## _020215a — CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE (excerpt) ## Source details **Canonical URL:** [_020215a — CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE (excerpt)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2015/_020215a.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2015/_020215a.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2015/_020215a.pdf.json) --- ### Executive summary — context and high-level findings - Renewed attention to noncompliance driven by intensified revenue needs, fairness, and state‑building; IMF has advised member countries through TA and Fund‑supported programs. - Measuring and analyzing “compliance gaps” (tax due minus collected) is a powerful first step; explicit compliance-gap estimates are more informative than broad measures of “informality.” - Many revenue administrations (RAs), especially in developing countries, do not produce gap estimates; compliance gaps are generally greater in developing countries and widened in countries hit hardest by the 2008–09 crisis. - Core instruments and drivers of compliance: - Withholding and third party information: where both apply, compliance in advanced countries is around 99 percent; with only third party information compliance is over 90 percent. - Taxpayer segmentation by size and “hard‑to‑tax” segments (e.g., High Wealth Individuals) is key for tailoring enforcement and taxpayer services. - Institutional challenges: high turnover of senior staff, weak headquarters, inadequate/unstable financing, auditing and legal weaknesses; IT brings opportunities and new risks. - Emphasis on an administrative perspective and strategic issues; priorities vary by country but commonality exists in need to assess compliance risks and design appropriate measures. ### Measuring compliance gaps — methods, availability, interpretation - Approach taxonomy: - “Bottom up”: gross up from audit/operational information (may involve random audits); costly but provides direct intelligence on noncompliance. - “Top down”: use national accounts and other aggregate data to model potential tax base and subtract actual collections; uses readily available data but accuracy depends on data quality and offers less operational insight. - Typical usage: - Bottom‑up often for income tax gaps; top‑down commonly for consumption taxes, especially VAT. - RA‑GAP (FAD program) uses supply‑use tables to estimate potential revenue and provides sectoral breakdowns. - Data availability and practice: - U.K. publishes routine estimates; several European countries and many Latin American countries produce estimates; examples: ATO published GST gap (2012), VAT gaps for 26 EU members (CASE 2013, 2014). - In Africa, VAT gap estimates exist for Kenya, Uganda and South Africa; developing country examples remain scarce due to national accounts inadequacies or audit costs. - FAD’s RA‑GAP began in 2013; seven country programs completed with three public reports. RA‑FIT gathers standardized RA operational data. - Interpretation and limits: - Revenue loss mechanically associated with gaps may not be recoverable because taxpayer behavior would change under full compliance. - Gap estimates are uncertain; errors are likely serially correlated—estimates better suited to indicating changes than levels. - Aggregate gaps lump diverse noncompliance forms; actionable policy requires granular analysis (RA‑GAP offers sectoral and component decompositions). ### Patterns, cross‑country variation, and crisis effects - Cross‑country VAT gap examples (common methodology): - EU range: under 5 (Sweden) to over 40 percent (Romania). - Latin America range: under 20 (Chile) to over 40 percent (Paraguay). - Implied averages: about 20 percent in Europe and 30 percent in Latin America. - Low‑income country evidence sparse: - Sub‑Saharan Africa: around 50–60 percent in Uganda to less than 10 percent in South Africa. - Pakistan: overall tax gap put at 41 percent. - Trends since 2000: - General narrowing of compliance gaps in many advanced and emerging economies; example: reduction from 35 to 25 percent in Latin America could have increased VAT revenue—assuming no behavior change—by around 15 percent. - EU average VAT gap widened starting before the 2008–9 crisis, associated with large‑scale fraud and crisis amplification. - 2008–09 crisis effects: - Compliance worsened sharply where output contraction was greatest; mechanism includes firms delaying/omitting payments as a cheap source of finance. - The effect appears short‑lived in many cases; rapid rule‑based policy responses recommended over turning a blind eye. - Crisis exposed RA vulnerabilities: weakened enforcement capacity, flawed governance, inadequate legal frameworks, and incomplete automated checking and debt management. ### Short‑term and long‑term policy responses (Box 2 summary) - Short‑term safeguarding of revenue: - Prioritize leading forms of noncompliance, with tax arrears a priority. - Monitor large taxpayers closely; tighten controls of routine obligations. - Target anti‑evasion measures (cash economy task forces, arrears collection). - Improve planning and monitoring of audits and debt recovery. - Implement procedural/tax law changes to improve collection and reduce costs (extend payment facilities, strengthen anti‑evasion laws). - Longer‑term structural reforms: - Adopt a compliance risk management (CRM) approach. - Modernize HQ and operations: strengthen planning and supervision, streamline local office network, regain HQ control, enforce zero tolerance of corruption. - Revamp core operations and IT systems to support compliance risk management. - Ensure an enabling legal framework (new RA and tax laws, modernized tax procedure laws). ### Deterrence, audit, and behavioral drivers - Deterrence framework: - Allingham and Sandmo (1972) model remains a core element: evasion as a gamble balancing tax saved against detection risk and penalty. - Audit most effective when risk‑based: condition likelihood/nature of audit on taxpayer characteristics and self‑report; lab evidence supports simple cut‑offs. - Indirect effects of increased audit can be up to 8–12 times the direct effect. - Compliance costs and voluntary compliance: - Compliance costs have substantial fixed components; filing a VAT return costs much the same irrespective of net remitted amount—burdens small firms disproportionately. - Promote voluntary compliance via simplification, improved services, information/advice, and segmentation. - Corruption and policy choices: - Corruption within RAs (bribery, extortion) chronically damages revenue and compliance. - Policy design affects compliance: evidence suggests higher tax rates discourage compliance; reducing exemptions and calibrating thresholds can improve administrability and compliance. - Examples: adoption of flat tax in Russia and reduced higher PIT rates associated with improved compliance. ### Tools of the trade: withholding, third‑party reporting, segmentation - Withholding: - Historically critical; commonly accounts for about 75 percent of PIT revenue. - VAT resembles a creditable withholding tax; withholding used at monitorable points (imports, large enterprises) and on payments to contractors. - Limits/risks: collusive evasion, need to audit withholders, potential creation of excess credits/refund claims. - Third‑party reporting: - Increases detection probability; financial intermediaries central to cross‑border exchange of information. - In lower income countries limited use of intermediaries and capacity constraints hinder effectiveness. - Empirical evidence: Denmark example with employers’ information shows about 0.2 percent underreporting of employment income when employers provide information. - Taxpayer segmentation: - Enables tailored enforcement and services; specialized units (large taxpayer offices, HWI units) support segmentation. ### Enforcement elasticity, cost–benefit of RA spending, and targeting - Key concept: enforcement elasticity of taxable income (responsiveness of taxable income to RA spending) central to deciding enforcement spending. - Appendix V “extremely tentatively” points to values around 0.2 in the EU. - Decision rule (numerical illustration): - If initial compliance gap = 15 percent, - administrative costs = 1.5 percent of revenue, - compliance costs = administration costs and are to be deflated by 1.2, - then additional spending is warranted if enforcement elasticity > 0.16. - Targeting: - Prioritize larger taxpayers first, then smaller ones; SMEs can account for large shares of measured gaps (SMEs account for 50 percent of the U.K. VAT gap). - Balance revenue, equity, and distortion considerations; taxing small businesses may be desirable even if collection is costly. - Revenue mobilization vs rate increases: - Improving compliance often more efficient than raising rates when enforcement/taxable‑income elasticities are high and implementation costs of enforcement are lower. ### High Wealth Individuals (HWIs) — risks and administrative responses - Risks and channels: - HWIs pose large revenue risks due to complex affairs, international mobility, specialist advice, and propensity for aggressive planning or evasion (undeclared offshore income, undeclared capital gains, income reclassification, extraction of company profits via non‑dividend means). - Administrative tools: - Dedicated HWI units with highly skilled officers; expanded information reporting; mandatory disclosure regimes; pre‑filing agreements; comprehensive audits; withholding (e.g., on rental payments); tightened laws against corporate/private asset misuse. - Documented outcomes: - ATO HWI audits: Aus$ 1.2 billion yielded and disallowed losses Aus$ 490 million over 2006–12. - HMRC High Net Worth Unit (since 2009): over ￡1 billion brought in; outstanding tax returns reduced from 11.9 to 3.4 percent. - Offshore evasion and EOI: - IRS voluntary disclosure programs: more than 45,000 disclosures yielding about US$ 6.5 billion since 2009 (as of June 2014). - A study suggests around 6 percent of global net financial wealth — about US$ 4.5 trillion — is unrecorded in tax havens; unpaid tax might be some tens of billions annually. - OECD: estimated increased tax revenue of €14 billion in 2011 from offshore compliance initiatives in 20 countries; Norway and Denmark identified noncompliance in around 40 percent of cases from automatic information. ### Business‑to‑Consumer (B2C) transactions — scale, measures, and caveats - Challenges: - Consumers lack incentive to collect receipts; withholding impractical for many B2C transactions; e‑commerce complicates jurisdictional taxation for intangible services. - Fiscal risk from under‑reporting of final sales. - Examples of scale: - Australia: B2C taxpayers account for 29 percent of the large business segment and 25 percent of all tax collections. - Chile: under‑reporting of B2C sales represents 60 percent of the VAT gap. - RA measures and evidence: - Field enforcement (Chile): verify invoices, registration, accounting adequacy; temporary closures; dedicated regional teams; strategy covered an average of 47 percent of taxpayers with business premises (2010–2012). - Electronic Fiscal Devices (EFDs): pilot in Dominican Republic showed benefits 2.5 times costs (excluded taxpayers’ compliance costs). - Lotteries and consumer incentives (Sao Paulo NFP): consumers credited 30 percent of VAT shown; monthly lotteries; Naritomi (2013) finds retailer revenue increased at least 22 percent; net revenue increase 0.3 percent of state VAT receipts. - Tax reductions for card payments or paper invoices have mixed outcomes and may involve substantial revenue foregone (Korea example: revenue foregone in order of 5 percent of VAT revenue; 2008 ratio revenue loss 2.4 billion won to VAT revenue 47 billion won). - Effectiveness caveats: - Little evidence of substantial revenue gain; schemes risk distracting from audit/enforcement; linking cash registers to RAs does not guarantee full recording; lotteries may be insufficient against large‑ticket evasion. ### Institutional and management findings — organizational priorities - Organizational management challenges: - RAs are large complex organizations; rapid turnover of senior managers: in a sample of 130 countries (2009–2013) over 60 percent had two or more commissioners. - HQ weaknesses: HQ staff often below benchmark of at least 5 percent of total RA staff (Appendix IX benchmark). - Fragmented central responsibilities and excessive local office networks can impede efficiency. - Financing and resources: - Competitive salaries needed to attract staff and reduce corruption incentives. - IT investment norms: 11–13 percent of total