Tax Expenditure Reporting and Its Use in Fiscal Management : A Guide for Developing Economies
IMF How To Notes, March 27, 2019
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Bibliographic details
- Authors: International Monetary Fund. Fiscal Affairs Dept.
- Published: March 27, 2019
- Series: IMF How To Notes
Overview
- Purpose: Inform governments on how to account for tax expenditures and use that information in fiscal management.
- Emphasis: Developing and emerging market economies, where use of tax expenditure accounts is in its infancy.
- Date and publication: March 27, 2019; How-To Note No.19/02; Stock No. HTNEA2019002; ISBN: 9781498303217; ISSN: 2522-7912.
- Institutional context: Most developing economies often lack tax policy units in their Ministry of Finance to provide integrated analytical support to government and legislature.
- Consequence: Fragmented tax policy framework in many developing economies—line ministries may compete in providing sectoral tax incentives without reporting their cost.
Role of Tax Expenditure Measurement and Reporting in Fiscal Management
- Key functions:
- Provide transparency on revenue forgone from tax expenditures.
- Support integrated revenue policy analysis by a central tax policy unit.
- Improve fiscal decisionmaking by aligning tax incentives with budget priorities.
- Intended audience: Governments, ministries of finance, legislatures, and fiscal institutions in developing and emerging market economies.
Building Tax Expenditure Accounts — Approach and Requirements
- Structure: The note provides a step-by-step approach on how tax expenditure accounts can be built.
- Emphases:
- Data requirements: identification and compilation of relevant tax data.
- Methods and models: methodologies for estimating revenue forgone (direct costs).
- Institutional requirements: capacity, staffing, and organizational arrangements necessary to sustain accounts and integrate them into fiscal management.
- Primary focus: Direct cost of tax expenditures — defined as the revenue forgone because of tax provisions.
Scope and Limitations
- Included: Direct fiscal cost (revenue forgone) of tax expenditures.
- Excluded:
- Indirect costs such as economic efficiency losses.
- Additional tax administration resource costs.
- Assessment of the benefits of tax expenditures.
- Implication: The guidance is targeted at measuring and reporting fiscal costs rather than performing full cost–benefit evaluations.
Current Status in Developing Economies (Summary)
- General situation: Reporting of tax expenditures is at an early stage in most developing and emerging market economies.
- Constraining factors cited:
- Data constraints.
- Insufficient human and financial resources.
- Weak fiscal institutions.
- Comparative note: The fourth section of the note summarizes the current status in developing economies with some reference to advanced economies.
Organization of the Note
- Section 2: Outlines the role that tax expenditure measurement and reporting can play in fiscal management.
- Section 3: Provides a step-by-step approach for building tax expenditure accounts (data, methods and models, institutional requirements).
- Section 4: Summarizes current status of tax expenditure reporting in developing economies, with reference to advanced economies.
- Section 5: Concludes.
International Monetary Fund. Fiscal Affairs Dept. Tax Expenditure Reporting and Its Use in Fiscal Management : A Guide for Developing Economies, March 27, 2019. How-To Note No.19/02; Stock No. HTNEA2019002; ISBN: 9781498303217; ISSN: 2522-7912.
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- Tax Expenditure Reporting and Its Use in Fiscal Management