## Medium-term Revenue Strategy (MTRS) – Taxation and Development

_IMF News, October 29, 2019_

## Source details

**Canonical URL:** [Medium-term Revenue Strategy (MTRS) – Taxation and Development](https://www.imf.org/en/news/articles/2019/10/28/sp102919-mediumterm-revenue-strategy)

## Other formats

- [Markdown version](/en/news/articles/2019/10/28/sp102919-mediumterm-revenue-strategy/index.md)
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## Bibliographic details
- Published: October 29, 2019

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### 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.*

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## References

- [Vitor Gaspar](http://www.imf.org/external/np/bio/eng/vt.htm)
- [Austria and the IMF](http://www.imf.org/external/country/AUT/index.htm)
- [Indonesia and the IMF](http://www.imf.org/external/country/IDN/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2019/10/28/sp102919-mediumterm-revenue-strategy_