spending in advanced economies, 5–7 percent in emerging markets. - About 60 percent of countries with data reduced RA spending even relative to GDP during crisis. - Autonomy and integrity: - Semi‑autonomous revenue agencies (SARAs) often associated with improved performance, but outcomes vary. - Integrity measures include simplified automated procedures and high‑profile prosecutions; success needs political will. - Operational management: - Focus on major compliance risks, segmentation, and balancing services with enforcement. - Audit weaknesses: lack of coherent plans, under‑targeting large taxpayers; developing countries focus on comprehensive audits limiting coverage. - Amnesties generally counter‑productive. - Taxpayer services weak in many developing countries; advanced RAs like ATO use differentiated services by segment. ### Information management and IT transformation — opportunities and risks - Opportunities: - Electronic invoicing can replace paper, reduce costs, and enable automated compliance control; Latin America pioneered in this area. - Pre‑population of returns, one‑stop government sites, “100% digital” administrations, and EOI depend on IT systems. - Electronically submitted accounting data can be audited rapidly with software; technology supports segmentation and channeling contacts in real time. - Risks and fraud: - EFDs vulnerable to “zappers” (software falsifying sales); sophisticated fraudsters create many fictitious entities or small claims to evade detection. - Phishing and hacking can capture taxpayer data for fictitious refund claims. - Example: in Estonia a taxpayer made several dozen small daily adjustments to convert VAT liability into refunds without triggering automated risk systems. - Relationship management: - Strong relationships with taxpayers, intermediaries, and other agencies (customs, AML, FIUs) are essential; advanced administrations use regular briefings, ombudsmen, and feedback loops. - Cooperative compliance with large taxpayers reduces uncertainty but requires credible enforcement. ### Compliance Risk Management (CRM) and new tools - CRM: - Standardized framework capturing logic: measure gaps, understand causes, design tailored mitigation (facilitation vs deterrence), allocate resources by segment, and measure impacts. - First formulated by ATO; adopted by OECD and European Commission. - Does not prescribe one solution; country assessments determine tailored interventions. - FAD tools: - RA‑GAP: estimates and decomposes compliance gaps (initial focus on VAT; sectoral and component breakdowns); reports on Estonia and Uganda publicly available (2014). - RA‑FIT: web‑based standardized RA operational data collection; Round 1 (2012) covered more than 80 low and middle income countries; tax part launched May 2014; customs part scheduled early 2015. - TADAT: standardized diagnostic assessment tool for tax administrations (26 high‑level indicators, around 52 dimensions); piloted and intended for general use from November 2015. ### Country experience: Colombia and Peru (Appendix III) - Fiscal outcomes (Average Tax Collections in Percent of GDP): - 2006–2008: Colombia 13.4% ; Peru 15.8% - 2009–2010: Colombia 12.6% ; Peru 14.7% - 2011–2013: Colombia 14.0% ; Peru 16.1% - FAD‑supported three‑year project components: - Improve taxpayer assistance and electronic invoicing/filing/payment coverage. - Implement risk management, restructure audit and VAT refund processes. - Strengthen IT systems: integrated taxpayer current account; centralized systems for enforced collection and auditing. - Results (VAT Compliance Gaps): - 2006–2008: Colombia 25.4% ; Peru 36.8% - 2009–2010: Colombia 25.5% ; Peru 37.3% - 2011–2013: Colombia 22.4% ; Peru 29.6% - Keys to success: strong RA leadership, committed management team, culture of strategic planning, strengthened analytical capacity (measuring gaps, operational indicators), coordinated donor/TA plans, adequately resourced medium‑term planning. ### Concluding policy implications and priorities - Improving compliance requires sustained strategy, data commitment, and management capacity: - Identify major compliance risks accurately to allocate resources for revenue and fairness objectives. - Spearhead legislative, administrative, educational or enforcement actions tailored to risks. - Prerequisites: (1) strong commitment/capacity for data analysis and collection; (2) effective prioritization across risks; (3) attention to basic tax administration functions. - Strong management, appropriate institutional/legal frameworks, and political support are essential. - Priorities by income group: - Advanced economies: need enhanced analytics to measure and understand noncompliance and intervention impacts. - Emerging markets: build governance, operations, and risk‑management capacities. - Developing countries: focus on fundamental RA operations (taxpayer education, information management, auditing, and debt collection) and stable empowered RA management. *International Monetary Fund — CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE (excerpt, content unit _020215a)* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Introduction and Context - This paper addresses core challenges that all tax administrations face in dealing with noncompliance, noting renewed attention driven by intensified revenue needs, fairness, and state‑building. - The Fund has been closely involved in advising member countries through technical assistance (TA) and Fund‑supported programs. - Prepared by Michael Keen, Juan Toro, Katherine Baer, Victoria Perry, John Norregaard, Junji Ueda, John Brondolo, Duncan Cleary, Eric Hutton, Oana Luca, Enrique Rojas, Mick Thackray, and Philippe Wingender. Research assistance was provided by Kartik Kapoor, Tarun Narasimhan, Rutendo Ruzvidzo, and Nate Vernon. Production assistance was by Liza Prado. - January 29, 2015 ### Measuring Compliance and Trends - Measuring and analyzing ‘compliance gaps’—the difference between tax due and collected—is a powerful first step to addressing noncompliance. - Estimating and dissecting compliance gaps is becoming more common, but remains the exception—even in advanced economies. - The aim is not to eliminate gaps, but reducing them can raise significant amounts: reduced VAT gaps in Latin America in the early 2000s, for example, may have raised revenue by about 15 percent. - Widely‑cited estimates of the level of unrecorded activity are unreliable, and ‘informality’ is not synonymous with ‘noncompliant.’ - Explicit estimation of ‘compliance gaps’ is much more informative, especially when supplemented by granular assessment of compliance challenges. - Many revenue administrations fail to produce such estimates, particularly but not only in developing countries. - Compliance gaps are generally greater in developing countries, and were widened by the crisis in the countries most affected. - Compliance worsened markedly in countries most affected by the crisis, which exposed structural weaknesses in many tax administrations; there are tentative signs that the effect may be short‑lived, perhaps reflecting policy responses. ### Core Instruments and Drivers of Compliance - Some basic instruments to deter evasion and facilitate compliance—and supportive tax policies—are critical for strong compliance. - The value of withholding and third party information is well‑established: where both apply, compliance in advanced counties is around 99 percent; even with only the latter it is over 90 percent. - Taxpayer segmentation—primarily by size, but also in regard to ‘hard‑to‑tax’ segments such as high wealth individuals—is increasingly recognized as key for tailoring enforcement actions and the provision of taxpayer services. - Policy design needs to be sensitive to compliance challenges, pointing to broad bases and potentially blunter tools in lower income countries. - By compliance is meant broadly meeting legal obligations imposed by the tax system; the focus is on illegal evasion rather than legal avoidance, though the distinction can be blurred in practice. ### Institutional and Management Challenges - Much remains to be done in many countries to build effective tax administrations. - Recurrent concerns include high turnover of senior staff, weak headquarters, inadequate/unstable financing, weaknesses in auditing, taxpayer services and legal frameworks—especially in developing countries. - IT developments offer considerable opportunities—but also pose new compliance problems. - Tax administrations face increased pressure to take on non‑revenue roles that can present considerable difficulty. ### New Tools, Approaches and Policy Implications - New tools can help countries address compliance problems by analyzing gaps, comparing indicators with peers, and assessing their own performance. - The paper emphasizes a focus on administrative perspective and core strategic issues rather than a detailed “toolkit”; detailed guidance and analysis are offered elsewhere. - Priorities and circumstances vary widely across countries, but there is considerable commonality in compliance challenges and in the need for RAs to assess compliance risks and design appropriate measures. ### Structure and Coverage (high‑level) - The paper analyzes measurement and trends in compliance (including during the crisis); assesses drivers of compliance and core instruments; examines emerging issues in ‘hard‑to‑tax’ segments (including High Wealth Individuals and B2C transactions); addresses institutional and managerial issues; and discusses new tools to improve RA performance. - Appendices cover methods, country experiences, VAT compliance, small businesses, professionals, international EOI, headquarters functions, local organization, and new tools for improving revenue administration. *International Monetary Fund — CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE (Executive Summary, January 29, 2015)* ### 12. An increasing number of RAs measure compliance gaps... Which of various approaches ### _020215a - 12. An increasing number of RAs measure compliance gaps... Which of various approaches ### Estimating Compliance Gaps (Box 1) - Broad distinction between: - ‘Bottom up’ approaches — gross up from audit results or other operational information; may involve random audits; costly but provide direct intelligence on the nature of noncompliance. - ‘Top down’ approaches — use national accounts and other data to model the tax base and estimate revenue under perfect compliance, subtracting actual collections to arrive at the compliance gap; uses fairly readily available data but accuracy depends on data quality and may provide little insight into how compliance might be improved. - Typical application: - Bottom-up most often used for income tax gap estimates (income statistics often derive from tax data, so independent base data lacking). - Top-down more commonly used for consumption tax gap estimates; the VAT gap is the most commonly estimated. - Variants within approaches: - Common top-down VAT method: compare actual VAT revenue with that implied by survey-based estimates of aggregate consumption (with adjustments for items such as tax due on inputs purchased by exempt sectors). - Alternative top-down method: FAD’s ‘RA-GAP’ program uses supply-use tables from national accounts to estimate potential revenue and provides a sectoral breakdown of the gap to guide compliance interventions. ### Data availability, practice, and programs - Historical notes: - Efforts began with the Taxpayer Compliance Measurement Program in the U.S.; Denmark has used a similar approach. - Several European countries produce gap estimates, but only the U.K. publishes them routinely. - Estimated VAT gaps for 26 EU members (from 2000) prepared for the European Commission are provided in CASE (2013, 2014). - Since 2000 many Latin American countries regularly estimated their total tax gaps; CIAT (2012) reports VAT and CIT tax gaps in Latin America. - The Australian Tax Office (ATO, 2012) has published its estimated GST compliance gap. - Scarcity in developing economies: - In Africa, Kenya, Uganda and South Africa have estimated VAT compliance gaps; such examples are rare. - Main obstacles for lower income countries: assembling appropriate data due to inadequacies of national accounts data or cost of conducting random audits. - IMF programs: - FAD’s ‘RA-GAP’ program began in 2013; programs for seven countries have been completed, with three reports publicly available (IMF (2014b,c,d)); initially focused on VAT gap estimation and being extended to other taxes. - FAD’s RA-FIT program aims to gather reliable and consistent data on core aspects of tax and customs administration, such