## _072016 - EXECUTIVE SUMMARY ## Source details **Canonical URL:** [_072016 - EXECUTIVE SUMMARY](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_072016.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_072016.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_072016.pdf.json) --- ### Overview and context - Responds to the February 2016 request from the G20 for the IMF, OECD, United Nations and World Bank Group to “...recommend mechanisms to help ensure effective implementation of technical assistance programs, and recommend how countries can contribute funding for tax projects and direct technical assistance, and report back with recommendations at our July meeting.” - Prepared in the framework of the Platform for Collaboration on Tax (the “PCT”), under the responsibility of the Secretariats and Staff of the four mandated organizations; reflects a broad consensus among these staff but not the officially endorsed views of those organizations or their member countries. - Benefited from comments submitted by countries, CSOs, business organizations and individuals during a public review period, June 30-July 8 2016. - Addis Ababa Action Agenda recognizes that “significant additional domestic public resources, supplemented by international assistance as appropriate, will be critical to realizing sustainable development and achieve the Sustainable Development Goals” (Addis Agenda, para. 22); the Addis Agenda stresses assistance to developing countries to improve capacity to collect tax and other revenues. - Addis Tax Initiative (ATI), launched in July 2015, aims to double support for technical cooperation in taxation by 2020. ### Current scale and data limitations - Current support for tax projects starts from a very low base: - Only around 0.15 percent of all official development assistance (ODA) is targeted to tax projects. - This is around one-fifth of that provided to public finance management, and one-eightieth of that provided for the health sector. - Data limitations: until now there has not been a standard OECD Development Assistance Committee (DAC) code against which to report tax projects—the first year of data (2015) using the new code will not be available until late 2016. ### Progress in tax revenues and targets - Median tax revenues in low-income countries increased by 4.3 percent of GDP between 1990 and 2014. - Evidence and cross-country medians: - Difficulty securing lasting growth with a tax ratio below around 15 percent. - In 2013, the median tax ratio in low-income countries (LICs) was around 13 percent, with 16 LICs having ratios below 15 percent. - Among lower middle income countries, the median tax ratio was around 18 percent, and 17_had tax ratios below 15 percent, on average by 2.5 percent. ### Why “how” revenues are raised matters - Strong tax systems support growth, equity, state building, and reducing corruption. - Evidence and examples: - Some taxation forms (tariffs) are less supportive of growth than others (property taxes and VAT). - Tax incentives in low-income countries often forgo revenue with little impact on investment or growth. - Burdensome procedures (unnecessary documentation, judicial delay) undermine compliance and business activity. - Governments reliant on natural resource rents may be less accountable. - Institutional reforms cited: VAT and semi-autonomous revenue agencies (SARAs) have intended anti-corruption and efficiency effects, with mixed success and strong context dependence. - Strengthening tax systems linked to equity via credible links between revenue collected and public services funded. ### International tax landscape - Rapid change (BEPS, exchange of information) presents challenges and opportunities for developing countries. - G20/OECD-led BEPS and exchange of information can help developing countries if integrated into domestic reform and if rules suit developing countries’ circumstances. - PCT partners preparing toolkits requested by the G20 Development Working Group to support BEPS implementation and other international tax priorities. ### Key enablers of building tax capacity - A coherent revenue strategy as part of a development financing plan. - Strong coordination among well-informed and results-oriented providers. - A strong knowledge and evidence base. - Strong regional cooperation and support. - Strengthened participation of developing countries in international rule setting. ### Primary recommendations (summary) - Encourage political support for tax systems development through G20, IOs and development partners. - Develop country-owned medium-term revenue strategies (MTRSs) or tax reform plans depending on country circumstances. - Support non-government stakeholders (business, CSOs, media) to engage in reform. - Help development partners increase managerial as well as technical skills in taxation agencies. - Improve coordination and collaboration among providers to avoid fragmented support and poor sequencing. - Intensify work by PCT partners and others to produce comparable and reliable data. - Increase partnerships and support for Regional Tax Organizations (RTOs). - Support developing countries to participate meaningfully in international tax policy discussions and institutions. ### Agenda going forward - Implementation of 3 to 5 pilot medium-term revenue strategies (MTRSs). - Support developing countries to participate effectively in international tax policy discussions and institutions. - IOs to measure and report upon the impact of different interventions. - A follow up report by the IOs within 3 years, to reflect lessons learned from actions hereunder. *Source: _072016 - EXECUTIVE SUMMARY* --- ### Major advances, actors, and diagnostic tools (Appendix 1 highlights) ### Major advances in international taxation and diagnostics - Adoption of country-by-country reporting as a minimum standard under the G20/OECD-led BEPS project. - Development and deployment of TADAT as a standardized tool for assessing tax administration performance. - Less progress on reviewing tax exemptions for donor-financed projects and routinely assessing spillover effects on developing countries. ### Capacity development (CD): levels of external support - CD definition cited: DAC definition—“the ability of people, organisations and ultimately society as a whole to manage their affairs successfully.” - External assistance can help at three levels: - Enabling environment for tax reform (policy dialogue, evidence-based discussion). - Building effective policies, practices and organisations (technical cooperation across policy, legislation, administration). - Developing individual talent, including leadership and specialist technical skills (training). ### Stakeholders and political economy - Tax systems are political objects; political economy considerations are central to CD design. - Key domestic players include tax advisers, civil society, business, media, Ministry of Finance, customs, and resource ministries. - ‘Weakest link’ dynamics and vested interests (rent-seeking, bureaucratic inertia) can block reforms. - Change management units and dedicated staff often key but neglected. ### Human resources and incentives - Common challenges in many LICs: - Large numbers of staff doing low-yield activities, sometimes participating in corrupt payments. - High turnover at Commissioner level undermines sustained reform. - Salary and bonus structures affect behavior; e.g., bonuses tied to amounts collected can reduce collusion but may incentivize extortion. - Need to develop and retain specialist skills inside and outside government. ### Current capacity development support: actors and scale - Wide range of organizations finance/deliver tax CD: IOs, up to 25 bilateral donors, European Commission, World Customs Organization, Regional Development Banks, RTOs, for-profit providers, and limited private foundation engagement. - Mapping and concentration: - International Tax Compact mapping shows up to five donors in the same country while others receive no support. - IMF stocktake in sub-Saharan Africa: 50 providers active, average of 5-6 per country, total of 208 programs. - Three countries alone estimated to have received more than one-third of total bilateral support reported by developed country donors over the last decade. - Risks: duplication, fragmentation, neglected countries, poor sequencing, and provider-driven interventions. - For-profit providers sometimes engaged by donors or governments; in some cases reportedly paid partially by commission on additional revenue raised. ### Regional Tax Organizations (RTOs) - Examples and missions: ATAIC, ATAF, CATA, CIAT, CREDAF, IOTA, PITAA, SGATAR — each supports regional tax administration capacity, training, and knowledge sharing. ### Cooperation and joint initiatives — selected examples and metrics - Tax Inspectors Without Borders (TIWB): - Deploys tax audit experts to work under local officials’ management on international tax matters. - Evidence from pilots: revenue increases in Colombia, Kenya, Senegal, Vietnam and Zimbabwe. - “In total well over $200m of extra revenue has been achieved through the program so far.” - IMF and WBG cooperation example: Bulgaria—joint mission identified gaps; establishment of the National Revenue Authority; results exceeded expectations; informal economy share reduced by 30 percent between 2002 and 2008. - TADAT: - Standardized, evidence-based diagnostic tool; to date, 30 countries have undertaken TADAT assessments. - ISORA: - Launched in 2016 by CIAT, IMF, IOTA, OECD; hosted on the IMF’s RA-FIT Data Collection Platform. - “The 150 participating tax agencies will realize significant cost reduction through the ability to respond online to a single, common, standardized tax administration survey.” - EU, OECD, and WBG started a program in 2011 to support developing countries on transfer pricing rules and implementation. *Source: Appendix 