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1、The Role of Organizational Design in the Revenue Strategies of Developing Countries: Benchmarking with VAT Performance William McCarten * World Bank Institute, World Bank * I would like to thank Michael Engelschalk, Graham Glenday, Carlos Ferrira, Esperanza Lasagabaster, Tuan Le, Luc Noiset Chris Mu
2、rray, Seth Terkper, and Jaime Vzquez-Caro for advice and helpful comments and to acknowledge the intellectual inspiration of the late Jit Gill. In order to understand the reason for poor performance of the revenue administration,we must first look outside the box, beyond the organizational boundarie
3、s of the revenue administration, and analysis the impact of important environmental factors on its performance.Jit Gill, World Bank (2003)IntroductionAt the beginning of the 21st century, governments in developing and transition economies continue to search for feasible solutions to the age-old prob
4、lem of revenue generation. Today, the dominant environmental factors shaping the performance of their revenue administrations are globalization, large informal sectors, and weak administrative capacity linked to corruption. Increasingly, taxpayers, struggling to reduce high compliance costs and shie
5、ld themselves from arbitrary treatment and corrupt practices, are asking political leaders to improve taxpayer services and embrace an explicit taxpayer service ethos. In response, tax administrations are exploring a range of strategies to improve taxpayer compliance and achieve their revenue genera
6、tion goals. However, these strategies are diverse and have different implications for static efficiency and growth. Some countries, as different as Bulgaria, Jamaica, Latvia, Pakistan, and Tanzania, have embraced multiyear programmatic approaches to reform, involving reorganization of their tax admi
7、nistrations along functional and taxpayer segment lines, reengineering of business processes, and effective utilization of new opportunities in information and communications technology. These programmatic reformers are also benchmarking and monitoring their own performances as a tool for improved m
8、anagerial effectiveness. The trend towards tax administration organizational reform has been most pronounced in Eastern Europe where, in the space of a decade, transition countries have replaced tax-by-tax frameworks for new functional designs, augmented by special units organized around taxpayer ch
9、aracteristics, such as size of assets or sales. Many governments have seized upon the organizational concept of a large taxpayers unit (LTU) as a mechanism to introduce new organizational structures and procedures based on voluntary compliance. LTU have spread from Latin America, where it was concei
10、ved in the 1970s, to Africa, Asia, and transition countries, where it has piloted administrative reforms in auditing, self-assessment, the functional organization of work, and taxpayer services. Some governments have directed their tax administrations to adopt a taxpayer service ethos, whilst insist
11、ing on innovative enforcement measures to boost compliance. However, scaling up organizational innovations, such as large taxpayers units, to completely reorganize the tax administration remains an unfinished agenda in many developing countries. Quite a few governments continue to show little intere
12、st in modernization processes that involve systemic organizational change allied to a new administrative philosophy. These governments retain a commitment to traditional approaches to revenue generation, whilst accepting organizational and business process modernization only as part of pilot initiat
13、ives often required under IMF programs. Many tax authorities reject authentic self-assessment as a general rule for both VAT and corporate income tax and permit it only as a special case. Traditional tax assessment strategies, focused on imposed assessments and negotiation of final tax liability and
14、 the neglect of the special needs of small enterprises for simplified procedures, deter enterprises in shifting from the shadow to the formal economy and are inimical to a truly healthy investment climate in the formal sector. Why then, if the path of tax administrative reforms is clearly pro-growth
15、, do only some developing and transition governments follow this path and make a wholehearted commitment to scaling up tax administration pilot reforms?This papers motivations are twofold. First, it seeks to shed some light on which organizational models and tax administration reform ingredients con
16、tribute most to improving tax compliance, neutrality, and revenue productivity. By revenue productivity is meant the tax revenue to tax base ratio adjusted for the rate or statutory tax effort. Additionally, it seeks to explain why administrative reform proposals to achieve these ends are often resi