as flows and stocks of arrears. ### Interpretation, uncertainty, and appropriate use of gap estimates - Key cautions: - The revenue loss mechanically associated with gaps may not be recoverable: the ‘theoretical’ base is based on observed activity levels that would likely change under full compliance (example: a tax-evading sole trader might choose to earn less if taxed). - Gap estimates are uncertain; margins of error are difficult to quantify but likely material. Errors from underlying assumptions are likely serially correlated, so estimates are best suited to indicating changes in compliance rather than levels. - They should not be used mechanically as performance indicators given imprecision, but can supplement indicators of changes in collections by better isolating drivers of revenue changes that administrations can address. - Need for granularity: - An aggregate gap lumps together different forms of noncompliance (and potentially reflects over-payments). Actionable recommendations require more granular analysis than most top-down approaches provide. - RA-GAP provides a sectoral breakdown of VAT noncompliance, decomposes the compliance gap into components relating to collection and assessment, and analyzes detailed taxpayers’ records to identify nature and scale of particular compliance risks. ### Patterns, trends and cross-country variation - Cross-country comparisons require caution due to methodological and data quality differences. - Examples of variation: - VAT gaps in the EU (calculated by a common methodology) ranged from under 5 (Sweden) to over 40 percent (Romania). - In Latin America VAT gaps ranged from under 20 (Chile) to over 40 percent (Paraguay). - Average levels: - Same data imply average VAT gaps of about 20 percent in Europe and 30 percent in Latin America. - Low-income country evidence sparse: - Sub-Saharan Africa estimates range broadly: around 50–60 percent in Uganda to less than 10 percent in South Africa. - For Pakistan, the overall tax gap has been put at 41 percent. - Trends since 2000: - Available estimates for various advanced and emerging economies show a general narrowing of compliance gaps since 2000. - Example: reduction in the average compliance gap in Latin America from 35 to 25 percent would have increased VAT revenue—assuming no change in policy or behavior—by around 15 percent. - Improvement was least marked in higher income economies; EU average VAT gap widened, starting before the 2008–9 crisis and probably associated with large scale fraud and amplified by the crisis. ### Tax compliance and the 2008–09 crisis - Observed effects: - Compliance appears to have worsened sharply as a consequence of the 2008–09 crisis, though experiences varied widely. - CASE (2013) panel of VAT gaps for EU members shows increases almost everywhere around the immediate crisis, with worst worsening where output contraction was greatest. - Mechanism: cash-strapped firms may delay or omit payment of liabilities as a relatively cheap source of finance. - Possible counterfactual effects: - Increased noncompliance may have acted to some degree as an automatic stabilizer—but a very second-best one; turning a blind eye risks damaging enforcement credibility. Rapid rule-based responses (lengthened payment periods, reduced advance tax payments) are more appropriate. - Crisis-exposed RA vulnerabilities: - Increasing focus on taxpayer service may have underplayed enforcement. - Flaws in governance and management and inappropriate legal constraints impaired RAs’ abilities to respond quickly and effectively. - Improved approaches to taxpayer compliance management—such as systematic risk assessment and automated checking and debt management—were not yet fully in place. - Managing immediate and long-term needs (Box 2): - Short-term actions to safeguard revenue and implement policy changes: - Focus on leading forms of noncompliance, with tax arrears a priority. - Monitor large taxpayers closely. - Tighten control of routine tax obligations. - Spearhead targeted anti-evasion measures, such as cash economy task forces and arrears collection—often involving organizational changes. - Improve planning and monitoring of core enforcement actions (such as audit and recovery of debts). - Implement procedural and tax law changes to improve collection and reduce costs, including extending payment facilities and strengthening anti-evasion laws. - Longer-term structural reforms for sustainable compliance improvement: - Adopt a compliance risk management approach. - Modernize headquarters (HQ) and operational levels: strengthen HQ planning and supervision, streamline local office network, regain HQ control of operations, create organizational integrity with zero tolerance of corruption. - Revamp core operations to align with and support compliance risk management, and revamp IT systems to support core operations. - Adopt systematic approaches to mitigating compliance risks with coordinated planning, execution and monitoring. - Ensure an appropriate legal framework for transformational reform, potentially requiring new RA and tax laws and new tax procedure laws that modernize and harmonize administrative and procedural provisions across all major taxes. ### Country and regional experiences (selected) - Colombia and Peru: - Successfully addressed crisis-related downturns in compliance by pursuing strategies aligned with Box 2. - Baltics (Box 3): - Estonia, Latvia and Lithuania had major impacts from the 2009 recession; Latvia’s impact was most severe. - Compliance gap outcomes: - Estonia and Latvia began with comparably low compliance gaps, but Estonia limited the damage while Latvia’s gap more than tripled; Lithuania stabilized compliance at a higher level. - Latvia’s worsening reflected increasing arrears (particularly in VAT), high levels of tax evasion by SMEs and smuggling by organized crime; pre-crisis emphasis on taxpayer services had left enforcement understaffed after budget cuts (over 35 percent, 2009–10). - FAD advice for Latvia: reallocate staff to compliance enforcement and seek budget injection to replace audit and debt collection staff lost due to downsizing. - Lithuania: advice to adopt taxpayer segment-focused compliance risk approach, upgrade auditors’ skills, and strengthen legal framework to support tax administration (particularly arrears). - Estonia: senior management reported following approaches set out in Brondolo (2009); Kuokštis (2012) attributes lower compliance gap to government engagement with citizens and higher trust. ### Understanding and addressing noncompliance — Key messages (section header) - Key messages: - Deterring evasion and facilitating compliance are both essential. - Withholding, the use of third party information and taxpayer segmentation are critical for combating noncompliance—but auditing remains crucial. - Non-pecuniary motives for compliance, long recognized by tax administrators, are attracting increasing interest, but the potential for significant gain by leveraging them remains unclear. - Tentative empirical evidence suggests that output contractions worsen compliance, though the effect seems short-lived—and sustained spending on RAs can significantly improve compliance. - Implementation costs mean that the optimal compliance gap may be far from zero. - The increasing sensitivity of tax bases means optimal spending on RAs is likely to increase. *International Monetary Fund — CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE (excerpt)* ### 27. The standard framework for thinking about noncompliance stresses deterrence as the ### _020215a - 27. The standard framework for thinking about noncompliance stresses deterrence as the ### Deterrence and Audit - The Allingham and Sandmo (1972; AS) model treats evasion as a Becker-type gamble balancing tax saved against detection risk and penalty; it remains a core element of the compliance framework. - Audit plays a key deterrence role and is most effective when risk-based: - Condition the likelihood and nature of audit on taxpayers’ characteristics and self-report. - Laboratory evidence supports simple cut-off rules (auditing reports below some threshold, conditional on other taxpayer features). - Advanced RAs use comparisons with other declarations, industry benchmarking, and other information in risk-based audits. - Indirect effects of increased audit can be substantial: - Attempts commonly find the indirect effect to be up to 8–12 times as large as the direct effect. ### Compliance Costs and Voluntary Compliance - Compliance costs are hard to measure and vary significantly across taxpayers and taxes. - There is a strong consensus that compliance costs include substantial fixed components (e.g., filing a VAT return costs much the same irrespective of the net amount remitted), making costs especially large for small businesses and potentially causing failure to register or reduction in activities. - Promoting voluntary compliance by reducing these costs has received increased attention, focusing on improved taxpayer services: - Simplifying reporting. - Providing ready access to information and advice. - Organizational focus on distinct needs of different taxpayer segments. ### Corruption and Policy Choices - Corruption within the RA remains a significant concern in many countries: - Can involve bribery to understate liability or avoid registration, or extortion via threat of over-assessment. - Damage to revenue, compliance, and respect for the tax system can be chronic with profound effects on incidence. - Policy choices strongly affect compliance and should be shaped by compliance challenges: - Weight of evidence suggests higher tax rates generally discourage compliance; the reduction in higher PIT rates with adoption of the flat tax in Russia appears to have improved compliance. - This argues for minimal exemptions, which also eases administrative burdens on RAs. - Calibrate policies to compliance problems: e.g., a minimum corporate tax and royalties for EIs are often recommended, especially in lower income countries, to limit evasion and avoidance. - Choice of thresholds at which obligations arise matters and should consider compliance implications. - Simple tax rules are, all else equal, better for well-informed compliance, but assessing scope for simplification is difficult and sometimes overstated. ### Tools of the Trade — Withholding, Information Reporting and Taxpayer Segmentation - Withholding: - Critical to strong tax administration; historically increased effectiveness (Addington’s 1803 income tax vs. Pitt the Younger’s 1799). - Commonly accounts for about 75 percent of personal income tax (PIT) revenue. - Widely applied to interest, dividends and—in some cases—capital gains. - VAT has similarities to a (creditable) withholding tax. - Withholding is often used at monitorable points (e.g., at import or by public or large enterprises) to reach hard-to-control taxpayers such as contractors. - Example: firms remit around 80 percent of revenue in the U.K. - Withholding imposes compliance costs on the withholder, but continuing costs may be relatively modest since required information is routinely available; aggregate costs likely outweighed by reduced costs for those withheld against. - Limits and risks of withholding: - Collusive evasion is a risk when small numbers are involved (examples include underreporting of social security contributions in Mexico and on wages in Pakistan). - Withholding does not remove the need for audit of withholders. - Excessive use can cause problems (e.g., large taxpayer withholding VAT on purchases may create excess credits or refund claims among suppliers). - Proper scope of withholding can be a difficult judgment given potential complexity. - Third party reporting: - Encourages compliance by increasing probability of false reports being detected; financial intermediaries play an important role. - Taxpayers may focus evasion on items not subject to third party reporting. - Internationally, information provided by financial institutions is central to exchange of information between tax authorities to address cross-border evasion. - In lower income countries, limited use of financial intermediaries is a major obstacle to effective compliance; capacity to make use of third party information may also be constrained. - Empirical support: - Empirical evidence confirms the value of withholding and third party information. Example: in Denmark only around 0.2 percent of employment income is underreported when employers also provide information to the tax authority. - Withholding and third party reporting enable prepopulation of returns in advanced tax administrations. - Taxpayer