During the past decade more than fifteen countries have radically reformed their tax collection by creating semi-autonomous revenue authorities (ARAs). Early success has encouraged imitation, and been supported by international finance institutions. What motivates these reforms? Is there a connection between autonomy and performance? Which specific design features matter most and why? This World Bank research paper argues that autonomy can be used to enhance performance in low capacity public sectors and makes recommendations for the next generation of ARA reforms.
ARAs are granted legal status separate from ministries of finance. Their features can include self-financing mechanisms, boards of directors, and unique personnel systems. Such reforms are particularly relevant when the civil service system does not enable the recruitment, retention and development of specialised skilled personnel. Other key motivations are weak public expenditure, financial management and procurement systems, and public administrations subject to undue political influence and corruption. Counter-arguments are that it is narrow rather than comprehensive reform and potentially disruptive to the wider civil service, especially the ministry of finance.
Deciding whether autonomy is desirable in a particular case must be based on a cost-benefit analysis considering outputs (revenue collections, compliance management, taxpayer services) against inputs (human resources, administrative costs).
- Evidence from a subset of six countries (Kenya, South Africa, Uganda, Peru, Venezuela and Mexico) shows that in most cases creating an ARA has led to demonstrable improvement in most dimensions of performance.
- Those ARAs with relatively higher levels of autonomy (Peru, Kenya and South Africa) have shown greater improvement in their performance.
- What has mattered most for improved performance is personnel reform: a combination of retrenchment, pay reform and focus on personnel integrity. This is difficult without financial and political autonomy.
- Autonomy is not the only factor: Professional, capable managers are also important to success, as is political support to allow for, and sustain, reform.
- A fixed percentage-based funding mechanism can provide greater operational autonomy, and if properly linked to staff bonuses can incentivise increasing collections.
To date there has been no consensus on best practice in organisational design. The following design features are recommended for the next generation of reforms:
- To bolster autonomy, ARAs should have a legally defined corporate character, the right to own assets, and exemption from government-wide regulations including personnel and procurement systems.
- The ARA should have some operational distance from the Ministry of Finance, to avoid micromanagement or politicised undermining of reform.
- ARA design features should tackle the issues of accountability and autonomy separately, with accountability ensured through a series of external linkages and a board of directors.
- The board of directors, as apposed to the superintendent (Chief Executive Officer) model, promises greater benefits in terms of agency management and accountability. Well-designed boards can play a key advisory role on personnel policy and overall strategy, insulate ARAs from political pressure, and keep their autonomy in check.
- The board chairman should be appointed by the president and approved by the legislature, for a fixed term. Public sector representatives on the board should be non-voting, and private sector representatives from reputable associations can protect autonomy from political interference.
