Transcript Slide 1

Improving Revenue Collection
and Capacity in PITAA Countries
Matt Davies
PFTAC Coordinator
Outline
• Reform context
– IMF/PFTAC paper for FEMM
– FEMM Decisions/discussions
• PFTAC’s role
– New funding cycle
– Results framework
– Relationships with other donors.
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FEMM 2009
Requested:
“a study on improving revenue collection and
capacity in Forum Island Countries, with
particular reference to addressing the impacts of
the global economic crisis and trade
liberalization.”
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PFTAC Paper: Main Messages
• Improving revenue collection is important for
facing up to the fiscal challenges in FICs.
• Adopting a modern tax system, based on an
integrated VAT and income tax with self
assessment has been successful in the Pacific.
• Maintaining a broad-base with few exemptions
allows lower rates and eases administration.
• Reforms take a long time and dedicated
resources.
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FICs face fiscal challenges.
• Improving government services; accelerating
progress on MDGs
• Flexibility in coping with shocks and crises
• Trade liberalization
• Reducing public debt.
• Decreasing reliance on aid.
• Containing drawdowns from trust funds.
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Revenue reforms are a vital part of
response.
• Need to address challenges while maintaining
growth and macroeconomic stability.
– Prudent fiscal balance
– Incentives for private sector led growth
• Requires a balance between revenue
enhancement and expenditure restraint.
• Each country will choose a different balance
but almost all will include an element of
revenue enhancement.
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A good tax system is fair, flexible,
and easy to administer
• A few well-integrated taxes.
– Consumption (VAT/Sales + Excises)
– Income (Personal and Corporate)
– Trade (Tariffs/duties)
• A broad-base with limited exemptions.
– Enables lower rates
– Simplifies administration
– Eases voluntary compliance
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Taxation of domestic consumption can form
the cornerstone of a tax system
• Simple VATs supplemented by excises have
proved most successful.
– VATs do work in small economies and are
generally preferable to sales taxes.
– But work best in particular circumstances.
• High threshold, single rate, few exemptions
• Excises useful to vary tax rates
– And are underused in the Pacific.
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Income taxes are a vital component
• Income taxes reforms should focus on basebroadening and improving compliance.
– Removing exemptions and concessions
– Simplifying structures to allow self-assessment
– VAT implementation has helped strengthen income
tax collections.
• Trade tariffs will continue to contribute revenue.
– simplification and enforcement can help sustain
revenues.
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Other taxes/fees can also contribute
• Implementation needs to have a good
justification
– Revenue generation, equity.
– Avoid distorting economic decisions.
– Take into account effect on thin administration
resources.
• Tourism taxes are worth considering for many
FICs
– costs and benefits need to be carefully weighed.
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Natural resource revenues need a
separate framework
• Utilization of natural resources (minerals, fish,
forests) can add substantially to revenues.
• Revenue decisions need to take into account
multiple factors:
– renewability of resources;
– economic rents;
– social/environmental impacts.
• Which probably means multiple instruments.
• Linkages to the budget are also critical.
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Policy reforms need a supporting
revenue administration
• Legal framework, systems and processes.
• Voluntary compliance is the key to success
– Requires assistance and enforcement.
• Enforcement needs to focus on the largest
potential rewards.
– Risk management is crucial.
• Scope for regional cooperation and
coordination.
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Revenue reforms are a difficult political and
technical process.
• Large reforms take time—forward planning is
important.
• Political commitment is essential.
• Consultation and education improve the
chances of success.
• Timescales need to take into account the
capacity of the revenue administration.
• Sustained and coordinated TA can improve the
chances of success.
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Final remarks
• Major reform isn’t simple—need to plan early.
• Smaller, incremental reforms and modernization
can yield substantial revenue gains.
• Revenue administration is critical to the success
of policy.
• Regional coordination can contribute to success.
– Learn what has been successful in the region and why.
– Share common systems and processes.
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FEMM 2010 Outcome (1)
• Ministers noted the success of many FICs in adopting a modern tax regime
centred on broad-based consumption and income taxes with minimal
exemptions. These, when combined with collection systems based on risk
management and voluntary compliance, provide a stable tax base consistent
with the limited capacity in FIC revenue administrations.
• Ministers noted that appropriate taxation of natural resources, including
fisheries, minerals and forestry, is important for the development strategies of
a number of FICs, and called on development partners, including Pacific
Financial Technical Assistance Centre (PFTAC), to provide additional support in
this area. At the same time, noted that FICs should ensure that these often
volatile revenues are managed effectively and that they are integrated in a
transparent manner with the budget.
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FEMM 2010 Outcome (2)
• Ministers noted that tax reform is a difficult political
and technical process that requires time, broad based
consultation and sustained technical support for
successful implementation, and agreed to continue to
coordinate tax administration activities, including
through the Pacific Islands Tax Administrators
Association, with the aim of identifying mechanisms to
minimise the costs of implementing and operating
modernised tax policies.
• Ministers agreed that individual countries adopt the
best reform agenda suitable to its own context.
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PFTAC’s role
• Just begun a new 5 year funding cycle.
• Targeted US$30 million budget – hope to achieve
that but still tying up financing (ADB, AusAID, EU,
NZ, Korea)
• Significant expansion
– PFM; Macro; Statistics
– HQ services.
– Timor-Leste
• Retain revenue advisor and (limited) short-term
expert budget.
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Targeted results: Outcomes
Goal: Improved economic management and economic growth in the
Pacific Islands.
1. Broader- i) Increase in tax to
based and
GDP ratios.
more
ii) VAT productivity
efficient
increases.
revenue iii) Improved ratio of
systems.
tax collected to
administration
expenses.
iv) Improved rankings
on benchmarking
of regional tax
administrations
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National
statistics,
IMF/PFTAC
National admin
statistics
PITAA reports
Political commitment
to tax reform and
adequate resourcing
of tax
administrations are
essential for
improved revenue
collections.
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Targeted results
• Modernized comprehensive revenue legislation framework adopted in 4
additional countries (encompassing one or more of VAT, Net Profit Tax,
Personal income tax, Presumptive tax, Revenue Administration Act):
• Revenue administration processes automated in 4 additional countries:
• Self assessment principles adopted for customs and Tax in 4 additional
countries:.
• Revenue administrations organized in taxpayer-focused structure
(functional or segmented) used in 4 countries:
• Risk management and compliance improvement strategies adopted in 4
additional countries
• Model tax office framework and legislation developed and agreed by
PITAA.
• Regional support established for countries with common IT systems.
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How to help you achieve this
• Direct TA to PITAA countries
– Revenue advisor
– Short-term experts (around 7 months a year)
– HQ missions
• Regional analysis and guidance
• Training/capacity building (US$90,000 p.a.)
– Regional priorities guided by PITAA
– In country on-the-job training.
• Enhanced relationships with other donors
– More formal links with AusAID/PACTAM
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