segmentation: - Segmenting taxpayers (primarily by size) enables tailored responses to differing compliance risks. - Failure to register is more likely among the smallest taxpayers; ensuring prompt payment and monitoring avoidance matters more for the largest. - Organizational structuring and resource allocation (e.g., large taxpayer offices, specialized units for EIs or financial institutions) support segmentation. ### Behavioral Aspects - The AS approach predicts much lower compliance than observed in advanced economies where withholding or third party information are absent, implying other motives matter. - Behavioral factors—optimization errors, intrinsic motivation (shame, guilt, pride, patriotism), social norms—are often summarized as “tax morale.” - Laboratory and field experiments offer lessons: - Optimization errors imply benefits from simplification and information provision and from manipulating perceived probabilities. - Interdependent compliance decisions imply possibility of multiple equilibria; escaping low-compliance equilibria may require major interventions. - Careful framing (e.g., reminders invoking peers’ compliance or social norms) has, in some experiments, improved timely remittance. - Trusted institutions and valued public spending are suggestive (though not conclusive) drivers of better compliance. - Interactions and heterogeneity: - Motivations interact: reducing deterrence can weaken extrinsic motivation and undermine social norms, creating a vicious cycle. - Attitudes differ significantly across and within countries, indicating heterogeneity in motivation that RAs recognize and address (e.g., via compliance pyramids). ### Some Empirics of Compliance Gaps - Examination of links between VAT compliance, output gaps, and spending on RA over panel data (EU and Japan, 2000–11) yields tentative conclusions: - Over the full sample, compliance falls quickly and strongly as output falls below potential: a one point increase in the output gap increases the compliance gap, on average, by around three percentage points (relative to an average gap in the sample of around 15 percent). - The effect is short lived, largely vanishing after two years; immediate difficulties that worsen compliance during adverse shocks do not necessarily become entrenched. - Higher spending on RA has little short run impact, but is associated with significantly better compliance if sustained. The elasticity of the VAT base with respect to administrative spending emerges as being in the order of 0.2. - Recession and attitudes: - Popular attitudes seem if anything to have hardened against tax evasion in many countries most adversely affected during the crisis (see changes in disapproval of tax evasion). - Causality concerns remain (countries with poor compliance may increase spending on tax administration to counteract it). *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2015/_020215a.pdf* ### 43. Against the benefits of improved compliance must be weighed costs, in terms of ### _020215a - 43. Against the benefits of improved compliance must be weighed costs, in terms of ### Enforcement elasticity, compliance gap, and cost–benefit condition - Core concept: "enforcement elasticity of taxable income" — responsiveness of taxed income (reflecting changes in both evasion and real decisions) to increased spending on RAs. This quantity is central to deciding how much to spend on enforcement. - Empirical note: Appendix V points, "extremely tentatively," to values in the EU around 0.2. - Decision rule: The compliance gap is "too large" (i.e., additional RA spending is warranted) if the enforcement elasticity of taxable income exceeds the (adjusted) ratio of administration and compliance costs to tax revenue. - Rationale: revenue gain from improved compliance must exceed the social cost of collection; administration costs are more socially costly because they must be financed from distortionary tax revenue and thus need adjustment (deflation). - Numerical illustration: - If initial compliance gap = 15 percent, - administrative costs = 1.5 percent of revenue, - assume compliance costs = administration costs and are to be deflated by 1.2, - then additional spending is warranted if enforcement elasticity > 0.16. - Empirical data availability: RAs occasionally present estimates of additional revenue from extra resources, but these are rarely recurrent or public. RA-FIT data (Figure 7) provide some administration-cost-to-revenue comparisons. ### Targeting and cost effectiveness across taxpayer segments - Key observation: Not all means of reducing compliance gaps have identical economic impacts. - Targeting priority by cost-effectiveness: - Natural focus on larger taxpayers first, then smaller ones. - SMEs can account for a large part of measured compliance gaps (example: SMEs account for 50 percent of the U.K. VAT gap). - Equity and efficiency caveat: - Excessive focus on "easy-to-tax" (often smaller enterprises) can worsen inequities and distortions. - Taxing small businesses may be desirable even if it raises less revenue than it costs to collect. - Recommendation: Enforcement efforts should balance revenue, equity, and distortion concerns; segmentation-based approaches help in treating different taxpayer types appropriately. ### Revenue mobilization vs. rate increases; international mobility effects - Spending to improve compliance is likely to be more efficient than raising rates when: - enforcement and taxable income elasticities are high (high taxable-income elasticity implies large welfare costs from higher statutory rates). - implementation costs are lower and initial tax rates are higher. - Implication: Optimal RA spending likely increases as tax bases become more sensitive to tax rates, including due to increased international mobility. ### A. High Wealth Individuals (HWIs) — risks, methods, and results Findings and risks: - Top-income shares: highest incomes account for a very large share of PIT revenues in many advanced countries (e.g., top 1% in the U.K. and U.S. account for around one quarter and one third respectively). - HWIs present large revenue risks due to: - complex business affairs, - high international mobility, - access to specialist advice, - propensity to take tax risks (aggressive planning and evasion). - Typical evasion/avoidance channels: undeclared offshore income; undeclared or reduced capital gains; misclassification of ordinary income as capital income; extracting company profits other than by dividends; “one-off” events (mergers, acquisitions, IPOs, asset sales). Administrative responses and tools: - Specialized HWI programs in leading tax agencies often include: - Dedicated HWI unit (often within LTO) with highly skilled officers for risk analysis, audit, and debt collection. - Expanded information reporting covering entities and assets owned by HWIs and mandatory disclosure of certain transactions. - Measures encouraging voluntary compliance: pre-filing agreements, rulings regimes, carefully designed voluntary disclosure schemes. - Comprehensive checks: risk reviews, audits, prosecutions for egregious offenders. - Withholding taxes (e.g., on rental payments) used with some success. - Tightening laws to prevent tax-free private use of corporate assets, use of companies/trusts to hold income at lower rates, and income streaming to preferential beneficiaries. - Documented outcomes: - ATO’s HWI audit program: Aus$ 1.2 billion yielded and disallowed losses Aus$ 490 million over 2006–12. - HMRC’s High Net Worth Unit (since 2009): over ￡1 billion brought in and outstanding tax returns reduced from 11.9 to 3.4 percent. Offshore evasion and international cooperation: - Scale of offshore concealment: - IRS voluntary disclosure programs: more than 45,000 disclosures yielding about US$ 6.5 billion in back taxes, interest and penalties since 2009 (as of June 2014). - A study suggests around 6 percent of global net financial wealth of households — about US$ 4.5 trillion — is unrecorded and located in tax havens; unpaid tax might run into some tens of billions of dollars annually. - International exchange of information (EOI) developments: - OECD estimates increase in tax revenue from offshore compliance initiatives in 20 countries of €14 billion in 2011. - Norway and Denmark identified noncompliance in around 40 percent of cases where they received information automatically from others. - Challenges with EOI: funds shifting to jurisdictions not meeting international norms; technical challenges in matching received data; confidentiality concerns; resource constraints in lower income countries. ### B. Business-to-Consumer (B2C) transactions — challenges and measures Findings and scale: - B2C segment compliance challenges: - Consumers lack incentive to collect receipts/invoices, undermining third-party crosschecks. - Large number of consumers makes withholding impractical. - E-commerce growth complicates knowing when/where a sale occurred and tax jurisdiction, especially for intangible services. - Fiscal risk: non- or under-reporting of final sales. - Examples of significance: - In Australia, B2C taxpayers account for 29 percent of the large business segment and 25 percent of all tax collections. - In Chile, under-reporting of B2C sales represents 60 percent of the VAT gap. RA initiatives for B2C compliance: - Field enforcement strategies (Chile example): - Verify issuance of invoices/receipts, registration status, and adequacy of accounting systems. - Temporary closure powers for premises of repeat offenders. - Dedicated regional teams coordinated by HQ; risk-based workload planning. - From 2010 to 2012 this strategy was applied to an average of 47 percent of total taxpayers with business premises. - Measures explored to improve B2C reporting: - Electronic Fiscal Devices (EFDs): - Can be effective only as part of a comprehensive compliance strategy. - Pilot in Dominican Republic: benefits 2.5 times costs (did not include taxpayers' compliance costs). - Lotteries to encourage consumers to request receipts: - Sao Paulo NFP scheme (2007): consumers credited 30 percent of the VAT shown on the receipt; optional monthly lotteries distributing 1.5 million prizes on average, from US$5 up, with 3 large prizes from US$15,000–500,000. - Naritomi (2013) finds increased revenue from retailers at least 22 percent; increased revenue (net of cost of rewards) by 0.3 percent of state VAT receipts. - Tax reductions for paper invoices (Bolivia, Turkey): consumers can credit part of payments shown on paper invoices against other liabilities, but this creates administrative and compliance costs. - Tax reductions for credit/debit card payments: - Argentina: reimbursed customers 5 percent of their VAT payments, automatically credited to bank accounts — amounting to around 1.1 percent of VAT collection. - Korea: enabled salary earners to credit some purchases by card against PIT and allowed sellers a VAT reduction; revenue foregone in the order of 5 percent of VAT revenue. (2008 ratio: revenue loss 2.4 billion won to VAT revenue 47 billion won.) Effectiveness caveats: - Little evidence of substantial revenue gain from such schemes; risk they distract from audit and enforcement. - Few careful evaluations; such measures should not be regarded as alternatives to effective auditing. - Linking cash registers to the RA does not guarantee all sales are recorded; lottery incentives may be insufficient relative to evasion on large-ticket items. Cross-border B2C and e-commerce challenges: - Destination principle: tax should be levied where consumer is located, but identifying purchaser jurisdiction is difficult for cross-border goods and especially intangible services. - U.S. context: states face difficulties applying state sales taxes to interstate Internet sales; "Amazon tax laws" and "click-through nexus" statutes have mixed legal results and evolving application. - Example revenue estimate: losses from B2B and B2C e-commerce in Alabama (2012) estimated in the range of U.S.