Thinking Strategically About Revenue Administration Reform .
DISCUSSION PAPERGovernance Global PracticeNo. 4 November 2019Thinking strategically aboutrevenue administration reform:The creation of integrated,autonomous revenue bodiesRaul Felix Junquera-VarelaRajul AwasthiOleksii BalabushkoAlma Nurshaikova
This series is produced by Governance Global Practice ofthe World Bank. The papers in this series aim to providea vehicle for publishing preliminary results on Governancetopics to encourage discussion and debate. The findings,interpretations, and conclusions expressed in this paper areentirely those of the author(s) and should not be attributedin any manner to the World Bank, to its affiliatedorganizations, or to members of its Board of ExecutiveDirectors or the countries they represent. Citation and theuse of material presented in this series should take intoaccount this provisional character.For information regarding the Governance DiscussionPaper Series, please contact contact: Ayse Boybeyi, ataboybeyi@worldbank.orgJEL Classification: H11, H29, H83Key Words: Domestic Resource Mobilization, Tax Administration,Revenue Administration, Public Administration. 2019 The International Bank for Reconstruction andDevelopment / The World Bank1818 H Street, NW Washington, DC 20433All rights reserved
ABSTRACTOver the past two decades, two trends in tax administration reform have emerged – granting increasedautonomy to tax administrations and establishing a unified integrated revenue authority (IRA) chargedwith administering both tax and customs laws and, in some cases, social security. This paper reviews thetheory and practice of these revenue administration models and synthesizes lessons learned from theWorld Bank’s engagement with clients in recent years. The paper looks at several case studies across theworld on the reform design as well as results of integration or increased autonomy. Semi-autonomous andintegrated revenue administration models have the potential to bring crucial improvements to the efficiencyand effectiveness of tax administration. The implementation shows both successes and challenges. Thepaper concludes with listing pre-conditions for these reforms including need for comprehensive approachof combining increased autonomy with improved administration processes and anticorruption efforts;importance of building collation of all revenue bodies prior to integration; and focus on non-revenuecollecting functions of customs administration.
Table of ContentsAcronyms11. INTRODUCTION22. ORGANIZATIONAL ARRANGEMENTS OF REVENUE ADMINISTRATIONS: KEY TRENDS33. SEMI-AUTONOMOUS REVENUE ADMINISTRATIONS73.1 Why create semi-autonomous revenue administrations?73.2 What are the levels of autonomy?93.3 Design and implementation of the model: The Devil is in the details103.4 Does autonomy impact tax administration performance?123.5 What can be learned from country case studies?13Failing to keep tax administration reforms sustainable:The case of Peru’s tax agency13Risks of increased corruption: The case of Uganda’s SARA15Lessons learned from a successful SARA: The case of the South AfricaRevenue Service (SARS)16Granting autonomy only in name: The case of Kenya174. INTEGRATED REVENUE AGENCIES174.1 What are the key benefits of integration?174.2 What can be learned from country experiences?18The governance dimension: The case of Mozambique18Lack of prior strategic thinking and planning: The case of Kazakhstan19Successful planning and execution: The case of Bulgaria in the 2000s205. CONCLUSIONS23The semi-autonomous revenue administration model23The integrated revenue bodies model24Annex 1: Institutional arrangements for tax administrations worldwide26References27
AcronymsARAautonomous revenue agencyATRevenue Authority (Mozambique)CITcorporate income taxECEuropean CommissionGDPgross domestic productGTDGeneral Tax Directorate (Bulgaria)HRhuman resourcesICTinformation and communications technologyIMFInternational Monetary FundIRAintegrated revenue authorityITinformation technologyKRAKenya Revenue AuthorityLTULarge Taxpayer UnitMOFMinistry of FinanceNGOnon-governmental organizationNHIFNational Health Insurance Fund (Bulgaria)NHFNational Health Fund (Bulgaria)NRANational Revenue Agency (Bulgaria)NSSINational Social Security Institute (Bulgaria)OECDOrganization of Economic Cooperation and DevelopmentPITpersonal income taxRArevenue authoritySARAsemi-autonomous revenue authoritiesSARSSouth Africa Revenue ServiceSCCsocial security contributionSRCState Revenue Committee (Kazakhstan)SUNATNational Tax Administration Super intendency (Peru)TATax AdministrationURAUganda Revenue AuthorityVATvalue-added tax1