1 from the provided IMF content unit* --- ### Principles, prerequisites, and core recommendations (Lessons and Recommendations) ### Ten Principles for international engagement (Box 6) - Follow the leadership of government and agree on country level co-ordination and mechanisms - Do no harm - Promote transparency in tax matters - Balance revenue collection imperatives with governance and social objectives - Encourage broad-based dialogue on tax matters that includes civil society, business, and other stakeholders - Strengthen revenue and expenditure linkages - Take account of international aspects of taxation - Consider a range of assistance modalities - Take a whole of government approach - Measure progress and build the knowledge base on tax matters ### Essential prerequisite: deep country commitment - Successful tax capacity strengthening must be country-driven and require sustained, energetic commitment by senior political figures and officials. - Reform motivations include government reform programs, societal pressure, political imperatives, economic shocks, technological progress, regional trends, and external assistance conditions. - Progress is rarely linear; reforms face strong opposition and can be derailed by political change. - Development partners can stimulate commitment by elevating DRM issues in high-level dialogue, mutual accountability provisions (Addis Tax Initiative), linking support to anti-corruption initiatives, and using financial or tangible incentives tied to milestones (e.g., Program-for-Results loans; IMF program conditionality). ### Evidence on IMF program conditionality (Box 8) - Crivelli and Gupta (2014) findings for 126 low- and middle-income countries, 1993–2013: - Revenue-related conditionality in Fund-supported programs, when targets are met, associated with higher revenue collection. - Impact on tax revenue collection in the period following the year in which a revenue target was met: around 0.5 percentage points of GDP, with a long run effect of around 1.5 points. - Half of this gain comes from taxes on goods and services. - Impact stronger in low-income countries, similar for policy and administrative measures, and insignificant where corruption is high. ### Enabler 1 — A coherent revenue strategy and MTRSs - Importance of medium-term perspective (5-10 years), priorities, and sequencing. - MTRS core elements (Box 10): - A social contract on revenue mobilization effort for the medium-term (5-10 years) with consideration of poverty and distributional implications. - A comprehensive reform plan for policy, administration, and legal framework. - Commitment to steady and sustained implementation, securing political support and resourcing. - Secured financing for capacity development (technical assistance and training). - Diagnosis and analytical tools (Enabler 1.1): - TADAT, ISORA (RA-FIT), IMF/WB diagnostic frameworks, FARI for extractive industries. - Recommendation 1c: IOs to develop a diagnostic tool/framework for assessing cross-border tax issues, covering avoidance, evasion and tax crimes. - Managerial and skills base (Enabler 1.2): - Need to build high quality managerial skills, reduce senior turnover, provide change management, mentoring, twinning, and specialist training. - Recommendation 1d: G20 and development partners to encourage and support development of high quality senior management in tax agencies. - Recommendation 1e: Platform partners to review TADAT and similar diagnostic tools in informing prioritization of reforms. - Specific recommendations: - Recommendation 1a: National authorities, with IO support, to develop country specific MTRSs, with a view to launching [3 to 5] pilot MTRSs by [July 2017]. Platform partners will draw and disseminate lessons for further MTRSs and revenue reform plans. - Recommendation 1b: Donor/G20 countries to encourage and facilitate capacity building of local stakeholders (business, CSOs, media) to engage in reforms and MTRS development. ### Enabler 2 — Coordination and aid effectiveness - Coordination must be reinforced to avoid duplication, gaps and misalignment; current coordination is extensive but ad hoc. - Recommendations to improve coordination: - Recommendation 2a: IOs at country level should facilitate explicit collaboration among providers and stakeholders as part of pilot MTRSs and develop in-country coordination. - Recommendation 2b: Platform partners to develop a manual for good practices and a voluntary peer review mechanism among development partners. - Recommendation 2c: Platform to develop mechanisms to support coordinated plans for BEPS-related and wider international tax work by all providers. - Recommendation 2d: Providers and recipients should coordinate across agencies (whole of government) and IOs should ensure internal coordination (whole of institutions). - Recommendation 2e: G20 and development partners should facilitate participation of their serving tax officials in capacity building, including timely release of officials. ### Avoiding fragmentation and measuring effectiveness - CD must engage the full range of actors (judiciary, PFM, resource ministries, local/sub-national taxation). - Evidence of attributable results (Enabler 2.2): - TIWB: more than US$200 million additional revenues to date. - Kenya: transfer pricing adjustments doubled from US$54 to US$107 million in two years. - Philippines: IMF work helped collect US$196 million of outstanding arrears. - Colombia: transfer pricing adjustments increased from US$3.3m in 2011 to over US$33m in 2014. - Vietnam: enhanced audits yielded transfer pricing adjustments of US$150m by end-2014. - Recommendation 2f: The Platform will review results indicators to establish sound-practice results frameworks and guidance to track progress, subject to additional resourcing. ### Enabler 3 — Knowledge and evidence base - Strengthen diagnostics, benchmarking (TADAT, ISORA), and use taxpayer-level administrative data. - Recommendation 3a: Platform partners to intensify collaborative work to produce comparable, reliable data on revenue statistics and build statistical capacity. - Recommendation 3b: G20 to encourage full participation in ISORA. ### Enabler 4 — Regional cooperation and RTOs - RTOs provide regional knowledge, networks, and credibility; potential to scale South-South cooperation. - Recommendation 4: G20 and development partners to work closely with RTOs, support increasing their strength and coverage, and foster local networks and targeted CD. ### Enabler 5 — Participation in international rule setting - Rapid international change (AEOI, BEPS) and developing countries’ potential revenue losses from cross-border corporate tax avoidance. - Inclusive Framework on BEPS: 85 countries participating, including 39 developing countries (of which 16 are African). - Global Forum membership: 135 members. - Recommendation 5: IOs, RTOs and development partners to support developing countries to participate effectively in international tax policy discussions and institutions. ### Enabler 6 — Learning and follow-up - Recommendation 6a: The Platform will gather and disseminate experiences to understand what has worked and not worked, including measuring impacts. - Recommendation 6b: IOs to produce a follow-up report within [3] years to reflect lessons learnt on effective support for CD in tax, including on the proposals in this report. *Source: _072016 - Sections: Successful Tax Capacity Development: Lessons and Recommendations; Box 10; Box 11* --- ### Core elements of MTRSs and indicators for assessment ### Core elements of an MTRS (Box 10 summary) - Medium-term social contract on revenue effort (5-10 years) with attention to poverty and distributional implications. - Comprehensive reform plan covering policy redesign, revenue agency reform, and legal framework strengthening. - Commitment to steady implementation, political support and resourcing. - Secured financing for CD (TA and training). ### Coordination and stakeholder engagement - All stakeholders (business, parliamentarians, civil society, journalists) should be involved to create ownership. - Two approaches to private sector involvement: membership on steering committees and project activities to improve cooperation with private sector associations. - Generic MTRS design issues: incentives to commit, involvement of non-state stakeholders, withdrawal/expansion conditions, flexibility for political change, breadth vs piecemeal approaches. ### Indicators for assessing progress (Box 11) - Useful indicators and tools: - Tax ratios (useful targets within specified reform strategies but can be contaminated by GDP measurement errors). - Compliance gaps (difference between tax legally due and tax collected) — core performance measure. - Diagnostic/benchmarking tools: TADAT and ISORA. - Transparency assessments: compliance with information exchange standards, Fiscal Transparency Evaluations, tax expenditure budgets. - Gaps and opportunities: - Develop methods for compliance gap estimation for personal and corporate income taxes. - Better assess compliance costs to taxpayers. - Create tools/metrics for evaluating CD program outcomes. - Improve information sharing (tax administrations, FIUs, extractive royalties collectors). - Better track links between tax systems, institutions, and development outcomes. *Source: Box 10 and Box 11 content as provided* --- *Source: _072016 - EXECUTIVE SUMMARY, Appendices, Boxes and References* ### EXECUTIVE SUMMARY ### _072016 - EXECUTIVE SUMMARY ### Overview - Responds to the February 2016 request from the G20 for the IMF, OECD, United Nations and World Bank Group to “...recommend mechanisms to help ensure effective implementation of technical assistance programs, and recommend how countries can contribute funding for tax projects and direct technical assistance, and report back with recommendations at our July meeting.” - Prepared