$170–190 million. - International responses: EU and OECD endorse treating e-commerce the same as traditional commerce; simplified schemes to require non-resident suppliers to register and account for VAT in purchaser jurisdiction exist (EU and Norway), but effectiveness remains unclear. ### Institutions and management — high-level institutional findings - Institutional and managerial structures of RAs are crucial for compliance and state-building. - Common institutional weaknesses: high turnover of senior staff, weak HQs, inadequate and unstable financing, unwieldy office networks. - Major ongoing challenges: establishing effective auditing, developing taxpayer services, constructing appropriate legal frameworks, and building strong relationships with other government agencies (notably anti-money laundering authorities). - Information management: effective information management offers considerable opportunities across RA development stages; conversely, IT developments create new compliance problems. _Italic source: Excerpt from "CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE" (IMF) contained in the provided content unit._ ### 63. Effective institutions and management are essential for assuring compliance, with ### 63. Effective institutions and management are essential for assuring compliance, with ### Organizational Management - RAs are large, complex, powerful organizations with critical macroeconomic and developmental roles; the tax receipts they manage commonly dwarf the sales of the largest national companies (Figure 9). - Core challenges noted: - Rapid turnover of senior managers: of a sample of 130 countries for the five years from 2009, over 60 percent had two or more commissioners (Figure 10); commissioner positions are sometimes vacant for long periods. - Weak and understaffed headquarters (HQ): HQ staff in many cases falls short of the benchmark of at least 5 percent of total RA staff needed to effectively perform HQ functions (set out in Appendix IX). - Fragmentation of central responsibilities: several independent units at central level may deal with tax administration matters, and other agencies (provincial authorities, security services, transport authorities) sometimes exercise taxing powers. - Strengthened and empowered RA headquarters recommended to ensure business continuity, coherence of strategic direction, and effective reform management. ### Adequate, Stable Financing - Key spending needs and concerns: - Competitive salaries to attract and retain qualified staff and reduce incentives for corruption; payment schemes that reward individuals for collections risk increasing bribes. - Investment in IT and knowledge management: IT expenditure commonly 11–13 percent of total spending in advanced economies, and 5–7 percent in emerging markets. - Sufficient, sustained funding of tax operations; examples include suspended field audits due to inability to afford transportation. - Some countries allocate a fixed proportion of collections to the RA to help assure revenue and incentivize performance. - Crisis-era spending reductions: - About 60 percent of the countries for which data are available reduced spending even relative to GDP (Figure 11). - Short-run links between compliance and spending on tax administration may be modest but evidence is not definitive; risks include increased perception that persistent evaders are unlikely to be caught. ### Sufficient Autonomy - Semi-autonomous revenue agencies (SARAs) have been broadly associated with improved RA performance in many cases: - Objectives of SARAs: greater insulation from political interference, more flexibility in human resource policies, and more secure financing. - Variation in outcomes: SARAs vary widely and simply establishing a SARA does little if institutional governance and management opportunities are neglected. - Evidence: Ebeke and others (forthcoming 2015) find creation of SARAs in sub-Saharan Africa associated with increased revenue. ### Assuring Integrity - Corruption in RAs reduces short-term revenues and erodes compliance over the long term. - Remedies discussed include simplified, transparent, and ideally automated procedures, and high-profile prosecutions; success requires strong political will and a whole-of-government approach (example: Georgia). ### Maintaining Focus - Expansion of RA roles beyond core taxes: - Many RAs collect debts for other agencies and administer welfare roles (refundable personal tax credits, social transfers); examples include the U.S. Earned Income Tax Credit and RAs in New Zealand, Korea, and the U.K. - Difficulties of welfare administration by RAs: timing needs (more rapid than annual PIT cycles), family-based assessment vs. individual PIT, different client base and compliance risks. - Resource implications: around half the staff of the RA in New Zealand are involved in benefit delivery. - Recommendation: assess comparative advantages of agencies for non-revenue tasks and design cooperation arrangements. ### Streamlined and Clear Structures - Excessive regional and local office networks: - Large office networks can impede low-cost, standardized processes, compromise equality of treatment, increase compliance burdens, and require taxpayers to interact with multiple local offices. - Experiences (Appendix X) suggest potential benefits from streamlined office networks. ### Operational Management - Focus operations on major compliance risks and balance taxpayer services with enforcement. - Recommendation to establish specialized units for taxpayer segments (large, medium, small, high wealth); approach adopted by most advanced RAs. - Examples: Portugal used tailored focus to identify emerging compliance risks during the crisis; several Sub-Saharan African countries (Burundi, Democratic Republic of Congo, Kenya, Senegal, Uganda) focused on large and medium taxpayers to weather crisis effects. - Auditing: - Audit remains a central deterrence tool; many RAs lack coherent audit plans that use third party information and ex-post evaluations. - Example: in one EU country only about 7 percent of audits in 2013 targeted medium and large taxpayers, which remitted about 64 percent of VAT revenue. - Developing countries often focus excessively on comprehensive audits rather than single-issue audits, limiting audit coverage (Figure 12). - Other operational weaknesses: - Failures in prompt payment of refunds, especially VAT. - Insufficient resources for enforcing delinquent payments and focusing on largest/recent arrears. - Lack of effective enforcement powers (seizure of bank assets, garnishment) or failure to apply them systematically. - Amnesties: - Tax amnesties are almost always counter-productive, rarely followed by promised effective enforcement, create horizontal inequity, and undermine system credibility. - Taxpayer services: - Services are weak in many developing countries; need modernization and segmentation. - Example: ATO has multi-faceted taxpayer services differentiated by taxpayer segment. - Behavioral approaches experimented with in advanced administrations (e.g., letters about proportion of delinquent taxpayers in one's zip code). ### Legal and Institutional Enablers - Legal changes often needed: - Stronger sanctions, stiffer fines, criminal prosecution. - Measures to discourage transactions with jurisdictions not providing tax-related information (withholding taxes, denying certain expense deductions). - Modify cooperation agreements or seek legal changes to remove inappropriate non-tax tasks from RAs. - Enabling legal framework for streamlined and technologically supported operations (e-filing, e-payment, reducing local offices). ### Information Management - Managing information effectively is critical; not equivalent to managing IT support alone. - Key considerations: - Back to basics: many developing countries still fail to automate basic compliance operations; some do not enter all tax returns into IT systems; RA-FIT revealed only about half provided information on tax debts. - Opportunity for technological leapfrog for many developing country RAs; several advanced economies battle with outdated systems. - Enhance compliance control capabilities—back-end as well as front: - Front-end electronic interfaces have progressed, but back-end developments lag: automated risk profiling, joined-up filing and accounting across taxes, and matching with third party data. - Consequences of lagging back-end systems: duplicated filing requirements, inefficient use of officials' time, insufficient automated verification and data mining, less targeted compliance interventions. - Causes include poorly designed IT systems and enforcement units lacking capability to develop back-end use of electronic data (cross-matching). *Source: _020215a - 63. Effective institutions and management are essential for assuring compliance, with* ### 83. The opportunities for RAs from changing technologies are substantial, and continue to ### _020215a - 83. The opportunities for RAs from changing technologies are substantial, and continue to ### Technology opportunities for revenue administrations (RAs) - "The opportunities for RAs from changing technologies are substantial, and continue to unfold." - Biometrics are identified as a possible replacement for social security or other taxpayer identification numbers (TINs), with potential benefits: - improving taxpayer services (for instance by reducing the time needed for checking taxpayers’ identity in communicating with RAs); - limiting opportunities for identity theft to be used to create fictitious tax refund claims. - Footnote markers preserved from source: 105, 106. ### IT and the transformation of tax administration (Box 5): specific technologies and uses - Electronic invoicing: - replacing paper invoices with electronic versions using mandated or otherwise certified electronic devices that are generated by—and update—suppliers’ and purchasers’ accounting systems, and sometimes the RA’s transaction logs. - "This significantly reduces costs for both firms and (by enabling automated compliance control) RAs." - "Latin American countries were pioneers in this area; 106 China and some European countries are using these methods to reduce missing trader VAT frauds." - Pre-population of tax returns, using registration and third party data, is now routine in several countries. - ‘One-stop sites’ for all interactions between citizens and businesses and government are being increasingly adopted—potentially allowing shared access to government databases across departments. - ‘100% digital’ administration characterized by almost entirely digital communication with taxpayers and the use of social media and apps, is the aim in The Netherlands and elsewhere. - EOI, especially automatic, rests entirely on appropriate IT systems and conventions. - Electronically submitted accounting data can be interrogated with audit software to quickly and cheaply validate returns and identify compliance risks. - Technology-based compliance control is becoming more sophisticated, moving from a largely reactive selection of cases for intervention to supporting customer segmentation by channeling taxpayer contacts to the most appropriate services in real time. This is especially suitable for e-filing, call centers, and other automated processes. ### Technology-related risks and fraud challenges - Emerging technologies create new problems: - Electronic fiscal devices (EFDs) can be undercut by ‘zappers’: software that falsifies recorded sales. - Sophisticated fraudsters use technology to generate very large numbers of fictitious entities and/or claims for credits that are individually too small to prompt compliance interventions. - ‘Phishing’ attacks and hacking are used to capture taxpayers’ personal data to use in fictitious refund claims. - In Europe, perpetrators of VAT refund frauds are using similar techniques to identify and test RAs’ risk profiling and compliance checks. - New technology can facilitate business activity without leaving traces that tax law and RAs can latch on to (examples: avoidance activities of MNEs and Internet transactions in intangible services). - Preserved example from source: "In Estonia, for instance, a case was identified in which a taxpayer made several dozen small adjustments each day to turn a VAT liability into a refund without triggering intervention from the automated risk process (IMF, 2014)." (footnote 107) - RAs must protect taxpayer data from hackers and phishing attacks (footnote 108). ### Relationship management between RAs and stakeholders - Effective compliance management requires strong relationships with: - taxpayers (and intermediaries), trade associations; - other agencies responsible for different aspects of tax compliance (customs, social contribution agencies, withholding agents, AML agencies). - Advanced administrations employ multiple channels: regular briefings, official taxpayer representative or ombudsman, providing grievance channels and feedback loops. - Many developing country RAs: stakeholder relationships are largely ad hoc, limiting opportunities for exchanging information, sharing intelligence, or carrying out joint/coordinated actions. - Enhanced relationship / cooperative compliance with key taxpayers: - close communication between RA and generally large taxpayers to