1. INTRODUCTIONOver the past two decades, a prominent trend in tax administration reform has been to grantincreased autonomy to tax administrations to allow them greater management capacity.1 Therationale behind establishing semi-autonomous revenue bodies is threefold: to lessen political interferencein the conduct of their operations, to allow greater responsibility and accountability for managers toachieve their objectives, and to build more management capacity, especially in terms of budgetingdecisions and human resources (HR) policies. Such institutional arrangements have been termed unifiedsemi-autonomous bodies (OECD 2013) or autonomous or semi-autonomous revenue authorities (SARAs).Another recent trend in countries around the world has been to establish a unified integratedrevenue authority (IRA) charged with administering both tax and customs laws and, in somecases, social security. The stated rationale for this structure is that it can exploit efficiencies of scaleby downsizing support functions, ensure better information flow, and improve taxpayer/trader services.Whether integration of revenue administrations has achieved its desired objectives and led to moreeffective revenue administration is debatable. Nevertheless, countries continue to take such decisions at thepolitical level, and the newly created agency is often left with the difficult task of integrating responsibilitiesthat had previously been carried out by fully independent agencies.It is unclear whether the semi-autonomous revenue agency or non-autonomous revenueagency model delivers better results, and merging tax and customs agencies has also shownmixed results. An IMF working paper surveying autonomous and non-autonomous tax administrationsacross the world finds no evidence that, overall, SARAs perform better than non-autonomous agencies(Crandall and Kidd 2006). Similarly, a World Bank study found that not all efforts to integrate tax andcustoms authority worked out well (World Bank 2010). It identified as a key challenge the responsibility fornon-revenue services, such as securing borders and facilitating the flow of legitimate trade and travel, bothtypically customs responsibilities.This policy note reviews the theory and practice of these revenue administration models andsynthesizes lessons learned from the Bank’s engagement with clients in recent years. Thepolicy note does not argue for any one particular model; rather, it suggests a list of “dos and don’ts” forgovernments to consider before creating a semi-autonomous or integrated revenue authority.The policy note is organized into five sections. Following this introductory section, Section 2 providesa brief discussion of recent trends in organizational arrangements of revenue administrations across theworld. Section 3 considers the rationale behind creating semi-autonomous revenue authorities, reviews thelevels of autonomy used, and discusses details of design and implementation. This section also providesinitial reflections on the impact of autonomous bodies on performance and presents case studies fromKenya, Peru, South Africa, and Uganda. Section 4 reviews the rationale behind the integrated revenueauthority model and presents case studies from Bulgaria and Kazakhstan. Section 5 concludes the paper bydrawing lessons from the case studies and providing general observations on the issues involved in revenueadministration reform.1The majority of countries (around 60 percent) surveyed by the OECD in 2012 have adopted the “unified semi-autonomousbody” for institutional set up of revenue bodies responsible for the administration of direct and indirect taxes (OECD 2013).2
2. ORGANIZATIONAL ARRANGEMENTS OF REVENUE ADMINISTRATIONS:KEY TRENDSRevenue administrations play an important institutional role in collecting the domestic taxresources needed to fund public services while administering the tax system in a fair andimpartial manner. The large number of staff and clients with whom these administrations interact; thecomplex network of stakeholders and other public institutions with which they are enmeshed; the rangeand nature of the tax laws they enforce; the multitude of core tax business processes, including IT systems,they employ—all of these elements require vesting these revenue bodies with adequate powers andautonomy to perform their vital functions effectively and efficiently.A broad consensus exists on the institutional, organizational, and operational arrangementsdesirable in and conducive to an efficient and effective administration of a tax system. The fiscalblueprints developed by the European Commission (EC) provide guidance on desirable features of nationalrevenue bodies aimed at strengthening their operational capacity. One addresses internal revenue bodies,and another addresses customs bodies.Box 1. EU Fiscal Blueprints: Desirable Features for a National Revenue Body Is there a guaranteed and adequate level of autonomy?Key indicators:Is autonomy provided for by law?Is there a statutory basis defining to whom the head reports?Is autonomy reflected in its structure and operational responsibilities?Is it able to design and implement its own operational policy? Is there a clear description of responsibilities for bodies at the central, regional, and local level? Are its obligations clearly translated into its mission, vision, and objectives? Does it have its own structure and powers for effective and efficient operation? Is it provided with adequate resources? Does it