17、sted or adopted in a halfhearted manner, even when governments are sincerely looking for better solutions to their taxation problems. In a nutshell, this is a paper about the logic of scaling up pilot-based organization reforms. It argues that tax administration organizational reforms, along with th
18、e selfassessment reforms that it will enable, are the keys to coping with these growth-inhibiting tax distortions. The paper conjectures that the most visible recent innovation in organizational design, the large taxpayers unit, will have different impacts in different country settings and will requ
19、ire buttressing by key institutional and policy supports, if it is to play its intended role in scaling up administrative reforms. Defining the Problem Globalization, economic dualism, and weak and corrupt tax administration have inspired diverse responses within the set of developing and transition
20、 economies. All countries ability to set and enforce their own taxes is increasingly constrained by globalization, or the deep integration of national economies with the global economy. Contemporaneously, globalization is expanding the number of critical taxpayer services and compliance oversight to
21、ols, such as policing transfer pricing practices, which are needed to administer taxes effectively. However, as stressed by Burgess and Stern (1993), taxation in developing countries remains fundamentally different from that in industrial countries. In part, this is because so much economic activity
22、 occurs in the informal or shadow economy and thus bypasses taxation. Additionally, the tax administration capacities of developing and transition governments are usually weak and often tinged by corruption. These forces foster a kind of dualism in tax administration in developing and low-income tra
23、nsition countries, under which administrative practice and policy expectations directed towards large formal sector business units, comprising both export-oriented and import-competing subcomponents, are radically different from those for the small-scale, formal sector businesses. Taxation of econom
24、ic activity within the formal sector and the incidence of bribery needed to settle assessments are often highly non-neutral in nature. Over a decade ago Burgess and Stern (1993) warned that by concentration on a few tax handles and the easiest to implement solutions governments in developing countri
25、es, with weak administrative capacity, often produce highly distorting tax structures. Berkowitz and Li (1999) report that throughout the 1990s, tax administration policies and practice in transition economies have been capricious and potentially confiscatory, resulting in negotiated tax liabilities
26、. The negotiation of tax liabilities in settings without authentic self-assessment creates a fertile environment for bribery and engenders a business climate that is hostile to new investment and the growth of small business. The relative size of bribe payments, linked to negotiated tax settlements,
27、 appears to fall most heavily on small formal sector enterprises both in transition and developing countries. Clarke and Xu (2002) have uncovered a negative relationship between enterprise size and the relative burden of bribes paid. Johnson, Kaufman and Shleifer (1997) contend that high tax and reg
28、ulatory burdens in post-communist countries drove a significant share of economic activity into the shadow or informal economy during the 1990s. Hostile tax policies and administrative practices lead in turn to static efficiency losses and retard export-led and import competing growth in the fringe
29、formal sector, particularly among small-scale enterprises. This problem is increasingly recognized as a major cause of weak investment growth performance in the developing world, particularly in sub-Saharan Africa. Stiglitz (2004) has proposed that redesigning taxing institutions and policies, inclu
30、ding what he calls “corruption resistant tax structures”, should be a central concern of fiscal reform for developing countries. However, while the shadow economies of developing countries are characterized by low capital intensities, small scale of operation, traditional technologies, and often waf
31、er thin profit margins, unofficial production in transition economies is more often done in big enterprises with high-capital intensities. Recent Government Fiscal Performance Governments in developing and transition countries vary greatly in terms of their average revenue receipts as a share of GDP
32、, the notional tax base, for a given set of statutory tax rates. Recent compilations by IMF staff of average total tax revenue and total revenue statistics covering developing and transition countries for the early 2000s and the early 1990s, as summarized in Table 1, indicate that, while average gov
33、ernment revenue shares grew in the Americas and the North Africa/Middle East zones by between one and two percent, they fell in sub-Saharan Africa, Central Europe, and the countries of the former Soviet Union and the Asia and Pacific region. Table 1Average Government Revenue by Groupings of Countrie
