Designing A Tax Administration Reform Strategy

Building on previous FAD work in the tax administration field, this paper defines broad criteria for diagnosing the problems in a country’s tax administration and formulating an appropriate reform strategy. To be effective, this strategy should be based on the size of the tax gap and the country’s particular circumstances. This paper discusses some guiding principles which have provided the basis for successful reforms, including: reducing the tax system’s complexity, encouraging taxpayers’ voluntary compliance, differentiating the treatment of taxpayers by their revenue potential, and ensuring the reform’s effective management. Also discussed are specific bottlenecks that hinder the effectiveness of the tax administration’s operations.

Tax administration plays a crucial role in determining a country`s real (or effective) tax system. Unfortunately, tax administrations in many countries do not function optimally and distort the intention of tax laws. In order for taxation to have its intended effect on the allocation of resources, the distribution of income, and macroeconomic stability and growth, the tax administration must function effectively and efficiently. This paper addresses tax administration reform by describing briefly the causes for inefficient tax administration, identifying the essential elements of successful reform, and presenting measures to improve the tax administration. The common thread of a reform strategy is to focus administrative resources on problems in the tax collection system through promotion of voluntary taxpayer compliance and adoption of a logical sequence of procedures for efficiently identifying and handling instances of noncompliance.

Tax administration improvements have contributed significantly to a doubling of China’s tax-to-GDP ratio and the substantial reduction in taxpayers’ compliance costs since the mid-1990s. This paper describes the key features of China’s tax administration and their evolution over the last 20 years. It also identifes emerging challenges to the tax system and areas where further tax administration improvements are needed to sustain tax revenue and reduce taxpayers’ compliance costs in the future.

Tax administration reforms can play an important role in fiscal adjustment. This role is examined by reviewing Indonesia's tax reform cum fiscal adjustment experience since 2001. The paper describes Indonesia's fiscal adjustment strategy, its tax administration reforms, and assesses the impact of these reforms on fiscal adjustment. Evidence suggests tax administration improvements had a strong positive impact on the tax yield and a positive effect on the investment climate. Lessons are presented for designing tax administration reforms within the context of a fiscal adjustment program and reform priorities are identified for Indonesia's ongoing efforts to strengthen tax administration.

Tax administration reforms can play an important role in fiscal adjustment. This role is examined by reviewing Indonesia's tax reform cum fiscal adjustment experience since 2001. The paper describes Indonesia's fiscal adjustment strategy, its tax administration reforms, and assesses the impact of these reforms on fiscal adjustment. Evidence suggests tax administration improvements had a strong positive impact on the tax yield and a positive effect on the investment climate. Lessons are presented for designing tax administration reforms within the context of a fiscal adjustment program and reform priorities are identified for Indonesia's ongoing efforts to strengthen tax administration.

The purpose of this note is to provide a framework for improving tax policy design in fragile and conflict-affected states, which face political and institutional constraints. This note begins with an overview of experiences in revenue mobilization in fragile states, including relative to other country groups—in particular, nonfragile states and formerly fragile states; that is, countries that exited fragility during the period under study. A discussion follows of how the principles of tax policy design should be applied in fragile states, particularly the relative importance of the revenue objective vis-à-vis other objectives, such as equity and efficiency. The two sections that follow provide guidance on tax policy design in the emergency and consolidation phases, respectively, and discuss how governments can use tax policy to transition from one phase to another, eventually overcoming fragility. The note concludes with key lessons and a set of guiding principles for tax reform in fragile states.

This report is the ninth edition of the OECD's Tax Administration Series. It provides internationally comparative data on aspects of tax systems and their administration in 59 advanced and emerging economies.