Medium-term Revenue Strategy (MTRS) – Taxation and Development
IMF News, October 29, 2019
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Bibliographic details
- Published: October 29, 2019
Purpose and definition of the MTRS
- The MTRS is a government-led, country-specific process for tax system reform extending over "4 to 6 years."
- It is described as a sustained process of implementation rather than a static concept.
- Organizing principle: a clear vision for the future tax system to overcome political-economy obstacles and avoid erratic, inconsistent reforms.
Rationale: tax capacity, state capacity, and development
- Taxation is framed as the financial backbone of state capacity.
- Tax capacity is required for the state to fulfill its role in sustainable and inclusive growth and is central to development policy.
- Historical and theoretical anchors cited: Schumpeter’s "The Crisis of the Tax State" and work linking tax capacity, state capacity, and legal capacity (Besley and Persson).
The MTRS four interdependent components
- Component 1 — Determining spending required to support economic and social development:
- Led by government and inclusive of broader stakeholders (parliament, civil society, taxpaying community).
- Links to financing of priority items such as public infrastructure, health, and education and to the Sustainable Development Goals (SDGs).
- Numeric examples from the text:
- "Additional spending required in low-income developing countries—like Rwanda and Benin—is quite considerable at about 20 percent of GDP by 2030."
- "In emerging market economies, the estimates are much lower with, for example, 5.6 percent in the case of Indonesia."
- Component 2 — Tax system reform road map:
- Comprehensive coverage of tax policy, revenue administration, and the legal framework.
- Emphasis on synergies across policy, administration, and legal systems to mobilize required revenues and support economic and social development.
- Challenges identified: predominance of siloed or piecemeal approaches; difficulties in quantification of impacts (especially for administrative and legal reforms); reliance on quality statistical data and tax records for revenue estimates.
- Component 3 — Sustained medium-term government commitment:
- Enduring political support and visible, concrete measures are necessary.
- Whole-of-government approach required; reform governance at the highest level is a critical enabler.
- Specific governance needs:
- Leadership by a senior official (minister of finance highlighted).
- Resourcing and empowerment to mobilize government and engage society.
- Strengthened reform management capabilities (e.g., reform management offices).
- Secured medium-term budgets to support revenue agency modernization and digitalization.
- Active engagement of economic and social stakeholders to secure perceptions of value for money and fairness; transparency and accountability are important.
- Component 4 — Coordinated but subordinated external support:
- MTRS identifies resources needed for reform; additional external assistance will often be required.
- External partners should align and sequence support under the government-led agenda to avoid gaps, overlaps, and untimely assistance.
- Challenges observed: effective coordination is difficult; sequencing of support has not always been aligned or timely.
- Principle emphasized: government leadership; external partners provide support under the government-led reform agenda.
Implementation principles and practical guidance
- MTRS is political and social in nature; broad social and political commitment is necessary for success.
- The MTRS should be public and transparent to build broad consensus.
- Holistic design and sustained implementation are presented as best practice for successful tax system reform.
- Reform sequencing must balance urgent revenue needs with long-term reform goals.
- Revenue administration modernization (including digitalization) requires medium-term, sustained funding and cross-government cooperation.
Observations from IMF experience and next steps
- IMF expresses strong support for the MTRS approach and expects the MTRS to help overcome typical obstacles to broad tax system reform.
- The conference convened to discuss the MTRS aims to refine and advance the development and application of the approach to build effective and fair revenue systems critical for sustained development.
Speech delivered by Vitor Gaspar. October 29, 2019.