in the framework of the Platform for Collaboration on Tax (the “PCT”), under the responsibility of the Secretariats and Staff of the four mandated organizations. The report reflects a broad consensus among these staff, but should not be regarded as the officially endorsed views of those organizations or of their member countries. - Benefited from comments submitted by countries, CSOs, business organizations and individuals received during a public review period, June 30-July 8 2016. ### Context and Rationale - Increased recognition of the centrality to development of strong tax systems, and the potential importance of external support in building them. - Addis Ababa Action Agenda (Addis Agenda) recognizes that “significant additional domestic public resources, supplemented by international assistance as appropriate, will be critical to realizing sustainable development and achieve the Sustainable Development Goals” (Addis Agenda, para. 22). The Addis Agenda stresses the need for assistance to developing countries to improve their capacity to collect tax and other revenues. - Addis Tax Initiative (ATI), launched in July 2015, aims to double support for technical cooperation in taxation by 2020, and includes a restatement by partner countries of their commitment to strengthen revenue mobilization to achieve the Sustainable Development Goals (SDGs) and ensure inclusive development. - Current support for tax projects starts from a very low base: - Only around 0.15 percent of all official development assistance (ODA) is targeted to tax projects. - This is around one-fifth of that provided to public finance management, and one-eightieth of that provided for the health sector. - Data limitations: until now there has not been a standard OECD Development Assistance Committee (DAC) code against which to report tax projects—the first year of data (2015) using the new code will not be available until late 2016. ### Progress in Tax Revenues and Objectives - Median tax revenues in low-income countries increased by 4.3 percent of GDP between 1990 and 2014. - There is wide variation across countries; no single target for the tax ratio is appropriate to all countries. - Evidence suggests difficulty securing lasting growth with a tax ratio below around 15 percent. - In 2013, the median tax ratio in low-income countries (LICs) was around 13 percent, with 16 LICs having ratios below 15 percent. - Among lower middle income countries, the median tax ratio was around 18 percent, and 17_had tax ratios below 15 percent, on average by 2.5 percent. ### Why “How” Revenues Are Raised Matters - Strong tax systems matter for growth, equity, state building, and reducing corruption. - Examples and evidence cited: - Some forms of taxation (such as tariffs) are less supportive of growth than others (such as property taxes and VAT). - Tax incentives in low-income countries often forgo revenue with little impact on investment or growth. - Burdensome procedures (unnecessary documentation, judicial delay) can undermine compliance and business activity. - Governments reliant on natural resource rents may be less accountable than those relying on more salient revenue sources. - VAT and semi-autonomous revenue agencies (SARAs) are cited as institutional reforms with intended anti-corruption and efficiency effects, though success has been partial and context-dependent. - Strengthening tax systems is linked to equity objectives and state legitimacy through credible links between revenue collected and public services funded. ### International Tax Landscape - Rapidly changing international tax environment presents both challenges and opportunities for developing countries (BEPS, exchange of information). - G20/OECD-led efforts to address Base Erosion and Profit Shifting (BEPS) and to exchange information can help developing countries if integrated into domestic reform and if emerging international rules are appropriate for developing countries’ circumstances and priorities. - PCT partners are preparing toolkits requested by the G20 Development Working Group to support BEPS implementation and other international tax priorities. ### Key Enablers of Building Tax Capacity - A coherent revenue strategy as part of a development financing plan. - Strong coordination among well-informed and results-oriented providers. - A strong knowledge and evidence base. - Strong regional cooperation and support. - Strengthened participation of developing countries in international rule setting. ### Primary Recommendations (summary) - Options through which the G20, IOs and other development partners can encourage political support for tax systems development. - Development of country-owned medium-term revenue strategies, or tax reform plans depending on country circumstances. - Support to non-government stakeholders. - Support by development partners to increase managerial, as well as technical, skills in taxation agencies. - Various approaches to developing better coordination and collaboration among providers, and avoidance of fragmented support and approaches. - Intensification of work by PCT partners and others to produce comparable and reliable data. - Increased partnerships and support for regional tax organizations. - Support to developing countries to facilitate meaningful participation in international tax policy discussions and institutions. ### Agenda Going Forward - Implementation of 3 to 5 pilot medium-term revenue strategies (MTRSs). - Support for developing countries to participate effectively in international tax policy discussions and institutions. - Work by the international organizations (IOs) to measure and report upon the impact of various different interventions. - A follow up report by the IOs within 3 years, to reflect lessons learned from actions hereunder. *Source: _072016 - EXECUTIVE SUMMARY* ### Appendix 1. Areas of significant progress include the adoption of country-by-country reporting ### Appendix 1. Areas of significant progress include the adoption of country-by-country reporting ### Major advances in international taxation and diagnostic tools - Adoption of country-by-country reporting as a minimum standard under the G20/OECD-led BEPS project. - Development of TADAT as a commonly accepted objective and standardized tool for assessing the performance of tax administration systems. - Less progress in: reviewing tax exemptions often required for donor-financed projects; and in establishing assessment of spillover effects on developing countries as a routine part of evaluating major tax reforms in advanced countries. - Emphasis of the report: focus on improving support for developing tax capacity rather than on purely technical revenue-mobilization challenges. ### Capacity development (CD): definition and levels of external support - CD definition cited: DAC definition—“the ability of people, organisations and ultimately society as a whole to manage their affairs successfully.” - CD in the tax area is ultimately the responsibility of government; external assistance providers can help at three levels: - Establishing an effective enabling environment for tax reform—examples of external support include policy dialogue at the highest levels of government and promoting evidenced-based discussion based on accurate data and analysis. - Building effective policies, practices and organisations—external assistance through technical co-operation and technical assistance across tax policy, legislation and administration. - Developing individual talent, including leadership and specialist technical skills—outsiders can assist with training. ### Stakeholders in the tax system and political economy considerations - Tax systems encompass policy, legal and administrative aspects of all revenue-raising (formally tax or non-tax) and are political objects; political economy considerations are central to CD design. - Tax capacity development must account for a complex, multi-layered environment; achieving robust tax capacity requires enabling environment, organizations and skills to raise revenue in ways conducive to stability, growth, good governance, and fairness. - No easy or quick fixes; patient, focused reform can achieve a great deal. - Key domestic players (represented in Figure 4 in source) include non-governmental actors: tax advisers, civil society, business and the media—critical to involve these stakeholders to avoid excluded groups acting as blockers. - ‘Weakest link’ dynamics among stakeholders may hold back reforms (example: justice system inability to process tax disputes in a timely and disinterested way). - Within the public sector, organizations beyond tax agencies shape tax performance: Ministry of Finance, customs agency, ministries dealing with natural resources. - Change challenges vested interests: examples include entrenched rent-seeking, bureaucratic inertia, and turmoil from reforms (example: establishing a SARA may require dismissing corrupt staff, reapplying for jobs, and can lead to strikes and legal challenges). - Change management—with dedicated staff—is often a key but neglected element of substantial reform. ### Human resources and incentives in tax administrations - Significant human resource and skills challenges in many low income countries: - Large numbers of staff employed on very low-yielding activities, sometimes participating in corrupt payments, which can obstruct reforms (e.g., simplification of complex small business regimes). - High turnover at Commissioner level has made sustained reform difficult. - Salary structures and bonus arrangements affect behavior and retention: - Bonuses related to amounts collected may reduce incentives to collusively reduce tax payment but can incentivize extortion. - Need to develop and retain specialist skills both within and outside government (including among tax professionals and journalists). ### Current capacity development