address potentially questionable transactions before they occur and agree treatment. - mutual gains: reduced uncertainty for both RA and taxpayer; RA can better focus on undisclosed tax positions. - requires credible and effective RA enforcement capacities. - early study of the HMRC program (2007–8) found risk rating enabled better internal resource allocation but was "less effective in changing the attitude of some corporate taxpayers toward tax avoidance." (footnote 110) - OECD (2013d) emphasizes need for a clear cooperation framework and good governance (both corporate and of the RA). - Closer cooperation with banks and government agencies to combat money laundering and associated tax evasion: - FATF has expanded scope of predicate offenses to money laundering to include tax crimes, enabling AML frameworks to provide RAs with valuable information regarding unreported income. - To be effective, RAs need well-established channels with Financial Intelligence Units, banks, and relevant branches of the judicial system, including the prosecutor general’s office (footnote 111). ### Compliance Risk Management (CRM) approach - Key messages: - "The challenges that RAs face can be addressed in a broadly common framework..." - "...and by using new tools for measuring and analyzing compliance gaps, collecting comparable data, and assessing performance." - CRM standardized approach: - provides a coherent structure encompassing diverse actions needed to influence taxpayer compliance (Box 6). - "It captures the logic set out in this paper: measure, and understand the causes of, compliance gaps; deliver mitigating and tailored responses, sometimes stressing facilitation of compliance, sometimes stressing deterrence; allocate resources appropriately to different taxpayer segments, and measure the impact of the mitigating actions taken." - First formulated by the ATO; since adopted by the OECD and European Commission (footnote 113). - CRM does not imply a ‘one size fits all’ prescription; assessments can lead to different tailored interventions (e.g., expanding registration base in some countries versus addressing sophisticated frauds in others). - Implementation prerequisites: - Most countries face constraints: weak core operations and limited capacity to identify, analyze, and measure compliance risks and gaps, impeding full application of CRM. - Experience supporting CRM adoption in several countries (e.g., South East Europe) highlights these constraints. ### New tools to support CRM and RA performance - Three tools described (detail in Appendix XII): - RA-GAP: - "An FAD program to help countries estimate and understand their compliance gaps." - Already implemented in a range of developed, emerging and low-income countries. - Initially focused on VAT gaps; now moving into other major taxes. - RA-FIT: - "An FAD initiative to generate a standardized set of data from and for all RAs on a regular basis, allowing them to monitor basic aspects of their performance more effectively and compare themselves against peers." - Will unify and extend efforts of several organizations; cooperation established with CIAT, IOTA, WCO and OECD. - "RA-FIT data have been used at several points in this paper." - TADAT (Tax Administration Diagnostic Assessment Tool): - "A standardized framework for evaluating the performance of tax administration system." - Provides a detailed, evidence-based and scored assessment of performance in all key areas: "a tax-side analogue to the expenditure-side PEFA." - Implementation will be by a full range of agencies with expertise in the area. - "Financed with donor support, TADAT is led by a secretariat located in the IMF." - "Now being piloted, it will be available for general use from November 2015." ### Concluding remarks and core elements for improving compliance - Improving tax compliance requires sustained effort and a coherent strategy. - Compliance is vulnerable to shocks and can be fragile. - Strengthening it requires balancing enforcement and encouragement of voluntary compliance. - Importance of having a coherent and actionable strategy and the capacity to implement it. - Core systematic elements relevant for all countries: - identify major compliance risks as accurately as possible to allocate limited resources effectively for revenue and fairness objectives; - spearhead actions—legislative, administrative, educational or enforcement, depending on the risk—to address them. - Achieving this requires: - (1) strong commitment to and capacity for data analysis (including collecting the data); - (2) effective prioritization in addressing multiple compliance risks; - (3) proper attention to basic tax administration functions. - strong management of RAs, appropriate institutional and legal frameworks, and strong political support for stable management and resources. - Priorities differ by income group: - Advanced economies: strongest in all areas but need enhanced analytics, particularly in measuring and understanding noncompliance and analyzing intervention impacts. - Emerging market countries: enhancing capabilities but lag in understanding noncompliance, governance issues, and operations/risk management. - Developing countries: notable improvements, but capacity in all areas remains work in progress; priority on fundamental RA operations (taxpayer education, information management, auditing and debt collection) and stable empowered RA management. ### Issues for discussion (as listed in source) - Do Directors believe that the strategic framework set out in the paper can help countries improve compliance and, thereby, revenue? Do they agree that it should become an integral part of Fund advice to member countries? - How much importance do Directors believe should be attached to fairness considerations in addressing noncompliance? - Do Directors agree that Fund staff, and national authorities, need to pay particular attention to compliance issues in times of economic crisis? - Do Directors agree that effective revenue administration can be compromised by instability in management and financing, and that caution is needed in extending their operations beyond collecting core taxes? - What challenges and opportunities do Directors expect revenue administrations to face from digitization and other recent and emerging trends? - Do Directors agree that systematic gathering and analysis of information enabling revenue administrations to assess their performance is critical, and that the new tools set out in the paper can help? *Source: CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE (excerpt).* ### Appendix III. Colombia and Peru—Addressing Challenges of the Crisis ### Appendix III. Colombia and Peru—Addressing Challenges of the Crisis ### Fiscal outcomes during the crisis - Both countries experienced a reduced tax ratio during the crisis. - Appendix Table 1. Average Tax Collections in Percent of GDP - 2006–2008: Colombia 13.4% ; Peru 15.8% - 2009–2010: Colombia 12.6% ; Peru 14.7% - 2011–2013: Colombia 14.0% ; Peru 16.1% - Source cited: IMF (2013, 2014f). ### FAD-supported project to strengthen compliance (three-year, externally-financed) - Main elements of the project: - (i) Improved taxpayer assistance and services: - Increase coverage of electronic invoicing. - Extend electronic services to taxpayer registration, return filing, and payment. - (ii) Implement a risk management system and enhance audit effectiveness: - Restructure the audit function to ensure the audit area is responsible for the entire audit process. - Redesign the selective and high-coverage audit process. - Restructure the VAT refund process. - (iii) Strengthen IT systems: - Re-engineer registration and revenue collection systems. - Implement an integrated taxpayer current account. - Centralize systems for enforced collection and auditing for tax and customs operations. ### Results after the three-year project - Increased collections reported (see Appendix Table 1 above). - Reduced VAT compliance gap (Appendix Table 2): - Appendix Table 2. VAT Compliance Gaps - 2006–2008: Colombia 25.4% ; Peru 36.8% - 2009–2010: Colombia 25.5% ; Peru 37.3% - 2011–2013: Colombia 22.4% ; Peru 29.6% - Sources: For 2000–12, CIAT (2014); for 2013, national revenue administrations. ### Keys to success - Strong leadership of the revenue administrations (RAs). - A management team committed to change. - Strengthening a culture of strategic planning. - Strengthening analytical capacity, including: - Measuring compliance gaps. - Using management and operational indicators. - Establishing a coordinated work plan with donors and technical assistance (TA) providers. - Medium-term planning that is adequately resourced. *Source: Appendix III. Colombia and Peru—Addressing Challenges of the Crisis (staff compilation and cited sources).* ### Appendix Figure 2. Bunching and the Central Excise in India ### Appendix Figure 2. Bunching and the Central Excise in India ### Small business tax regimes and thresholds - Policy guidance: - A VAT threshold should be used as an anchor for the wider small business regime, "set at a level that is lower the lesser is the need for revenue and the greater are administration and compliance costs." - Businesses at the VAT threshold "should also be able to cope with the regular income tax." - For firms below the VAT threshold, recommend "a simple turnover tax—levied at one or two rates differentiated across sectors" as a simple form of income tax and replacement for the VAT. - "Presumptive taxes based on physical assessment are generally to be avoided, as complex and corruption-prone." - For the very smallest (micro enterprises) "some modest fixed charge may be useful less as a source of revenue than to provide some attachment to the tax system and government." - Context and implementation considerations: - Initial conditions matter; many countries reluctant to raise an evidently too-low VAT threshold due to fears of revenue loss and concerns about staff resources freed up. - Variation in regimes across countries and income levels; examples include Nordic countries distinguishing labor and capital income for small companies. ### Dealing with professionals (Appendix VII) - Compliance risks and patterns: - Professionals (lawyers, accountants, etc.) pose substantial compliance risks, undermining revenue and trust. - Example: In Greece, self-employed professionals reported incomes below interest payments on consumer loans, with a revenue loss estimated at around 4.6 percent of GDP. - In many developing economies, professionals often fail to register, file, and pay on time and in full. In advanced economies, the key issue is underreporting (misreporting receipts, excessive payments to related entities). - Recommended components of a comprehensive compliance strategy: - Information reporting or withholding on payments to professionals (examples: payments to physicians by health insurance companies, hospitals, and other bodies). - A specialized audit program that includes identifying unexplained wealth. - Cross-checking registers of professional associations with the RA’s database. - Requiring professionals to present a valid TIN and/or obtain a tax clearance certificate for renewal of professional licenses. - Awareness campaigns with professional associations, focused largely on new entrants. - Outcomes from implementation: - By such methods the ATO reduced non-filing among barristers from 18 percent to 0.5 percent and solicitors from 23 percent to 6 percent between 2004 and 2006. - "Taxes owed by professionals rose by about 30 percent." ### Initiatives in international exchange of information (Appendix VIII) - Institutional and multilateral developments: - The EU Savings Directive of 2003 requires automatic exchange of information; Austria deducted tax at (currently) 35 percent and passed 75 percent of receipts to the country of residence (Belgium and Luxembourg also used this exception until 2010 and 2014 respectively). The Directive was amended in 2014 to close avoidance techniques and expand coverage. - G-20/OECD process from 2009 urged jurisdictions to adopt EOI to the international standard (Article 26, OECD model treaty) and led to proliferation of Tax Information Exchange Agreements (TIEAs). Global Forum (GF) membership: 124 members. - As of October 2014, the Global Forum had rated 71 jurisdictions that completed both Phase 1 and Phase 2 reviews: 58 as compliant/largely compliant, 9 as partially compliant and 4 as non-compliant. Twelve jurisdictions were not ready to move to Phase 2. - The G20 Summit at St. Petersburg in 2013 adopted automatic EOI (AEOI) as the global standard; the Brisbane Summit in 2014 endorsed the Common