OVERVIEW
The main objective of any good quality tax system is to raise revenue to deliver valuable services for citizens, while also providing benefits for state building, wealth distribution and incentives for innovation, investment and trade.
Domestic Revenue Mobilization (DRM) is attracting increased attention from developing countries and multilateral development agencies — it is now the first item on the Action Agenda in the draft Financing for Development Agreement and a main focus of the Development Finance Position Paper of the multilateral development agencies’ Development Committee.
The World Bank Group (WBG) has more than 200 lending and non-lending operations across all Global Practices (GPs) devoted to tax or with tax components. Coordination of tax/revenue operational work in the GPs and regions is one of the most significant roles of the Revenue Mobilization Global Solution Group (GSG), along with developing knowledge and expertise for client countries and WBG staff.
OBJECTIVES
The GSG will have several focal points for each region to coordinate tax/revenue operational work both in the field and at headquarters and to liaise with other GPs involved in tax work (including Macroeconomics & Fiscal Management (MFM), Trade & Competitiveness (T&C), and Energy & Extractive Industries), to ensure collaboration and quality control. The GSG will also engage with other development partners in international fora to coordinate operational efforts at the global and country level. In addition, the group will develop knowledge and expertise on efforts to mobilize domestic revenue in our client countries. The GSG will develop and host a variety of tax events and practical workshops for staff in the field and at headquarters.
PROGRAMMING EXAMPLES
Pakistan: Creating Fiscal Space to Fund Quality Social Spending
Challenge: Faced with an adverse security situation and weak fundamentals, Pakistan’s economy is struggling as deep-seated structural problems have remained largely unaddressed over the past decade. The fiscal deficit stance has remained high (above eight percent of GDP) over the last five years, and only last fiscal year dropped to below six percent of GDP. Against this backdrop, Pakistan’s revenue mobilization system faces significant challenges that results in one of the world’s lowest tax ratios. The government needs to increase the fiscal space to fund necessary social spending.
Approach: The Bank engaged with the Government of Pakistan in early 2015 to help improve the quality of the tax system and strengthen the operational capacity of the tax administration to increase tax compliance. The tax component of the Trust Fund for Accelerating Growth and Revenue (TAGR) aims to reduce the complexity of the tax system, broaden the tax base, and strengthen the tax administration’s core business areas to increase fiscal space for greater social expenditure and investments in public services. A key objective of this intervention is also to remove distortions in economic growth and to reduce inequality.
Expected Results: The overarching objective is to contribute to increased fiscal space to support quality social expenditure and improved service delivery. To achieve this, the TAGR is leading a cross-collaboration effort across the Governance, MFM, and T&C GPs. The tax policy reform aims to establish a broad, simple, and equitable tax system that facilitates taxpayer registration and compliance, and promotes provincial revenue efforts commensurate with their new expenditure responsibilities.
The tax administration subcomponent seeks to strengthen the operational capacity of the Federal Board of Revenue by revamping key tax administrations functions, while the ICT component focuses on optimizing and automating IT systems as a main requirement for improving revenue administration performance.
Tajikistan: Making Tax Administration Work
Challenge: Tajikistan’s economy is the world’s most dependent on foreign remittances, and its low revenue performance (tax-to-GDP ratio is less than twenty percent), low capacity to detect tax evasion and to perform good quality tax policy analysis, forecasting, and policy formulation are major macroeconomic risks and challenges for the country. Tajikistan has a complex tax regime with a large number of nuisance taxes; the reported corrupt practices by tax officials raise the compliance costs for taxpayers and undercut the business climate and private sector growth.
Approach: Tax reform is a high priority for the Government of Tajikistan and an important foundation for achieving the country’s development goals of reducing poverty and ensuring growth. This requires a strong public sector that raises revenue effectively and provides high quality public services. Maximizing revenue collection and closing the tax gap are needed to provide fiscal space for investments in key public services and infrastructure to deliver poverty reduction and spur economic growth.
The Tajikistan Tax Administration Reform Project (P127807) was approved in October 2012 and is expected to close in December 2017. It received USD 11.9 million through IDA funding. The Project Development Objective is to reform the tax administration to become more efficient in collecting revenue, enhance the level of voluntary compliance and improve the quality of taxpayer services.
Expected Results: The Tajikistan project aims to:
a) Reduce the administrative cost of collecting revenue to make the Tax Committee a more efficient institution;
b) Strengthen the effectiveness of the Tax Committee to fight tax evasion and reduce the shadow economy;
c) Reduce contact between tax officials and taxpayers to reduce avenues for corruption and create conditions for increased levels of voluntary compliance; and
d) Provide good quality taxpayer services that will help reduce the compliance burden for taxpayers, thus improving the business environment and competitiveness.