Reforming Tax Systems: The World Bank Record in the 1990s

Abstract:     
In efforts to reform the administration of tax systems, the World Bank can substantially improve project design, execution, and effectiveness by adopting a more concerted approach to institutional analysis.

The main constraint on World Bank operations in tax and customs administration is the Bank's inadequate institutional framework for accumulating knowledge from loan operations, concludes this review of the Bank`s record on reform of tax systems in the 1990s.

The Bank's theoretical basis for reforming tax and customs administration is still rudimentary. Recent theories stress the importance of institutions that harness voice and improve transparency and contestability, but there is little evidence that reform of these factors alone makes tax administration more effective.

Improvements are needed in pre-project diagnosis and project design, especially for examining accountability, administration costs, managerial autonomy, performance incentives for staff, taxpayer equity and services, and environmental factors. Pre-project work could draw more systematically on lessons from previous experience.

Institutional components of project design have been biased toward organization, manpower upgrading, and procedures related to information technology. Too little attention has been paid to improving accountability, administrative cost-effectiveness, and anticorruption institution-building.

Projects have made inadequate use of different kinds of performance indicators, with little uniformity in those applied.

Methods used to evaluate project outcomes could be better and more uniform.

Suggestions for future Bank operations:
· Doing better background work and articulating a strategy and comprehensive framework for Bank involvement in reform of tax administration.
· Possibly supporting and strengthening regional tax administration associations, which could serve as catalysts for change.
· Strengthening partnering and supporting private sector consultant organizations, so they can manage major components of administrative reform.
· Institutionalizing the accumulation of knowledge about tax administration (which might require changing staff recruitment, the mix of staff skills, and training plans).

The authors provide recommendations for improving project diagnosis, design, performance indicators, and appraisal, as well as a short list of projects that serve as guides to good practice.

This paper - a product of the Public Sector Management Division, Poverty Reduction and Economic Management Network - is part of a larger effort in the network to draw on lessons of past Bank activity in order to pursue professional excellence and maximum client impact. The authors may be contacted at [e-mail], [e-mail], [e-mail], or [e-mail].

Number of Pages in PDF File: 40

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