34、s(percent of GDP )Tax RevenueTotal RevenueEarly 1990sEarly 2000sEarly 1990sEarly 2000sAmericas 14.916.018.319.7sub-Saharan Africa16.315.919.319.7Transition countries 27.323.430.926.7North Africa and Middle East15.117.123.326.2Asia and Pacific13.613.217.616.6Small Islands25.524.533.432.0Source: Cleme
35、nts, Gupta, Pivovarsky, and Tiongson (2004)In the case of Central Europe and countries of the Former Soviet Union, Mitra and Stern (2003) attribute the fall in tax revenue shares to a major decline in corporate income tax revenue, which was partially offset by domestic indirect tax revenue gains. Th
36、e reasons for stagnation or declines in sub-Saharan Africa and Asia include not only adjustments to external shocks, such as the external crises of the late 1990s, but also inadequate and inappropriate responses to the challenge of globalization, and increased internal corruption within tax administ
37、rations. Aurioll and Warlters (2005) assert that the difference in tax revenue yields, as a percent of GDP, between rich and developing countries is now almost entirely explained by the weakness of direct taxation in the latter. Direct taxation represents only 7 percent of GDP in sub-Saharan Africa
38、versus 22 percent of GDP in industrial countries. Within sub-Saharan Africa, Ghanas performance may be indicative of regional trends. Direct taxes fell sharply in the 1990s during a period of macroeconomic stagnation, which was offset by a strong performance in VAT collection. Stiglitz (2004) warns
39、that for low income developing countries the increasing dependence on VAT collections from large enterprises in the formal sector is reinforcing structural dualism and ultimately discouraging growth by making formal sector participation unattractive. Productivity of Tax Systems: International Compar
40、isons and Determinants Additional insights into administrative performance can be gleaned by calculating efficiency or productivity indicators of tax revenue systems across countries and by exploring the linkage between corruption and efficiency indicator for the tax system. The value added tax is t
41、he logical candidate for the identification of such efficiency indicators because its base, usually equivalent to aggregate private consumption, can be measured from statistical sources that are derived independently from revenue data. As discussed in Ebrill et al. (2002), C-efficiency of the VAT is
42、 defined as the ratio of VAT revenue to aggregate private consumption divided by the standard rate of VAT. This measure is described as “both a summary indicator of performance and a useful gauge of the extent to which the VAT bears uniformly upon a broad base.” As Figure 1 below indicates, the calc
43、ulated C-efficiency ratios for 2001 vary dramatically across developing and transition economies, from less that 0.25 for Algeria and the Philippines to over 1.0 for Croatia. This result indicates both that the effective tax revenue burden can vary greatly from the statutory burden and that the scop
44、e for improved compliance is massive in countries at the lower end of the distribution. Figure 1Source: Government Finance Statistics and International Finance Statistics 2003 and 2004 (International Monetary Fund) Econometric estimation can be used to explain the determinants of the dispersal of C-
45、efficiency. Results are reported below, based on data obtained from the IMFs Government Financial Statistic Yearbook and Article IV consultation reports for a sample of 69 developing and transition economies. The White estimator is employed to correct for heteroskedasticity. The approach taken here
46、is to regress the ratio of VAT revenue divided by private consumption on a set of explanatory variables including the standard rate of VAT, the openness of the economy, as measured by the ratio of imports to GDP, and the level of illiteracy. To this list of regressors is added an index for governmen
47、ts capacity to control corruption, recently developed by Kaufman, Kraay and Zoido-Lobaton (2002) and an index, developed by Djankov et al. (2002), which measures the cost of registering a business in the formal sector. This last variable is intended to capture some of the barriers to entry to the fo
48、rmal sector, but it is limited to legal costs and does not include informal payments. More formally, the equation of interest is: VAT Rev/Consumption = ( SR, imports/GDP, illiteracy, CCI , costentry )where SR is the VAT standard rate, CCI is the index for government control of corruption, and costen
49、try is the cost of registering a business in the formal sector divided by the average wage.Table 2Cross Sectional Model of C-Efficiency for VAT AdministrationBased on 2001 Government Financial Statistic Data Dependent variable: ceffnum = VAT revenue/ Private Consumption VariableCoefficientStd. Errort-statisticp-valueConst0.1523990.02112547.2140 0.