support: actors and scale - Wide range and large number of organizations finance and/or deliver tax CD. - International Organizations (IOs) authoring the report have diverse experience (summarized in Appendix 3 of source). - Up to 25 bilateral donors have been providing direct assistance. - Other institutions providing assistance include: - European Commission (direct assistance such as transfer pricing; policy coherence with EU policies such as transparency of extractive industries reporting). - World Customs Organization (improving customs administrations on valuation and trade facilitation). - Regional Development Banks (support on tax policy and administration; policy development work). - Regional Tax Organizations (RTOs) play an important role (summarized in Box 1). - Mapping and provider concentration: - International Tax Compact mapping showed that up to five donors are sometimes working on tax issues in the same country while other countries are not supported at all. - Within sub-Saharan Africa, an IMF stocktake counts 50 providers active, an average of 5-6 per country, and a total of 208 programs. - Three countries alone are estimated to have received more than one-third of the total bi-lateral support reported by developed country government donors over the last decade. - Risks from complex environment: duplication, fragmentation, neglected countries, poor sequencing of related interventions, and interventions driven by providers’ interests rather than country-owned priorities. - For-profit providers support all aspects of building tax capacity—sometimes engaged by donors, sometimes directly by developing country governments (in some cases reportedly paid in part by commission on additional revenue raised). - Private foundations have limited engagement in tax area other than supporting policy development work. ### Regional Tax Organizations (from Box 1) - ATAIC - Association of Tax Administrations in Islamic Countries; affiliated with Organization of Islamic States; currently having 28 members; established in 2004 to facilitate improvement of tax administration and promote Sharia taxation with reference to Zakat. - ATAF – African Tax Administration Forum; mission to improve capacity of African Tax Administrations, advance taxation in governance and state building and develop partnerships between African countries and development partners. - CATA – Commonwealth Association of Tax Administrators; helps members through conferences, training programs, publication and knowledge sharing. - CIAT – Inter-American Center of Tax Administrations; promotes mutual assistance and cooperation; develops specialized technical assistance programs and encourages studies, research and exchange of best practice. - CREDAF – Centre de rencontres et d’études des dirigeants des administrations fiscales; brings together tax administrations of francophone members to share experiences, develop practical guides and deliver training. - IOTA – Intra-European Organisation of Tax Administrations; forum to assist its 46 members improve tax administration primarily through workshops. - PITAA – Pacific Islands Tax Administrators Association; builds capacity through training and resources and provides a forum for regionally relevant issues. - SGATAR – Study Group on Asian Tax Administration and Research; platform to enhance performance in Asia-Pacific by promoting collaboration primarily through its annual forum. ### Examples of cooperation and joint initiatives - Tax Inspectors Without Borders (TIWB): OECD and UNDP initiative deploying tax audit experts to work under local officials’ management with emphasis on international tax matters including BEPS Action Plan issues. - Evidence from TIWB pilot implementation: revenue increases in Colombia, Kenya, Senegal, Vietnam and Zimbabwe. - “In total well over $200m of extra revenue has been achieved through the program so far.” - IMF and WBG long cooperation: IMF focused on strategic policy advice and support on policy and administration; WBG leads implementation of large, usually loan-based projects. - Example: Bulgaria project—joint IMF/World Bank mission identified gaps; Ministry of Finance implemented a change management plan to establish the National Revenue Authority (NRA); strong donor coordination; results exceeded expectations; lowered tax and social contribution rates helped reduce the share of the informal economy by 30 percent between 2002 and 2008. - Joint IMF–WBG initiative: development of improved diagnostic frameworks for tax policy; builds on joint experience and development of TADAT. - TADAT (Box 4): - Standardized, evidence-based diagnostic tool for assessing health of a country’s tax administration. - July 2015 Addis Ababa Action Agenda encourages diagnostic assessments; TADAT promotes that approach. - Initially led by the IMF, expanded to involve the WB, several RTOs, and contributing countries; framework now used by other agencies. - Teams of qualified assessors drawn from different agencies encourage collaboration, enhance shared understanding, and minimize duplication. - “To date, 30 countries have undertaken TADAT assessments.” - TADAT helps: promote shared stakeholder views; set reform agendas (objectives, priorities, sequencing); facilitate management and coordination of external support; provide basis for monitoring and evaluating progress. - ISORA (Box 5): CIAT, IMF, IOTA, and OECD launched in 2016 the International Survey of Revenue Administrations to provide global, comparable information on revenue administrations’ features and performance. - ISORA is hosted on the IMF’s RA-FIT Data Collection Platform. - “The 150 participating tax agencies will realize significant cost reduction through the ability to respond online to a single, common, standardized tax administration survey.” - Benefits: intensify focus on performance measurement and reporting by revenue administrations; develop data and analyses to improve cross-country comparisons; provide a much larger set of comparable quantitative and qualitative tax administration information. - EU, OECD, and WBG began in 2011 a program to support developing countries in strengthening transfer pricing rules and implementation; several country and regional projects are in formative stages. ### Principles for effectiveness in CD for tax systems - Aid effectiveness principles from Paris, Accra and Busan communiqués provide a framework to address coordination among development partners and design support programs to deliver maximum impact. - OECD’s Task Force on Tax and Development produced “10 Principles for International Engagement in Supporting Developing Countries in Tax Matters” to guide donors on aligning support with best practice. _Italic source: Appendix 1 from the provided IMF content unit_ ### Box 6. Ten Principles for International Engagement in Supporting Developing Countries ### Box 6. Ten Principles for International Engagement in Supporting Developing Countries in Tax Matters ### Ten Principles - Follow the leadership of government and agree on country level co-ordination and mechanisms - Do no harm - Promote transparency in tax matters - Balance revenue collection imperatives with governance and social objectives - Encourage broad-based dialogue on tax matters that includes civil society, business, and other stakeholders - Strengthen revenue and expenditure linkages - Take account of international aspects of taxation - Consider a range of assistance modalities - Take a whole of government approach - Measure progress and build the knowledge base on tax matters ### Role of principles and international coordination - As support for tax matters is due to increase substantially, it is important that the support aligns with such principles, and also that best practice is shared among development partners to aid the continuous evolution of support. - The OECD members of the Addis Tax Initiative have already agreed to follow the Tax and Development Task Force Principles and the development of more detailed guidance is a logical next step. *SUCCESSFUL TAX CAPACITY DEVELOPMENT: LESSONS AND RECOMMENDATIONS* ### Essential prerequisite: Deep Country Commitment Within a Supportive Political Environment - Successful strengthening of tax capacity can only be country-driven, requiring continued energy, enthusiasm and commitment from the highest levels. - Initial motivations for reforms can include broader government reform programs, societal pressure, political imperatives, changes to an economic context (cyclical or external shock), technological progress, regional trends/commitments, peers’ encouragement, and obligations arising from external assistance and borrowing. - What is needed is not passive ‘ownership’ or vague ‘political will,’ but very specific, lasting and energetic desire by senior political figures and officials to make a sea change in revenue mobilization methods and achievements. - Reform can face formidable opposition—from powerful groups, the rich and influential, discontented traders, officials, pressure groups, streets and courts. - Energy and commitment can be hard to sustain; progress is rarely linear and setbacks occur. Individual reform ‘champions’ often move on; commitment ultimately needs breadth and depth. - Changes of government, political turmoil or conflict can derail reforms. ### Examples and illustrations - Colombia (Box 7) - A project was designed in 1998 while Colombia was suffering a sharp economic recession. To address a rising deficit, the government requested a three-year extended fund facility from the IMF. To implement public financial management reforms targeted under this program, the authorities requested World Bank support to reinforce the institutional capacity of the tax and customs administration and strengthen public expenditure management at the central government level. - High-level commitment supported achievement