Reporting Standard for implementation. "Fifty five jurisdictions have committed to be able to begin AEOI by September 2017." - The Convention on Mutual Administrative Assistance in Tax Matters (OECD/Council of Europe, 1988) was opened to all jurisdictions in April 2011; 69 have now signed. - FATCA specifics: - The U.S. Foreign Account Tax Compliance Act (FATCA) requires FFIs to enter into an FFI Agreement with the IRS to identify and report accounts of U.S. taxpayers and entities with substantial U.S. ownership. - A "30 percent withholding tax" applies to payments of U.S. source income to non-participating FFIs and account holders who refuse required information. - Intergovernmental Agreements (IGAs) between national tax authorities and the IRS remove the need for individual FFIs to sign FFI Agreements; "To date, 110 jurisdictions have reached IGAs." - Trends and indicators: - Indicative increase in the number of EOI agreements (mainly TIEAs) involving GF members since 2005 (visualized in Appendix Figure 3). ### Headquarters functions for revenue administrations (Appendix IX) - Core tasks for RA HQs: - Develop strategic direction for institutional mission effectiveness. - Develop and manage national policies on core and support functions; design and maintain standardized processes and procedures. - Prepare national work plans reflecting corporate priorities, specifying activities, reform tasks, expected work volumes, staffing levels, and budget requirements. - Ensure resources are allocated across activities and locations in line with corporate priorities. - Identify training needs and oversee staff training programs. - Refine operational delivery structures, develop tools and techniques, and advise field operational units. - Monitor performance against national work plans and budget via structured performance measurement systems; identify divergences and develop corrective actions. - Report on institutional performance to internal and external stakeholders. ### Local office organization experiences (Appendix X) - Country pair comparisons: - Denmark and Belgium: both small, high-income with tax ratios around 50 percent. - South Africa and Turkey: both large emerging economies with tax ratios around 25 percent. - Belgium and Turkey have "over 1,000 local offices"; Denmark and South Africa have "less than 50." - Over 90 percent of RA staff in Belgium and Turkey are in field offices; Denmark and South Africa have proportionately more HQ and other staff (call and data centers, etc.). - Belgium and Turkey spend a higher proportion of budgets on staff salaries. - Performance contrasts: - VAT compliance gap is much the same in Denmark and Belgium, but collection costs in Denmark are half those in Belgium. - In South Africa and Turkey collection costs are similar, but C-efficiency is "much higher in South Africa—where the compliance gap indeed seems low." ### New tools for improving revenue administration (Appendix XI) - A. RA-GAP — Quantifying and understanding compliance gaps - Analytical framework: - Overall tax gap decomposed into: (a) imperfect compliance with current tax system—the compliance gap; (b) deviations of current tax rules from the benchmark—the "policy gap." - Benchmark example for VAT: "a tax levied at a single rate on all consumption." - RA-GAP decomposes the compliance gap further into an assessment gap (difference between total tax assessed and potential tax) and a collections gap (difference between tax assessed and tax actually collected). - For VAT, methodology allows decomposition of the compliance gap by sector. - Design criteria for gap estimation methodologies (RA-GAP checks that they should): - Cover all potentially taxable activity and all potential taxpayers for the tax concerned. - Account for all potential forms of non-compliance. - Not overlap in coverage—or be able to control for overlap. - Be consistent in compilation of potential revenues and actual revenues (noting accruals-based compilation is typically most appropriate). - Current status: - Program focused on VAT compliance gap; reports on Estonia (2014) and Uganda (2014) publicly available (IMF 2014c,d). - Extensions to other taxes are being developed to estimate compliance gaps for all major taxes. - B. RA-FIT - Objectives: - Enable revenue administrations to monitor core operations more effectively via web-based platform collecting quantitative and qualitative data (baseline/profile data, volumetrics, inputs, performance-related data). - Data to be analyzed and made available to participating countries and TA partners/donors. - Origins and milestones: - Began as a response to need for standard data for RAs in low income countries and a G-20 request to establish objective measures to track capacity improvement of RAs in low income countries. - Round 1 (2012) gathered revenue administration data for "more than 80 low and middle income countries." - RA-FIT tax part launched in May 2014; the customs part scheduled to be launched in early 2015. - On October 24, 2014, the IMF, CIAT, IOTA and the OECD signed a letter of intent to establish a common platform to collect data concerning tax administration. - Lessons and limitations: - Round 1 data quality was variable with limitations, including small sample sizes for some income groups and questions. - Difficulty many RAs experienced in providing basic operational data highlights progress needed; the RA-FIT process itself aims to catalyze improvements. - C. TADAT - Purpose: - Deliver an objective and standardized assessment of the most critical outcomes of a country's tax administration, identifying strengths and weaknesses and guiding reform priorities and sequencing. - Periodic re-assessments suggested "every 3–5 years" to ascertain reform results. - Structure and metrics: - Developed to parallel PEFA; structure will focus on nine key performance outcome areas shown in the "TADAT wheel." - Assessment based on "26 high-level indicators, built on around 52 dimensions." - Aggregation of dimension scores produces indicator scores. - Status: - Assessment tool was still being finalized and intended to be released for public comment early in 2015. *Source: _020215a - Appendix Figure 2. Bunching and the Central Excise in India (IMF PDF content supplied).* ### Appendix Box 3. The TADAT Wheel ### Appendix Box 3. The TADAT Wheel ### Current status - TADAT has been developed jointly with several stakeholders: representatives of donor countries and organizations; staff within the Fund, the World Bank, and other international organizations; representatives from organizations involved in improving tax administration or representing national tax administrations (CIAT, IOTA, the African Tax Administrators Forum, (ATAF)); and tax administration experts from several RAs. - With support from donors, 146 the tool is implemented by the TADAT Secretariat, located in FAD. - Delivery will be by suitably trained experts, with the secretariat ensuring quality control. - The framework has been tested in four pilot assessments, and more are planned through summer 2015. ### Partners and donor support - 146 TADAT partners include the: European Commission, German Federal Ministry for Economic Cooperation and Development (BMZ), IMF, Japanese Government, Ministry of Foreign Affairs of the Netherlands, Royal Norwegian Ministry of Foreign Affairs, Swiss State Secretariat for Economic Affairs, U.K. Department for International Development and World Bank. *CURRENT CHALLENGES IN REVENUE MOBILIZATION: IMPROVING TAX COMPLIANCE — INTERNATIONAL MONETARY FUND* ### References ### _020215a - References ### H3: Tax compliance measurement, tax gaps, and VAT gap studies - Ahmed, Robina, and Mark Rider, 2008, “Pakistan’s Tax Gap: Estimates by Calculation and Methodology,” Andrew Young School of Policy Studies (Atlanta: Georgia State University). - Australian Tax Office, 2012, “Measuring Tax Gaps in Australia for the GST and the LCT,” Canberra. Available via the Internet: https://www.ato.gov.au/Business/Bus/Measuring-tax-gaps-in-Australia-for-the-goods-and-services-tax-(GST)-and-the-luxury-car-tax-(LCT)/ - Australian Tax Office, 2013, GST Administration Annual Performance Report 2012–13. Available via the Internet: https://www.ato.gov.au/uploadedFiles/Content/ITX/downloads/n72679-11-2013_js29498.pdf - Center for Social and Economic Research and CPB Netherlands Bureau for Economic Policy Analysis, in consortium with CAPP, CEPII, ETLA, IFO, IFS and HIS (‘CASE’), 2013, “Study to Quantify and Analyze the VAT Gap in the EU-27 Member States Final Report” (Warsaw, Poland). Available via Internet: http://ec.europa.eu/taxation_customs/common/publications/studies/index_en.htm - Center for Social and Economic Research, CPB Netherlands Bureau for Economic Policy Analysis, in consortium with CAPP, CEPII, ETLA, IFO, IFS and HIS, 2014, “2012 Update Report to the Study to Quantify and Analyze the VAT Gap in the EU-27 Member States.” (Warsaw, Poland). Available via Internet: http://ec.europa.eu/taxation_customs/common/publications/studies/index_en.htm - European Commission, 2013, “A Review and Evaluation of Methodologies to Calculate Tax Compliance Gaps,” Taxation Papers, Working Paper N.40-2013. - European Commission, 2010, “Compliance Risk Management Guide for Tax Administrations.” Available via the Internet: http://ec.europa.eu/taxation_customs/resources/documents/common/publications/info_docs/taxation/risk_managt_guide_en.pdf - Her Majesty’s Revenue and Customs, 2013b, “Measuring Tax Gaps 2013 Edition.” Available via the Internet: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/249537/131010_Measuring_Tax_Gaps_ACCESS_2013.pdf - Pomeranz, Dina, 2013, “No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax,” Harvard Business School, Working Paper No. 19199. Available via the Internet: http://www.hbs.edu/faculty/product/43830 - Reckon LLP (2009). “Study to Quantify and Analyse the VAT Gap in the EU-25 Member States,” http://ec.europa.eu/taxation_customs/resources/documents/taxation/tax_cooperation/combating_tax_fraud/reckon_report_sep2009.pdf - Ueda, Junji, 2014, “Evolution of Potential VAT Revenues and C-efficiency Ratios in Advanced Countries: Policy Gap, Compliance Gap, and Business Cycle,” forthcoming IMF working paper. - Ueda, Junji and Tadashi Tsutsui, 2013, “Why Japan’s Consumption Tax Revenue has Fluctuated Relative to GDP? – Analysis on Effects of Demand Composition and Tax Reform,” in “What Stands against Fiscal Reform?” Public Finance Studies, Vol.9, Yuhikaku, Tokyo (in Japanese). - Centre Interamericano de Administraciones Tributarias (CIAT), 2012, “Estimating Tax Noncompliance in Latin America: 2000–2010,” Tax Studies and Research Directorate Working Paper N° 3 – 2012. - CIAT, 2014, “Tendencias de la imposición al consumo en América Latina: 2000–2012.” Tax Studies and Research Directorate, Working Paper N° 1 – 2014, pp. 9. ### H3: Tax administration, modernization, and technology - Brown, Robert and Mazur, Mark, 2003, “IRS’s Comprehensive Approach to Compliance Measurement” (Washington: Internal Revenue Service). - Calder, Jack, 2014, Administering Fiscal Regimes for Extractive Industries: A Handbook (Washington: International Monetary Fund). - Cardoza, Marvin, 2012, Fiscal Printers Dominican Experience, CIAT/AEAT/IEF Tax Administration Review, Vol. 33, pp. 16 –33. - Centro Interamericano de Administraciones Tributarias (CIAT), 2002, “Information Technology in Support of the Tax Administration Functions and Taxpayer Assistance.” Available via Internet: http://unpan1.un.org/intradoc/groups/public/documents/un/unpan006631.pdf - Jenkins, Glenn, 1996, “Information Technology and Innovation in Tax Administration.” Available via the Internet: http://www.queensjdiexec.org/publications/qed_dp_123.pdf - International Monetary Fund, 2012, “Fiscal Regimes for Extractive Industries: Design and Implementation” (Washington: International Monetary Fund). Available via the Internet: http://www.imf.org/external/pp/longres.aspx?id=4701 - International Monetary Fund, 2014c, “Estonia: Report of the Findings from the Revenue Administration Gap Analysis Program – the Value-Added Tax Gap in Estonia.” (Washington: International Monetary Fund). Available via the Internet: http://www.imf.org/external/pubs/ft/scr/2014/cr14133.pdf - International Monetary Fund, 2014d, “Uganda: Revenue Administration Gap Analysis Program – The Value-Added Tax Gap,” (Washington: International Monetary Fund). Available via the Internet: http://www.finance.go.ug/index.php?option=com_docman&task=doc_details&gid=397&Itemid=118 - International Monetary Fund, 2014f, “Colombia: Staff Report for the 2014 Article IV Consultation,” (Washington: International Monetary