have a stable legal framework? Is it accountable for its operations and is subject to control and assessment?Source: EU Fiscal Blueprints.Over the past decade, the public sector has gone through significant changes to deliverservices more effectively while keeping administration costs to a minimum. A key trend in thiswave of institutional transformation has been granting more autonomy to government departments andagencies. As noted in Crandall (2010), a basic principle behind this move is that such autonomy can leadto better performance by removing impediments to effective and efficient management while maintainingappropriate accountability and transparency. In the context of public sector administration, autonomyusually refers to the degree to which a government department or agency operates independently fromgovernment, including legal form and status, funding and budget, and financial, human resources, andadministrative practices (Crandall 2010).3
Five broad categories of institutional setups for conducting tax administration can be identified,although in practice these may be subject to a number of exceptions (OECD 2013): A single directorate in the Ministry of Finance (MOF): Tax administration functions are theresponsibility of a single organizational unit (e.g., a directorate) located within the structure of theMinistry of Finance (or its equivalent). Multiple directorates in MOF: Tax administration functions are the responsibility of multipleorganizational units (e.g., directorates) located within the Ministry of Finance (often sharing necessarysupport functions, such as information technology (IT) and HR). Unified semi-autonomous body: Tax administration functions, along with necessary supportfunctions (e.g., information technology and human resources), are carried out by a unified semiautonomous body, the head of which reports to a government minister. Unified semi-autonomous body with board: Tax administration functions, along with necessarysupport functions (e.g., IT and HR), are carried out by a unified semi-autonomous body, the headof which reports to a government minister and oversight body/board of management comprised ofexternal officials. Integrated revenue authority: Tax, customs, and sometimes social security administrations aremerged into one agency with different levels of functional integration.Annex 1 contains a list of all surveyed OECD and selected non-OECD countries and indicates institutionalarrangements currently in place.An institutional trend worldwide favors the creation of unified semi-autonomous revenuebodies to improve the administration of tax systems. According to 2013 OECD ComparativeInformation Series, 31 out of 52 surveyed countries have established a unified semi-autonomous body (orin the case of China, a separate ministry) responsible for tax administration (and in some cases customsadministration) operations, while the rest of the countries operate with other (generally less unified and/orautonomous) models.2In Latin America and Africa, establishing semi-autonomous revenue bodies is the predominantpattern of tax administration reform. In Latin America, the tax administrations of Bolivia, Guatemala,Mexico, Peru, and Venezuela have adopted the legal status of semi-autonomous revenue authorities. InAfrica, countries such as Ghana, Kenya, Malawi, Rwanda, Tanzania, Uganda, and Zambia have grantedhigher levels of managerial and financial autonomy to their tax administrations.323This series provides internationally comparative data on aspects of tax systems and their administration in 52 advanced andemerging economies. The information provided in this edition was obtained from a survey of revenue bodies conducted in2012 and from research conducted by official of the OECD’s Centre for Tax Policy and Administration of the revenue bodies’ keycorporate documents (e.g., strategic plans and annual performance reports), other OECD tax publications, and other relevantsources.In 2010, nearly 40 revenue authorities around the world clustered largely in Africa and Latin America (Crandall 2010). Generally,revenue administrations in these regions faced the need for massive reform, and the creation of a revenue authority was seen bysome as a launching point for this work.4
In Eastern Europe, eight countries — Bulgaria, Hungary, Romania, Serbia, Slovak Republic,Slovenia, Turkey, and Ukraine — have established semi-autonomous revenue authorities toadminister tax collections. In the other twenty countries, tax administration is still part of the Ministry ofFinance (World Bank 2013).No Asian country has in place a semi-autonomous revenue authority (Kidd and Songwe 2009). Taxadministrations in Asia have low levels of autonomy over their organizational structure. A survey conductedby the World Bank in 2009, and comprising 11 Asian countries, provides evidence to that effect. A criticalelement of HR management autonomy is the ability to recruit personnel. The survey covered, inter alia,autonomy to recruit, set remuneration, promote internally, discipline staff, fire or terminate