of project objectives. - Outcomes: substantial contribution toward improving Colombia’s revenue performance by increasing tax revenues, decreasing the compliance gap and contraband, and improving the efficiency of the tax and customs administration (measured by the cost-of-collection ratio). - Result: Colombia now has a modern and high performing tax administration; its management system is comprehensive and closely aligns its structure and systems to agency and national goals; its performance ranks among the best in the Latin American region. - Negative examples cited where lack of agreement or refusal to engage led to project failure; in one case a Prime Minister created a new revenue agency with much smaller staff and fewer decentralized offices to address corruption, enabling successful implementation thereafter. ### How development partners can stimulate commitment - Elevating DRM issues as a central element in high level political conversations. - Designing support to include mutual accountability provisions such as those in the Addis Tax Initiative. - Strong focus on taxation within wider initiatives to address corruption; resistance by corrupt officials has derailed CD projects in several instances. - Use of financial or other tangible incentives to reward progress. Possibilities include offering a menu of choices among support schemes differing in the extent to which reaching milestones brings additional budget or other support. - The WBG has introduced mechanisms to link disbursements of funds for loan-based capacity building to delivery of specific outcomes and results (most notably in Program-for-Results loans). - There is evidence from IMF programs that IMF loan conditionality in relation to strengthening DRM raises revenue performance (see Box 8). - Acknowledge that contentious decisions may be needed about continuing support if progress is poor. ### Box 8. Evidence of Effectiveness of IMF Program Revenue Related Conditionality - Source: Crivelli and Gupta (2014). - Note: Structural benchmarks (SB), indicative targets (IT). - Findings: - Revenue-related conditionality in Fund-supported programs—which have become more extensive in recent years—appear, when targets are met, to be associated with higher revenue collection. - For a panel of 126 low-and middle-income countries over 1993–2013, Crivelli and Gupta (2014) find an overall impact on tax revenue collection in the period following the year in which revenue target was met of around 0.5 percentage points of GDP, with a long run effect of around 1.5 points. - Half of this gain comes from an impact on receipts from taxes on goods and services. - The impact of revenue–related conditionality is: - Stronger in low-income countries, especially over the longer-term; - Similar for policy and administrative measures (so far as they can be distinguished); - Insignificant where corruption is high. ### Recommendation 1 - G20, the international organizations (IOs) and development partners should encourage political support for tax systems development. Options include explicit requirements for financial support and mutual accountability provisions such as those in the Addis Tax Initiative. ### Five broad enablers (overview) - With the precondition of enthusiastic commitment in place, five broad enablers can play a key role in building success—and can be enhanced by improvements in external support. - Enabler 1 is detailed below; other enablers are discussed subsequently in the source. ### Enabler 1: A Coherent Revenue Strategy as Part of a Development Financing Plan - A Medium Term Perspective: - Experience points to the importance of sound and comprehensive reform strategies, with priorities and sequencing clearly identified. - There is increasing experience with formulation and implementation of strategies of this kind (for instance, within the multi-donor Tax Policy and Administration Trust Fund at the IMF and the Strategic Country Diagnostics and Country Program Frameworks as the organizing framework for WBG support). - Such strategies provide scope to develop instruments for combining and coordinating the efforts of all active providers, and engaging all key stakeholders. - Medium-term revenue strategies (MTRSs): - All countries benefit from a medium-term perspective on their revenue strategies; many developing countries can formulate and implement nationally-owned plans (MTRSs). - Even where capacity is low or political turmoil exists, a vision beyond immediate concerns is important to avoid short-term revenue imperatives dominating with damaging effects. - Where the tax system is part of state (re)building, more positive results can be seen. - Without a medium-term vision, reform ambition may be limited to marginal changes or be ill-conceived and poorly implemented. - Core elements and process for MTRS: - At the outset, a clear revenue mobilization objective for the medium-term has to be determined; it must be driven by the country’s own objectives, compatible with achieving the SDGs, reflect the macro fiscal context, and be complementary to other sources of available (projected) financing. - Review the tax system across three core dimensions—policy, administration, and legal framework. - Steady and sustained implementation is crucial, including “quick-win” measures that dovetail with medium-term reform strategies to demonstrate the value of reform and sustain support and momentum. ### Box 9. IMF TA Support for Tax Administration Reform in Senegal (2011-2014) - Context: - Senegal was endorsed by the Tax Policy and Administration Topical Trust Fund (TPA-TTF) as a recipient for IMF technical assistance under the TTF, after a request for TA to reform the administration. - Diagnostic Phase (September 2011): - Assessed TA needs and agreed FAD could assist with developing and implementing the modernization program focusing on: (1) administration organization, (2) tax procedures and core functions, and (3) enforcement. - Assessment approach: Previous FAD reports, data and information provided by the tax department and other donors’ reports were developed into a Strategy Note discussed with senior tax administration staff, development partners and the ministry of Economy and Finance. - Main findings: (1) excessively wide scope of responsibilities in the tax administration; (2) lack of flexibility to organize tasks; (3) insufficient consideration of risks and priorities. - Strategy Design Phase: - Proposed three-point reform strategy: (1) reorganization of the tax department along functional lines, and taxpayer segmentation; (2) registration of the taxpayer population and establishment of a system for processing tax payments through the banks; (3) control and reduction of tax arrears, and establishment of risk-based audit. - Implementation Phase (2012-2014): - Follow-up HQ-led missions and short-term expert assignments supported implementation. - Reform ownership: governance framework with change management unit reporting to the General Director, a steering committee, and dedicated project teams. - Collaboration with other partners: activities systematically reported to TTF donors; better coordination of TA with the WBG, the EU, and the French government; integrating work programs and sharing TA findings. - Monitoring and Evaluation Phase: - IMF TA activities monitored under results-based management principles integrated into the TTF: (1) clear linkage between country strategies and specific TA projects; (2) indicators at module/project level to track progress and identify results; (3) use of performance management tools e.g., RA-FIT to track and report on results; (4) use of performance information for accountability and decision-making. - Impacts and Results: - Revenue performance is above the results achieved in most other West African countries; - Taxpayer segmentation principles implemented, including launch of a pilot medium-sized taxpayer office in Dakar and streamlining of several small tax offices; - Electronic-procedures for returns filing and payment introduced at the large taxpayer office; a new version of e-tax procedure has been introduced; - Risk-based audit and an implementation plan to control tax arrears have been introduced; - Technical solutions and operational procedures for reporting and analysis and better management of taxpayers have been defined. *Source: _072016 - Box 6. Ten Principles for International Engagement in Supporting Developing Countries in Tax Matters* ### Box 10. Core Elements of an MTRS ### Box 10. Core Elements of an MTRS ### Core elements of an MTRS - A social contract on the level of revenue mobilization effort for the medium-term (5-10 years) with due consideration to the poverty and distributional implications of the associated measures - A comprehensive reform plan for the tax system, reflecting country circumstances and the state of institutional capacity: - A redesign of the policy setting to meet the revenue goal. - A reform of the revenue agencies to properly administer the policy setting and to achieve a high level of taxpayers’ compliance to meet the revenue goal. - A strengthening of the legal framework to enable the policy redesign and administration reform, including by balancing revenue agencies’ powers and taxpayers’ rights. - A country’s commitment to a steady and sustained implementation, notably by securing political support and resourcing. - Secured financing for the CD effort (technical assistance and training) to support the country in overcoming domestic constraints to formulate and implement an MTRS effectively. ### Coordination, ownership, and stakeholder engagement - All stakeholders (businesses, parliamentarians, civil society, journalists) need to be part of creating country ownership of the tax system; local stakeholders shape public debate and hold governments to account. - Two complementary approaches to private sector involvement: - Include private sector representatives in the project steering committee (example: Kazakhstan WBG-supported program). - Include project activities aimed at improving cooperation with the private sector, taxpayer associations and tax intermediaries (example: Russia TAMP II). - Capacity building for other stakeholders (journalists, civil society) may be required; EU/OECD/WBG programs on transfer pricing in Colombia and Zambia work with business and civil society. - Generic issues to address in MTRSs include incentives for countries to commit, involvement of non-state stakeholders, conditions for withdrawal/expansion of support, flexibility for political changes, and balancing coverage breadth vs. piecemeal approaches. ### Enabler 1 — Diagnosis and analytical tools (Enabler 1.1) - Good diagnosis is essential and should anchor the reform plan; examples: - Myanmar: diagnosis led to building modern headquarters capacity, modernizing core functions and IT, and establishing a large taxpayer compliance operation. - Senegal: diagnosis identified divestment of non-tax functions by the tax department. - New and developing diagnostic tools to enhance targeting: - TADAT is helping diagnose strengths and weaknesses in the performance of tax administrations. - ISORA (powered by RA-FIT) will gather tax administrations’ performance indicators to facilitate benchmarking. - The IMF and World Bank are working on improved diagnostic frameworks for tax policies. - The Fiscal Analysis for Resource Industries (FARI) simulation tool is supporting the assessment of fiscal regimes in the extractive industries. - International tax issues require diagnostic capacity; a simple tool to assess cross-border tax risks, challenges, and possible solutions is proposed. Recommendation 1c: - IOs to develop a diagnostic tool/framework for assessing cross-border tax issues, covering avoidance, evasion and tax crimes. Recommendation 1a: - National authorities, with support from IOs who are active in a country, and development partners engaged in support on tax reform, to develop country specific MTRSs, with a view to launching [3 to 5] pilot MTRSs by [July 2017]. Building on this experience Platform partners will draw and disseminate lessons for the development of further MTRSs, and revenue reform plans more generally. Recommendation 1b: - Donor/G20 countries to encourage and facilitate capacity building of local stakeholders (business, CSOs, media) to engage in reforms and MTRS development. ### Enabler 1.2 — Managerial and skills base - Reforms require high quality managerial skills; common obstacles include rapid turnover of senior tax administration personnel and inadequate change management. - Measures development partners can support: - Encourage and support appointment of able senior managers. - Provide specialist managerial training. - Mentoring arrangements with senior staff in advanced countries. - Twinning arrangements with advanced tax agencies in select cases. - Better coordination of international tax meetings to reduce time drain on senior management. - Technical skills shortages: need for stronger tax policy units, scholarships for university-level tax analysis courses, peer-to-peer networks (e.g., PEMPLA, TIWB), massive open online courses, and demand for broad perspective skills (TADAT experience). Recommendation 1d: - As part of the efforts to build organizational capacity, G20 and development partners to encourage and support the development of high quality senior management, including in technical and management skills, in agencies that deal with taxation. Recommendation 1e: - Platform partners will review and assess the use of diagnostic tools (such as TADAT) in informing the prioritization of reforms through MTRSs and the development of tax reform programs, and will consider, as a result of such assessments, what more if anything would be useful in this regard. ### Enabler 2 — Coordination among providers and aid effectiveness - With scaling-up of support, coordination must be reinforced to avoid duplication, gaps and misalignment; recent helpful developments include the Addis Tax Initiative, the formation of the PCT and TADAT as a common tool. - Current coordination among providers is extensive but ad hoc; information flows often depend on happenstance and personal contacts. - Recipient countries rarely have dedicated counterparts to coordinate incoming advice; improved coordination could match providers’ comparative advantages to a country-owned MTRS. - Positive experiences exist with in-country topic-based coordinating groups catalyzed by development partners. Recommendation 2a: - IOs involved at the country level should facilitate explicit collaboration among providers and other stakeholders as a central part of the pilot MTRSs and, more broadly, facilitate the development of in-country coordination, by both donor groups and developing coordinating country counterparts. Recommendation 2b: - Platform partners to develop a manual for good practices building on the Principles for International Engagement in Supporting Developing Countries in Tax Matters and a voluntary peer review mechanism among development partners. This would include how to facilitate coordination among providers and different in-country stakeholders, such as business and CSOs. Recommendation 2c: - The Platform to develop mechanisms to support the development of coordinated plans for all development providers’ work in relation to BEPS implementation and wider international tax issues. Recommendation 2d: - Providers and recipients of CD support on tax matters should be well coordinated, including: effective coordination across different agencies active in tax reform in recipient countries, fully supported by providers of CD support (‘whole of government’ approach); while IOs should ensure internal coordination where they are active in different areas affecting the tax system, and across their different entry points into taxation (‘whole of institutions’ approach). Recommendation 2e: - G20 and development partners should more effectively facilitate the participation of their serving tax officials in capacity building, including through the timely and efficient release of such officials to participate in capacity building efforts. ### Enabler 2.1 — Avoiding fragmentation in delivery and receipt of support - Effectiveness is blunted when providers interact with only a subset of tax actors; comprehensive CD must engage the full range of actors (including judiciary, PFM, resource ministries, local/sub-national taxation). - A ‘whole of government’ approach is needed from development partners and developing countries; donors should align tax administration, development agencies and finance departments and increase supply of experts with scarce skills. - Local/sub-national taxation, especially property taxes, often neglected despite significance. ### Enabler 2.2 — Measures of effectiveness and evidence of impact - Case evidence suggests external support has been associated with improved tax performance; OECD (2015) review highlights contributions to resilience of tax ratios, support for trade liberalization, and reduced transaction costs. - Examples of attributable results: - TIWB program has generated additional revenues to date of more than US$200 million. - Kenya: transfer pricing adjustments doubled from US$54 to US$107 million in two years. - Philippines: IMF work in the context of an MCC program helped to collect US$196 million of outstanding arrears. - Colombia: transfer pricing adjustments increased from US$3.3m in 2011 to over US$33m in 2014. - Vietnam: enhanced audit efforts yielded transfer pricing adjustments of US$150m by the end of 2014. - Attribution is easier for specific interventions than for large, complex reform programs; external factors can affect outcomes. - Need for indicators of impact inferred from measurable outcomes, shaped by principles to be informative, acceptable and non-manipulable; investments in evaluation tools should not detract from program delivery. *Source: Box 10, "_072016 - Box 10. Core Elements of an MTRS"* ### Box 11. Indicators for Assessing Progress in Strengthening DRM ### Box 11. Indicators for Assessing Progress in Strengthening DRM ### Indicators and tools for assessing tax system performance - Tax ratios: - Can provide useful targets within a fully specified reform strategy. - Can be contaminated by errors and adjustments in GDP. - Compliance gaps: - Defined as the difference between tax legally due and that actually collected. - Core measure of revenue administration performance; dissection can suggest areas for improvement. - Relatively few low income countries routinely calculate these for a wide range of taxes. - Diagnostic/benchmarking tools: - TADAT assessment of tax administration performance enable improvements to be tracked. - ISORA is increasingly enabling benchmarking of tax administrations relative to peers. - Transparency assessments: - Aspects readily assessed include compliance with international standards of information exchange, features covered by Fiscal Transparency Evaluations, and the regular publication of comprehensive tax expenditure budgets. ### Areas amenable to quantitative assessment vs. judgmental assessment - Quantitative assessment: - Some tax policy effects (for example, effects on incentives to invest) lend themselves to quantitative analysis. - Judgmental assessment: - Progressivity of tax systems: views differ widely on appropriate degree; TADAT/PEFA-like scoring is unlikely to be appropriate. - More consensus exists on some policy directions (for example, that a shift from tariffs to VAT is generally desirable). - Surveys and alternative data: - Surveys can be helpful but can be expensive and not always reliable. - Innovative methods (e.g., crowd-sourced data on tobacco prices in the Philippines to assess compliance with