Set out below are some of the services needed for successful tax reform such as strong project leadership and the provision of strategic support to the tax administration. It is essential to ensure that taxpayers are comprehensively registered and that the tax base is broadened as much as possible. Effective project management is essential as is advising the revenue administration on its optimal structure.

PROVIDING LEADERSHIP AND STRATEGIC DIRECTION FOR REFORM

Understanding the political and economic environment and providing strong and strategic leadership for the revenue reform effort is key to a successful intervention.

  • Successful revenue reform can only be achieved on the back of strong political support,

  • Such reform must be financed for the medium to long term,

  • A Zero Tolerance to Corruption strategy must be developed and led by the top political leadership, and

  • The reform will need to deploy strong technical expertise in change management, countering corruption, building better human resources systems, and addressing the information technology needs.

BROADENING THE TAX BASE

From experience, it is almost always necessary to address broadening the tax base as an essential element of reform. This involves not only bringing more taxpayers into the tax net but also bringing more income, or base, into the charge to taxation.  This will involve: -

  • Developing a strategy to formalize the informal economy,

  • Conducting a rigorous review of existing tax legislation,

  • Ensuring the information technology systems are up to date, and

  • Ensuring there is collaboration and information sharing across revenue departments (Customs and Tax) as well as with the Ministry of Finance’s Tax Policy Department. 

EVALUATING INVESTMENT INCENTIVES

Countries often introduce wasteful and costly tax incentives in the hope of generating investment and spurring job creation, and politicians tend to underestimate the opportunity cost of the tax revenue foregone. In some cases, taxpayers in receipt of tax exemptions are excused the obligation of filing tax returns and this serves to make the cost of those exemptions even more opaque. It is necessary therefore to: -

  • Comprehensively evaluate the existing tax expenditures and investment promotion incentives as well as tax-based incentives in other laws,

  • Minimise tax expenditures and use the additional revenue receipts to reduce tax rates as much as possible,

  • Ensure that taxpayers in receipt of tax-based incentives are obliged to file tax returns, and

  • Develop analytics capacity to quantify revenue foregone by reference to the quantum of benefits promised and report the results to Parliament and the Executive on a regular basis.

REVENUE ADMINISTRATION

There are many kinds of revenue administration, of which a SARA (semi-autonomous revenue administration) is only one and great care must be taken to developing an optimal structure that is appropriate for the country and local conditions. The advantages of setting up a SARA are: -

  • It moves the tax administration a step away from the general civil service with a board administration and a high degree of operational autonomy,

  • The tax administration can set up its own rules for hiring and firing staff, training staff and building capacity, and developing its own Code of Conduct,

  • The tax administration is run along business lines and may sue and be sued in its own name, and

  • The tax administration subscribes to international standards of service delivery as assessed by agreed frameworks.

ORGANISATIONAL DEVELOPMENT

Regardless of the chosen structure, the revenue administration must be empowered to deal with change in complex areas. Tax legislation should be drafted as simply and comprehensively as possible and revenue departments must concentrate their scarce resources in the areas of greatest return.

  • Revenue departments must be focused on their core business, which is the registration of taxpayers, the effective collection of taxes, and the deployment of a comprehensive compliance and audit programme,

  • The compliance programme must be backed up with a strong penalties regime and penalties must be automatically levied,

  • Priority must be given to effectively and sustainably building capacity within the revenue administration, and

  • Taxpayers must be allocated a unique identification number, and this number must be used for all taxes and for all dealings with the government.

PROJECT MANAGEMENT

All revenue reform interventions require strong project management and within the revenue administration a strong Project Management Office (PMO) is essential to ensure that project activities are facilitated to the maximum extent and that project activities are kept in line with the needs of the revenue administration. The PMO will: -

  • Coordinate all project components and implement approved modernization activities,

  • Work with the project team in the preparation and monitoring of project plans,

  • Act as the point of reference for the project Steering Committee, and

  • Account for the resources expended on reform efforts and communicate the results achieved.