employees, andset conditions of employment. According to the study, Asian countries compare fairly well with OECD andnon-OECD countries in giving tax administrations authority to undertake this critical function. Some 50percent of the Asian countries surveyed, however, indicated that, for at least some of these functions, theircentral agencies played a role.Box 2. Key Institutional and Organizational Trends in Revenue AdministrationInstitutional and organizational reforms are a prominent feature of efforts in many countries toimprove efficiency and effectiveness; in particular, these include: Establishing revenue institutions with increased autonomy and, in a number of countries (e.g.,Hungary, Malta, Portugal, and the Slovak Republic), integrating the administration of tax andcustoms operations. The majority of OECD and selected non-OECD countries surveyed by the OECD(around 60 percent) have adopted the “unified semi-autonomous body” form of institutional setupto administer the tax system. In 11 countries, a formal management/advisory board comprised ofexternal representatives has been established as part of the overall governance framework. Twelve OECD member countries have aligned tax and customs operations within a single agency.In the 18 non-OECD countries surveyed, this alignment took place in six countries. The introduction of organizational structures with reduced layers of management has provided amore centralized form of national management (e.g., Estonia, Finland, and Latvia), with ongoingefforts to establish taxpayer segment-based compliance structures underway (including for largetaxpayers, e.g., in Belgium, Czech Republic, and Portugal). In some countries (e.g., Greece, Norway, and Portugal), wide-ranging programs are underway tosignificantly reduce the size of office networks. Decisions to integrate the collection of tax and social security contributions (e.g., in the Czech andSlovak Republics) over the medium term are underway, with similar reforms foreshadowed forsome other countries (e.g., Greece and Portugal) in the longer term. Of the 32 OECD countrieswith social security contribution (SCC) regimes, 13 have integrated SCC and tax collection. The national revenue body in the majority of European countries is also responsible foradministration of property taxes (and often, motor vehicle taxes); elsewhere, these taxes aregenerally administered by revenue bodies of subnational governments.Source: OECD 2013.5
Over the past 20 years many countries4 have also chosen to integrate their major revenuecollection agencies under one administrative umbrella. No one formula or model has been appliedacross the world; approaches vary depending on circumstances. Typically, however, the integrated modelhas been employed to resolve critical problems associated with poor revenue collection performance, lowrates of voluntary compliance, poor technical skills, and high levels of corruption.Box 3. Organizational Structures of Tax AdministrationOrganizational structures of tax administration can be based on one of three maincriteria: type of taxes collected, functions performed, and taxpayer segment. Overthe past decades, tax administrations evolved from a type-of-tax model to the now dominantfunctional model. The taxpayer segment model, which has been established by a number ofadvanced tax administrations, such as those of Australia, the Netherlands, and the United States,organizes taxpayer services and enforcement activities principally around taxpayer segments (e.g.,large businesses, small and medium taxpayers, individuals, etc.), to better tailor tax administrationprocesses to taxpayer characteristics. In the developing world, the South Africa Revenue Service(SARS) is currently developing holistic segmentation designs for its taxpayer and trader segments,based on a thorough understanding of their behavior and needs.In practice, most tax administrations have organizational structures that mix differentfeatures and characteristics of the available models, creating what are termed “hybrid”models. In this regard, while practically all tax administrations’ organizational structures are basedon the functional model, the majority have also established a Large Taxpayer Unit (LTU), and in manyof them some residue of a type-of-tax administrative orientation survives as well.In the type-of-tax model, each department or unit performs all of the functions requiredto administer the specific types of taxes for which it is responsible. Prior to 2005, the UnitedKingdom provided a good example of a tax-based organizational structure; after that time its taxadministration moved toward a function-based structure.The tax-type-based model has three main disadvantages. First, the system may l
Failing to keep tax administration reforms sustainable: The case of Peru’s tax agency 13 . PIT personal income tax RA revenue authority SARA semi-autonomous revenue authorities . Revenue administrations play an important institutional role in collecting the domestic tax
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