Fund). Available via the Internet: https://www.imf.org/external/pubs/ft/scr/2014/cr14141.pdf - International Monetary Fund, 2011a, “Revenue Mobilization in Developing Countries,” (Washington: International Monetary Fund). Available via the Internet: http://www.imf.org/external/np/pp/eng/2011/030811.pdf - International Monetary Fund, 2013, “Peru: Staff Report for the 2013 Article IV Consultation,” (Washington: International Monetary Fund). Available via the Internet: http://www.imf.org/external/pubs/ft/scr/2014/cr1421.pdf - International Monetary Fund, 2014b, “United Kingdom: Assessment of HMRC’s Tax Gap Analysis,” (Washington: International Monetary Fund). http://www.imf.org/external/pubs/ft/scr/2013/cr13314.pdf - International Monetary Fund, 2010, “From Stimulus to Consolidation: Revenue and Expenditure Policies in Advanced and Emerging Economies” Available via the Internet: http://www.imf.org/external/pubs/ft/dp/2010/dp1003.pdf - World Bank, 2000, “Computerizing Tax and Customs Administrations.” Available via the Internet: http://www1.worldbank.org/prem/PREMNotes/premnote44.pdf - United States Agency for International Development, 2013, “Information Technology for Tax Administration.” Available via the Internet: http://pdf.usaid.gov/pdf_docs/PNAEA485.pdf - Van der Heeden, 1998, “The Pay-As-You-Go Tax on Wages,” in Victor Thuronyi (ed), Tax Law Design and Drafting, Vol. II (Washington: International Monetary Fund). ### H3: Behavioral economics, tax morale, compliance behavior, and experiments - Alm, James, 2014, “What Motivates Compliance? Learning from Academic Research on Tax Compliance,” Unpublished paper (New Orleans: Tulane University). - Behavioural Insights Team, 2012, “Applying Behavioural Insights to Reduce Fraud, Error and Debt.” Available via the Internet: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/60539/BIT_FraudErrorDebt_accessible.pdf - Halla, Martin, 2012, “Tax Morale and Compliance Behavior: First Evidence on a Causal Link,” The B.E. Journal of Economic Analysis & Policy, Vol. 12, Article 13. - Luttmer, Erzo and Monica Singhal, 2014, “Tax Morale,” Journal of Economic Perspectives, Vol. 28, pp. 159–68. - Konrad Kai and Salmai Qari, 2011,”The Last Refuge of a Scoundrel? Patriotism and Tax Compliance,” Economica Vol. 79, pp. 516–33. - Kleven, Henrik, Martin Knudsen, Claus Kreiner, Søren Pedersen and Emmanuel Saez, 2011, “Unwilling or Unable to Cheat? Evidence from a Tax Audit Experiment in Denmark,” Econometrica, Vol. 79, pp. 651–92. - Naritomi, Joana, 2013, “Consumers as Tax Auditors,” Unpblished paper, Harvard University. - Khan, Adnan Q., Asim Khwaja and Benjamin Olken, 2014, “Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors,” Unpublished paper, Massachusetts Instute of Technology. - Kumler, T., Verhoogen, E., & Frías, J. A., 2013, “Enlisting Employees in Improving Payroll-Tax Compliance: Evidence from Mexico,” NBER Working Paper No. 19385. - DeBacker, Jason Mathew, Bradley T. Heim, and Anh Tran, 2012, “Importing Corruption Culture from Overseas: Evidence from Corporate Tax evasion in the United States,” Journal of Financial Economics. - De Simone, Lisa, Richard Sansing, and Jeri Seidman, 2012, “When are Enhanced Relationship Tax Compliance Programs Mutually Beneficial?” Tuck School of Business at Dartmouth Working Paper No. 2012-102. - Del Carpio, Lucia, 2013, “Are the Neighbors Cheating? Evidence from a Social Norm Experiment on Property Taxes in Peru” (Princeton University). - Fooken, Jonas, Thomas Hemmelgarn and Benedikt Herman, 2014, “Improving VAT Compliance—Random Rewards for Tax Compliance,” European Commission Taxation Working Papers, 51-2014. - Hashimzade, Nigar, Gareth Myles and Binh Tran-Nam, 2013, “Applications of Behavioral Economics to Tax Evasion," Journal of Economic Surveys, Vol. 27, pp. 941–77. - Slemrod, Joel and Caroline Weber, 2012, “Evidence of the Invisible: Toward a Credibility Revolution in the Empirical Analysis of Tax Evasion and the Informal Economy,” International Tax and Public Finance, Vol. 19, pp. 25–53. ### H3: Informal economy, shadow economy, evasion, and avoidance literature - Allingham, Michael, and Agnar Sandmo, 1972, “Income Tax Evasion: A Theoretical Analysis,” Journal of Public Economics, Vol. 1, pp. 323–38. - Artavanis, Nikolaos, Adair Morse, and Margarita Tsoutsoura, 2012, “Tax Evasion Across Industries: Soft Credit Evidence from Greece,” Chicago University Booth School of Business, Research Paper 12–25. - De Paula, Aureo, and Jose A. Scheinkman, 2010, “Value-Added Taxes, Chain Effects, and Informality,” American Economic Journal: Macroeconomics, Vol. 2, pp. 195–221. - Friedman, Eric, Simon Johnson, Daniel Kaufman and Pablo Zoido-Lobaton, 2000, “Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 countries,” Journal of Public Economics, Vol. 76, pp. 459–93. - Schneider, Friedrich, Andreas Buehn, and Claudio E. Montenegro, 2011, "Shadow Economies all over the World: New Estimates for 162 Countries from 1999 to 2007," pp. 9–77 in Friedrich Schneider (ed) Handbook on the Shadow Economy (Edward Elgar: Cheltnham). - Frey, Bruno and Hannelore Weck-Hannemann, 1984, “The Hidden Economy as an ‘Unobserved’ Variable,” European Economic Review, Vol. 26, pp. 33–53. - Gauthier, Bernard and Mark Gersovitz, 1997, “Revenue Erosion through Evasion and Exemptions in Cameroon, 1993” Journal of Public Economics, Vol. 64, pp. 407–24. - Gauthier, Bernard and Riva Reinikka, 2001, “Shifting Tax Burdens through Exemptions and Evasion: An Empirical Invetigations of Uganda,” World Bank Working Papers, December 2001 - Kanbur, Ravi and Michael Keen, 2014, “Thresholds, Informality and Partitions of compliance,” International Tax and Public Finance, Vol. 23, pp. 536–59. - Gorodnichenko, Yuriy, Jorge Martinez Vasquez and Klara Peter, 2009, “Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia,” Journal of Political Economy, Vol. 117, pp. 504–54. - Kleven, Henrik, Claus Kreiner and Emmanuel Saez, 2014, “Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries,” NBER Working Paper No. 15218. ### H3: VAT design, refunds, thresholds, and policy - Keen, Michael, 2008, “VAT, Tariffs, and Withholding: Border Taxes and Informality in Developing Countries,” Journal of Public Economics, Vol. 92, pp. 1892–1906. - Keen, Michael and Ben Lockwood, 2010, “The Value-Added Tax: Its Causes and Consequences,” Journal of Development Economics, Vol. 92, pp. 138–51. - Keen, Michael and Jack Mintz, 2004, “The Optimal Threshold for a Value-added Tax,” Journal of Public Economics, Vol. 88, pp. 559–76. - Keen, Michael and Stephen Smith, 2006, “VAT Fraud and Evasion: What Do We Know and What Can Be Done?,” National Tax Journal, Vol. LIX, pp. 861–87. - Harrison, Graham, 2005, “VAT Refunds.” In Richard Krever (ed.) VAT in Africa (Pretoria: Pretoria University Press). - Harrison and Russell Krelove, 2005, “VAT Refunds: A Review of Country Experience,” IMF Working Paper 05/218 (Washington: International Monetary Fund). - DeBacker, Jason Mathew, Bradley T. Heim, and Anh Tran, 2012, “Importing Corruption Culture from Overseas: Evidence from Corporate Tax evasion in the United States,” Journal of Financial Economics. - Ufier, Alex, 2014, “Quasi-experimental Analysis of the Effects of Adoption of a Value Added Tax,” Economic Inquiry, Vol. 52, pp. 1364–79. - Waerzeggers, Christophe, 2015, “VAT Collection and Compliance in the Digital Economy: Challenges and Opportunities,” forthcoming in Ine Lejeune and Michael Lang (eds), VAT/GST in a Global Digital Economy (Kluwer). ### H3: International cooperation, transparency, and digital economy taxation - Johannesen, Niels, and Gabriel Zucman, 2014, “The End of Bank Secrecy? An Evaluation of The G20 Tax Haven Crackdown,” American Economic Journal: Economic Policy, Vol. 6, pp. 65–91. - Zucman, Gabriel, 2013, “The Missing Wealth of Nations: Are Europe and the U.S. Net Debtors or Net Creditors?,” Quarterly Journal of Economics, Vol. 128, pp. 1321–64. - Organization for Economic Co-operation and Development, 2012, Automatic Exchange of Information: What it is, How it Works, Benefits, What Remains to be Done (OECD: Paris). - OECD, 2014b Addressing the Tax Challenges of the Digital Economy, Action 1: 2014 Deliverables Available via the Internet: http://www.oecd-ilibrary.org/addressing-the-tax-challenges-of-the-digital-economy_5jz122qk678r.pdf - OECD, 2014c, Global Forum on Transparency and Exchange of Information for Tax purposes: Automatic Exchange of Information: A Roadmap for Developing Country Participation. Available via the Internet: http://www.oecd.org/tax/transparency/global-forum-AEOI-roadmap-for-developing-countries.pdf - OECD, 2014d, Tax Transparency 2014: Report on Progress. Global Forum on Transparency and Exchange of Information for Tax Purposes. Available via the Internet: http://www.oecd.org/tax/transparency/GFannualreport2014.pdf - OECD, 2014e, International VAT/GST Guidelines. Available via the Internet: http://www.oecd.org/tax/consumption/international-vat-gst-guidelines.htm - OECD, 2014b, Addressing the Tax Challenges of the Digital Economy, Action 1: 2014 Deliverables Available via the Internet: http://www.oecd-ilibrary.org/addressing-the-tax-challenges-of-the-digital-economy_5jz122qk678r.pdf;jsessionid=468mafkt2nn5r.x-oecd-live-01?contentType=%2fns%2fBook%2c%2fns%2fOECDBook&itemId=%2fcontent%2fbook%2f9789264218789-en&mimeType=application%2fpdf&containerItemId=%2fcontent%2fserial%2f23132612&accessItemIds= - Lunder, Erika K. and Carol A. Pettit, 2014, “’Amazon Laws’ and Taxation of Internet Sales: Constitutional Analysis,” Congressional Research Service. Available via the Internet: https://www.hsdl.org/?view&did=760393 ### H3: Revenue administration reforms, performance, and evaluation - Crandall, William and Maureen Kidd, 2006, “Revenue Authorities: Issues and Problems in Evaluating Their Success,” IMF Working Paper 06/240. - Crandall, William and Maureen Kidd, 2010, “Revenue Administration: A Toolkit for Implementing a Revenue Authority,” IMF Technical Notes and Manuals 10/08. - Kloeden, David, 2011, “Revenue Administration Reforms in Anglophone Africa since the Early 2000s.” IMF Working Paper 11/162. - Montagnat-Rentier, Gilles and Gilles Parent, 2012, “Customs Administration Reform and Modernization in Francophone Sub-Saharan Africa, 1995–2010” IMF Working Paper 11/184. - Zake, Justin, 2011, “Customs Administration Reform and Modernization in Anglophone Africa: Early 1990s to mid-2010” IMF Working Paper 11/184 (Washington: International Monetary Fund). - Walsh, James, 2003, “Practical Measures to Promote Integrity in Customs Administration,” pp. 154–66 in Michael Keen (ed.) Changing Customs (Washington: International Monetary Fund). - Brondolo, John, 2009, Collecting Taxes during an Economic Crisis: Challenges and Policy Options. IMF Staff Position Note 9/17 (Washington: International Monetary Fund). - Khan, Adnan Q., Asim Khwaja and Benjamin Olken, 2014, “Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors,” Unpublished paper, Massachusetts Instute of Technology. ### H3: Tax policy theory, incidence, elasticities, and distribution - Atkinson, Anthony, Thomas Piketty and Emmanuel Saez, 2011, “Top Incomes in the Long-Run of History,” Journal of Economic Literature, Vol. 49, pp. 3–71. - Chetty, Raj, 2009, “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance,” American Economic Journal: Economic Policy, Vol. 1, pp.31–52. - Saez, Emmanuel, Joel Slemrod and Seth Giertz, 2012, “The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review,” Journal of Economic Literature ̧ Vol. 50, pp.3–50. - Slemrod, Joel, 2001, “A General Model of the Behavioral Response to Taxation,” International Tax and Public Finance, Vol. 8, pp. 119–28. - Slemrod and Yitzhaki, 2002, “Tax Avoidance, Evasion and Administration,” pp. 1423–70 in Alan Auerbach and Martin Feldstein (eds), Handbook of Public Economics ̧ Vol. 2 (North Holland: Amsterdam) - Piketty, Thomas, 2013, Capital in the Twenty-First Century (Boston: Harvard University Press). - Corbacho, Ana, Vicente Fretes Cibils, and Eduardo Lora, 2013, More than Revenue: Taxation as a Development Tool (New York: Palgrave). - Besley, Timothy and Torsten Persson, 2011, Pillars of Prosperity: The Political Economics of Development Clusters (Princeton: Princeton University Press). - Besley, Timothy, Anders Jensen and Torsten Persson, 2014, “Norms, Enforcement, and Tax Evasion” (London: London School of Economics). - Gordon, Roger and Wei Li, 2009, “Tax Structures in Developing Countries: Many Puzzles and a Possible Explanation,” Journal of Public Economics, Vol. 93, pp. 855–66. *Source: _020215a - References (PDF chapter/section)* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2015/_020215a.pdf_