excises) suggest lower-priced alternatives for detailed and real-time data collection. - Tax morale: - Always subjective to respondents, but greater understanding of taxpayers' views can help tax system design. ### Gaps and opportunities for new indicators and metrics - Assessable dimensions: - Some aspects of tax policy-making — in terms of analytical basis, consultation and other dimensions — may lend themselves to assessment. - Compliance costs: - Compliance costs to taxpayers are much less understood than administrative costs and should be better assessed. - Compliance gap methods: - Develop fairly simple methods for assessing compliance gaps for personal and corporate income taxes. - Evaluation of capacity building: - Tools and metrics are needed for tracking results and evaluation of outcomes of specific tax administration capacity building programs (as part of the FTA Capacity Building work program). - Practical rules of thumb: - Further develop simple but analytically-based rules of thumb on issues such as appropriate levels of VAT refunds and thresholds under the VAT and personal income tax. - Information sharing and reporting: - Improve information sharing and effective reporting, e.g., between tax administrations and financial intelligence units (for international tax avoidance and evasion), and between tax administrations and ministries collecting extractive royalties and other nontax revenues. - Links to development outcomes: - The links between tax systems, effective institutions, and development outcomes are poorly tracked and understood; further consideration is needed on indicators and methods to monitor wider impacts of tax system reform. ### Recommendation 2f - The Platform will review the range of results indicators currently used with a view to establishing sound-practice results frameworks and guidance to track progress in ongoing reforms of the tax system (policies and administration) against a broad range of indicators, taking account of: - the need to ensure a proper balance between the needs of development partners and reporting burdens; and - the appropriateness of fit within the country context. - Note: Subject to additional resourcing. ### Enabler 3 — A Strong Knowledge and Evidence Base - Purposes of a strong evidence base: - Enable tax administrations and policy makers to assess their own situation and performance, including relative to peers, using diagnostic tools (TADAT, ISORA). - Draw lessons from others via modern empirical methods, especially taxpayer-level administrative data. - Recent empirical advances: - New work has illuminated VAT compliance chains and shown that improved third party reporting may be undone by taxpayer adjustments on other margins. - Data comparability challenge: - Emerging risk of multiple, slightly different datasets for revenue statistics. - Need for IOs and others to share information, coordinate efforts, and exploit comparative advantages, with ISORA as a precedent. - Recommendation 3a: - Platform partners and others to intensify collaborative work to produce comparable, reliable data on revenue statistics, and intensify efforts to build statistical capacity in the tax area (including in revenue administrations), —while avoiding unnecessary duplication. - Recommendation 3b: - G20 to encourage full participation in the International Survey of Revenue Administrations (ISORA), leading by example. - Note: An initiative of CIAT, the IMF, IOTA and the OECD to collect comparable, global data on revenue administration. ### Enabler 4 — Strong Regional Co-operation and Support - Role of Regional Tax Organizations (RTOs): - Provide deep knowledge of regional traditions and practices, networks, and credibility. - Differ widely in maturity and functions, but all can strengthen tax capacity in developing countries. - Untapped potential and priorities: - Strengthen RTO presence in South East Asia; ATAF’s contribution shows potential. - Resource limitations constrain expanded activities in some regions. - RTOs well-placed to support change management, foster participation in international tax architecture, and facilitate engagement in the Inclusive Framework for BEPS Implementation. - Encourage and support South-South co-operation in capacity development. - Recommendation 4: - G20 countries and development partners to continue to work in close partnership with RTOs and provide support for increasing their strength and coverage, fostering local networks and exchange of experiences, supporting CD in targeted areas, and influencing and implementing international rule setting. ### Enabler 5 — Strengthened Participation of Developing Countries in International Rule Setting - Importance and trends: - Rapid change in international tax landscape (AEOI, BEPS). - Developing countries estimated to suffer, in relative terms, the largest revenue losses from cross-border corporate tax avoidance; they have much to gain from new approaches to access information on offshore accounts. - Participation to date: - The Global Forum on Transparency and Exchange of Information for Tax Purposes has 135 members, including a significant number of developing countries. - Inclusive Framework on BEPS: 85 countries, including 39 developing countries (of which 16 are African), working on an equal footing on implementation and further standard setting. - Expectation that more developing countries will join the Inclusive Framework following its inaugural meeting in Kyoto in July 2016. - UN Committee of Experts: - Provides an inclusive venue for cooperation and standard setting, with Addis Agenda calling for increased frequency of meetings and engagement with ECOSOC and support for increased participation of developing country experts. - Need for effective participation: - Membership alone is insufficient; developing countries need support and empowerment to make the most of participation, including tailoring of rules and standards to their circumstances. - Recommendation 5: - IOs, RTOs and development partners to support developing countries to participate effectively in international tax policy discussions and institutions. Good experiences would be disseminated with a view to scaling them up. ### Box 12 — Kenya (high-level summary of experience) - Kenya’s international tax capacity described as “world class” in 2014. - Key elements: - Engagement in international tax co-operation and influence on OECD/G20 BEPS project; mobilized African countries by chairing ATAF Cross-Border Taxation Technical Committee. - Early 2016: signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters; member of the Global Forum since 2010. - Operationalized transfer pricing capacity development program with OECD and WBG support in 2012; review of transfer pricing legislation completed; steps toward an Advanced Pricing Agreement program underway. - Participating in OECD/UN TIWB and assisting other African countries through South-South TIWB deployments. ### Enabler 6 — Learning from Experience - Importance: - Take stock of implementation and effectiveness of the ambitious agenda and recommendations. - Recommendation 6a: - The Platform, working with other stakeholders, will gather and disseminate experiences to further understand what has worked and not worked in tax development programs, including by measuring the impact of different interventions. - Recommendation 6b: - IOs to produce a follow-up report to this report within [3] years to reflect lessons learnt on effective support for CD in the tax area including on the development and implementation of proposals covered in this report. ### Additional measurable developments and progress (as reported) - TADAT launched in 2015. - Inauguration of ISORA in 2016. - Inclusive Framework on BEPS: 85 countries participating, including 39 developing countries (of which 16 are African). - Global Forum membership: 135 members. - Kenya: operational transfer pricing program in 2012; signed the Multilateral Convention in early 2016. *Source: Box 11. Indicators for Assessing Progress in Strengthening DRM.* ### Appendix 2. Common Elements of Strategies for Tax Reform in ### Appendix 2. Common Elements of Strategies for Tax Reform in Developing Countries ### Revenue administration and compliance - Establishing effective revenue administrations making proper use of withholding and third-party information, and capable of building on these to implement voluntary compliance and self-assessment—taxpayers calculating and remitting tax themselves, subject to audit and penalties—both as a prerequisite for expanding the tax base and to help address corruption. - Assuring strong control of the largest taxpayers, in a dedicated office (and with specialized units for the most critical sectors), as a key step towards introducing risk assessment and fuller taxpayer segmentation. - Implementing policies and procedures that limit opportunities for rent seeking and help identify and punish inappropriate behavior in the revenue administration. - Designing and applying forceful and efficient strategies to deal with non-compliance. - Removing minor taxes and fees that are inordinately costly to comply with and administer. - Strengthening capacity to deal with profit-shifting by multinationals, while recognizing the extreme difficulty of doing so. ### Legal and institutional framework - Ensuring that laws and regulations are reasonably simple, readily available, coherent across taxes, and provide good taxpayer protection (including effective appeals procedures). - Building CITs that are simple (in their depreciation and carry forward provisions, for instance) and sufficiently broad-based to allow statutory rates competitive by international standards, with effective tax rates that are reasonably low and uniform across investments. - Extending the coverage of the PIT (particularly through inclusion of smaller businesses and professionals) and