Mauro
Thanks for the questions.
ANSWER TO QUESTION 1
1. How have you seen Domestic Revenue Mobilisation policies developing over the course of your career?
It is important to specify Domestic Revenue Mobilisation (DRM) here and what contributes to it!
There are at least three broad elements which will impact on DRM: 1. policy that impacts on Tax Administration, 2. tax policy itself – type of tax and tax rates and 3 policy related to the drivers of tax revenues which can be simplistically be GDP and its composition.
• Improvements in Admin have been significant
o Creation of Revenue Administration with focus on professionalism of staff and management structures geared to delivery of collection revenues.
o Tax payer education risk assessment and audit. TINs etc reducing tax avoidance. Appeals process.
o IT development and adoption has contributed greatly. Take ASYCUDA as an example where initially it was pretty redundant but now used extensively and efficiently
o PEFA scores on tax administration have shown real improvements (Page 224) and I am confident that this will be over all PEFAs (using all in the PEFA sense!) There is an Issue on arrears – keeping uncollectable taxes remaining on the books can give wrong signal – cleaning up the balance sheet to remove bankrupt companies would help. Also the discussion on pages 156 t0 171.
• Tax policies have changed – a move from trade taxes to VAT has been a feature since the 1990s. Competitive corporate taxes and reform of PIT have lead to more growth orientated policies that increase revenues.
Specific tax policies will be more aligned to a country’s politics and resource endowment whereas tax administration will tend to have a common theme as summarised above
• Ultimately growth in GDP important but it has to be monetised GDP. Pages 44 to 49 discuss this. How economic policies are developed will again reflect a country’s politics particularly relating to the state and the private sector. Chapter 7 addresses this in relation to countries in the 1990s but would appear to be less of an issue now or maybe in the countries that I have worked recently this has not been a notable concern
2. Currently there is a lot of attention of tax expenditures and their gradual removal. Can this be a stand-alone tax policy or does it need to be coupled with other interventions on policy rates?
What are tax expenditures? The NAO report referenced in Chapter 8 defines “two broad categories of tax reliefs: structural tax reliefs that are largely integral parts of the tax system and define the scope and structure of tax (such as the personal tax allowance); and non-structural tax reliefs where government opts not to collect tax to pursue social or economic objectives (such as relief on contributions to pension schemes). Non-structural tax reliefs are often referred to as ‘tax expenditures’ and we use this description in this report”.
• The first issue in relation to your question is why tax expenditure in the first place? What is it trying to achieve and is it measured? I am not sure if those questions are fully addressed.
I think that tax expenditures have to be seen in the context of actual expenditure policy, and not just as a standalone. Would it be better to provide directly focused subsidies in the context of sectors strategies? Should there be a focus on simplified tax structure and use expenditure to deliver services? Nevertheless there are areas that tax expenditures may be a better option particulate in nudging consumer behaviour such as in getting investment in green energy and electric cars.
My PEFA experience suggests that tax expenditures may a bit of an afterthought – it only gets a mention as an additional element Quantification of Tax Expenditures in PI-6 Budget Documentation. Yet it could have a bigger role in Pi-16.3 Alignment of sector plans and medium term budgets. Certainly in the Climate Change PEFAs tax expenditures should be important in promoting climate change. I did a review of the literature for Chapter 8 and I think tax expenditure may be considered as an easy policy option without too much consideration of targeted expenditure alternatives and the cost of tax expenditures!
In relation to specific tax expenditure, VAT exemption for donor-funded projects, what is your view? Isn’t that double standard from the same donors recommending the phasing out of tax expenditures?
My answer would be based on two considerations.
Firstly are these discretionary or automatic? If discretionary they may place an unnecessary administrative burden on a recipient country. If they are automatic I am not sure if it should be an issue. It may be possible that the donor may reduce its spend to take account of VAT paid (as it may have a fixed budget) or may ask for the VAT to be the recipient country’s contribution to the project. In the end the net effect may be zero!
I am not sure if these donor exemptions can be considered tax expenditures given the definition above. I would be much more concerned about duty free imports where domestic producers would be disadvantaged in competing for the donor’s potential purchases.
To end I would like to pay tribute to Richard Bird who sadly passed away last year. I had the privilege of meeting him in Belarus while both of us were on mission way back in 1993 and I learnt so much from him over a beer or more.
Richard Bird - Remembering a Canadian Taxation Giant | Tax at Osgoode Hall Law School (yorku.ca)
Richard M. Bird (1938-2021) (utoronto.ca)
https://www.bing.com/search?q=richard+bird+economist&qs=NWU&pq=richard+bird+economist&sc=9-22&cvid=0DA92F2699F34FB39498EF0B871A01D1&FORM=QBRE&sp=1https://www.ictd.ac/news/remembrance-professor-richard-bird/
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