In recent years, more than 15 developing countries have introduced radical reforms in their collection of taxes. Traditional tax departments have been granted the status of semi-autonomous revenue authorities (ARAs). How do these ARAs operate and what is their impact? This paper from the World Bank looks at ARAs in Latin America and argues that politicians create ARAs to signal a credible commitment to taxpayers that tax administration will be more effective, fair and competent.
During the past decade developing countries have introduced radical reforms in the way their fiscal bureaucracies conduct one of the most pressing national tasks: the collection of taxes. The arresting element about the current reform of tax administration throughout the developing world is that many diverse countries are adopting similar organisational forms. More precisely, there is a pattern in each of these countries in that traditional tax departments are being separated from the ministry of finance and granted the legal status of semi-autonomous revenue authorities (ARAs).
An analysis of ARA performance indicators shows that:
- Autonomy has an independent effect on perceptions of the political commitment to reform, even controlling for other variables, such as specific service quality, the greater institutional context and fixed country effects.
- Autonomy is valuable in itself, and not only as a means to better services.
- Taxpayer ratings of organisational performance are positively affected by higher ratings of autonomy, suggesting that autonomy is a signal of the government’s commitment to reform.
- Taxpayers’ assessments of fairness are more influenced by their beliefs about tax agency autonomy than their experiences of taxpayer services. This suggests that they perceive more autonomous tax agencies to be less politicised and less partial than traditional line agencies.
- Managerial autonomy is inherently valuable as an end in itself, not just in an instrumental sense.
- To the extent that beliefs about the fairness of tax administration promote greater compliance, the autonomous organisational design can be said to promote greater compliance.
Autonomy is the most important and significant determinant of perceptions of fairness in tax administration, and managerial and personnel autonomy are the most important aspects in this regard.
- If the main goal of the reform were to increase perceptions of the effectiveness of the tax agency in detecting non-compliance, reformers would do well to focus on increasing the quantity and quality of audits and closures and to secure a percentage-based funding mechanism for the ARA.
- If the main goal of the reform were to boost perceptions of administrative competence in terms of overall service quality and compliance costs, reformers should focus on two dimensions of autonomy and two types of services.
- Reformers would make the most important contribution by raising the quality of information provision. At the same time reformers should also prioritise tax payment services.