establishing coherent taxation of capital income, with an effective rate structure consistent with the authorities’ distributional preferences. ### Consumption and sales taxation - Replacing inefficient production or sales taxes, after adequate preparation of both the administration and taxpayers, by a simple VAT—including to catalyze administrative reforms. - Levying a VAT on a broad base, with a high threshold (the level of turnover at which registering for the tax becomes compulsory) and avoiding multiple rates, to realize its potential as a reasonably efficient source of government finance. - Coordinating any prospective loss of trade tax revenue with measures to replace it from domestic sources. - Avoiding exemptions—under all taxes—that jeopardize revenue and good governance, are hard to reverse, and generate no clearly offsetting social benefit. ### Business taxation and incentives - Avoiding exemptions—under all taxes—that jeopardize revenue and good governance, are hard to reverse, and generate no clearly offsetting social benefit. - Building CITs that are simple (in their depreciation and carry forward provisions, for instance) and sufficiently broad-based to allow statutory rates competitive by international standards, with effective tax rates that are reasonably low and uniform across investments. - Strengthening capacity to deal with profit-shifting by multinationals, while recognizing the extreme difficulty of doing so. - Exploiting the potential for regional cooperation, in both policy and administration—particularly on business taxation and excises—to limit mutually damaging competition. ### Tax base protection and international issues - Strengthening capacity to deal with profit-shifting by multinationals, while recognizing the extreme difficulty of doing so. - Extending the coverage of the PIT (particularly through inclusion of smaller businesses and professionals) and establishing coherent taxation of capital income, with an effective rate structure consistent with the authorities’ distributional preferences. - Exploiting the potential for regional cooperation, in both policy and administration—particularly on business taxation and excises—to limit mutually damaging competition. ### Natural resources and sector-specific considerations - Balancing royalties, auctioning and profit-related charges in taxing natural resources. *Source: Appendix 2. Common Elements of Strategies for Tax Reform in Developing Countries* ### References ### _072016 - References ### Major thematic areas covered by the references - Tax composition, growth, and tax capacity - Acosta-Ormaechea, Santiago and Jiae Yoo, 2012, “Tax Composition and Growth: A Broad Cross-Country Perspective,” IMF Working Paper /12/257. - Gaspar, Vitor, Laura Jaramillo and Philippe Wingender, 2016, “Tax Capacity and Growth: Is there a Tipping Point?” forthcoming IMF Working Paper. - Keen, Michael, 2013, “Taxation and Development—Again,” pp.13-41 in Clemens Fuest and George Zodrow (eds), Studies of Critical Issues in Taxation and Development (Cambridge: MIT Press). - Keen, Michael, and Ben Lockwood, 2010, “The Value-Added Tax: Its Causes and Consequences,” Journal of Development Economics, Vol. 92, pp. 138–51. - Revenue mobilization, tax administration, and compliance - International Monetary Fund, 2011, “Revenue Mobilization in Developing Countries”, available at http://www.imf.org/external/np/pp/eng/2011/030811.pdf - International Monetary Fund, 2015, “Current Challenges in Revenue Mobilization: Improving Tax Compliance”, available at https://www.imf.org/external/np/pp/eng/2015/020215a.pdf - Crivelli, Ernesto, and Sanjeev Gupta, 2014, “Does Conditionality in IMF-Supported Programs Promote Revenue Reform?” IMF Working Paper 14/26 (Washington: International Monetary Fund). - Carillo, Paul, Dina Pomeranz and Monica Singhal, 2014, “Dodging the Taxman: Firm Misreporting and the Limits to Tax Enforcement,” National Bureau of Economic Research Working Paper No. 20624. - Pomeranz, Dina, 2015, “No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax,” American Economic Review, Vol. 105, pp. 2539-2569. - Ufier, Alex, 2014, “Quasi-experimental Analysis of the Effects of Adoption of a Value Added Tax,” Economic Inquiry, Vol. 52, pp. 1364–79. - Tax policy, equity, and growth linkages - Arnold, Jens B., Bert Brys, Christopher Heady, Åsa Johansson, Cyrille Schwellnus and Laura Vartia, 2011, “Tax Policy for Economic Recovery and Growth,’” Economic Journal, Vol. 121, pp. F59-F80. - International Monetary Fund, 2014a, “Fiscal Policy and Income Inequality,” Available at https://www.imf.org/external/np/pp/eng/2014/012314.pdf. - International Monetary Fund, 2014b, “Spillovers in International Corporate Taxation,” available at https://www.imf.org/external/np/pp/eng/2014/050914.pdf. - Tax morale, taxpayer behavior, and public attitudes - Ali, Merima, Odd-Helge Fjeldstad and Ingrid Hoem Sjursen, 2014, “To Pay or Not to Pay? Citizens’ Attitudes Toward Taxation in Kenya, Tanzania, Uganda and South Africa”, World Development, vol. 64, pp. 828-842. - Organisation for Economic Cooperation and Development, 2013b, “What Drives Tax Morale” Tax and Development working paper (Paris: OECD) Available at http://www.oecd.org/ctp/tax-global/TaxMorale_march13.pdf - Naritomi, Joana, 2013, “Consumers as Tax Auditors,” Unpublished paper, Harvard University. - International Centre for Tax and Development, 2015, “Making VAT More Visible Can Be an Efficient Tool in Building a Tax-Paying Culture”, at http://www.ictd.ac/blogs/entry/making-vat-more-visible-can-be-an-efficient-tool-in-building-a-tax-paying-culture - Capacity development, institutions, and governance - Besley, Timothy and Torsten Persson, 2011, Pillars of Prosperity: The Political Economics of Development Clusters (Princeton: Princeton University Press). - Fjeldstad, Odd-Helge, and Mick Moore, 2009. “Revenue authorities and public authority in sub-Saharan Africa,” Journal of Modern African Studies, 47, 1, pp. 1–18. - Organisation for Economic Cooperation and Development, 2006, The Challenge of Capacity Development – Working Towards Good Practice, (Paris: OECD). - Organisation for Economic Cooperation and Development, 2010, From Citizen-State Relations, Improving Governance Through Tax Reform (Paris: OECD). Available at https://www.oecd.org/dac/governance-peace/governance/docs/46008596.pdf - Organisation for Economic Cooperation and Development, 2016, Tax Administrations and Capacity Building: A Collective Challenge, (Paris: OECD). Available at http://www.oecd.org/ctp/tax-administrations-and-capacity-building-9789264256637-en.htm - International cooperation, transparency, and tax information exchange - Global Forum on Transparency and Exchange of Information for Tax Purposes, 2014, “Automatic Exchange of Information: A Roadmap for Developing Country Participation”, available at http://www.oecd.org/tax/transparency/global-forum-AEOI-roadmap-for-developing-countries.pdf - International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations and World Bank, 2011, ”Supporting the development of More Effective Tax Systems,” available at https://www.imf.org/external/np/g20/pdf/110311.pdf - International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations and World Bank, 2015,“Options for Low Income Countries’ Effective and Efficient Use of Tax Incentives for Investment,” available at https://www.imf.org/external/np/g20/pdf/101515.pdf - International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations and World Bank, 2016, “The Platform for Collaboration on Tax,” Concept Note available on all four organizations’ websites. - Case studies, reform examples, and sector-specific taxation - Ifan, Guto and Tim Strawson, 2016, Aiding Domestic Revenue Mobilisation, a Development Initiatives report, available at http://devinit.org/wp-content/uploads/2016/04/Aiding-domestic-revenue-mobilisation_report.pdf - Kaiser, Kai, Caryn Bredenkamp, and Roberto Iglesias (2016), Sin Tax Reform in the Philippines: Transforming Public Finance, Health, and Governance for More Inclusive Development (Washington DC: World Bank). - World Bank Group and others, 2015, “From Billions to Trillions: Transforming Development Finance,” available at http://siteresources.worldbank.org/DEVCOMMINT/Documentation/23659446/DC2015-0002(E)FinancingforDevelopment.pdf ### Methods and empirical approaches signaled by the citations - Synthetic control methods and quasi-experimental analysis - Adhikari, Bibek, 2014, “Does Introducing a VAT Increase Efficiency? Evidence from Synthetic Control Methods,” Unpublished paper (New Orleans: Tulane University). - Ufier, Alex, 2014, “Quasi-experimental Analysis of the Effects of Adoption of a Value Added Tax,” Economic Inquiry, Vol. 52, pp. 1364–79. - Experimental and field evidence on incentives and enforcement - Khan, Adnan Q., Asim Khwaja and Benjamin Olken, 2014, “Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors,” Unpublished paper, Massachusetts Institute of Technology. - Carillo, Paul, Dina Pomeranz and Monica Singhal, 2014, “Dodging the Taxman: Firm Misreporting and the Limits to Tax Enforcement,” National Bureau of Economic Research Working Paper No. 20624. - Naritomi, Joana, 2013, “Consumers as Tax Auditors,” Unpublished paper, Harvard University. ### Representative policy topics emphasized across the literature - Improving tax compliance and enforcement mechanisms. - Designing VAT policies and assessing their impact on efficiency and tax morale. - Strengthening tax administrations and capacity development. - International tax transparency, automatic exchange of information, and multilateral cooperation. - Use of tax incentives in low income countries and evaluation of their efficiency. - Fiscal policy interactions with income inequality and growth. *References list as provided in _072016 - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_072016.pdf_