prices on Youth Smoking,” Health Economics, Vol. 12, pp. 217–230.  
- Sunley, Emil, 2010, “Taxation of Cigarettes in the Bloomberg Initiative Countries,” Tax Notes International, April 12, Vol. 58, pp. 161–18.  
- Petit, Patrick, forthcoming, “Tobacco Excise Taxes,” IMF Staff Position Note (forthcoming; Washington: International Monetary Fund).  
- World Health Organization, 2010, Technical Manual on Tobacco Tax Administration (Geneva: World Health Organization).

### Aid, institutions, and state-building
- Gupta, Sanjeev, Benedict Clements, Alexander Pivovarsky, and Erwin R. Tingson, 2004, “Foreign Aid and Revenue Response: Does the Composition of Aid Matter?” in Helping Countries Develop: The Role of Fiscal Policy, ed. by Sanjeev Gupta, Benedict Clements, and Gabrieilla Inchauste, pp. 385–406 (Washington: International Monetary Fund).  
- Moss, Todd, Gunilla Pettersson, and Nicolas van de Walle, 2006, “An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in sub-Saharan Africa,” Center for Global Development Working Paper 74.  
- Brun, Jean-François, Gerard Chambas, and Samuel Guerineau, 2008, “Aide et Mobilisation Fiscale dans les Pays en Voie de Développement,” CERDI, Etudes et Documents.  
- Brun, Jean-François, and Bertrand Laporte, 2010, “IMF Programs and Tax Effort: What Role for Institutions in Africa?” CERDI, Etudes et Documents (forthcoming).  
- International Monetary Fund, 2010a, “Reaching the MDGs: Macroeconomic Prospects and Challenges in Low-Income Countries,” Background Note for the United Nations MDG Summit.  
- International Monetary Fund, 2010c, “A Multi-Donor Trust Fund for IMF Capacity Building Technical Assistance in Tax Policy and Administration—Securing Revenue for Development: Draft Program Document” available at www.imf.org

### Methods, measurement, and econometric approaches
- Greene, William, 2008, “The Econometric Approach to Efficiency Analysis”, in The Measurement of Productive Efficiency and Productivity Growth, ed. by Harold Fried, C.A. Knox Lovell, and Shelton Schmidt, pp. 92–250 (Oxford: Oxford University Press).  
- Lotz, Jorgen, and Elliot Morss, 1967, “Measuring Tax Effort in Developing Countries,” IMF Staff Papers, Vol. 14, pp. 478–99.  
- Pessino, Carola, and Ricardo Fenochietto, 2010, “Determining Countries’ Tax Efforts,” Hacienda Pública Española/Revista de Economía Pública, Vol. 195, pp. 61–83.  
- Gupta, Abhijit Sen, 2007, “Determinants of Tax Revenue Efforts in Developing Countries,” IMF Working Paper 07/184 (Washington: International Monetary Fund).  
- Le, Tuan Minh, Blanca Moreno-Dodson, and Jeep Rojchaichaninthorn, 2008, “Expanding Taxable Capacity and Reaching Revenue Potential: Cross-Country Analysis,” World Bank Policy Research Working Paper 4559.

*Source: _030811 - References (PDF chapter/section).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_030811.pdf_