Back Matter

Back Matter

Author(s):
Liam Ebrill
Published Date:
August 1999
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    Appendix I Main Tax Policy Initiatives Implemented During 1997 and Early 1998

    Main tax policy initiatives launched by CIS countries between 1997 and early 1998 are described below.

    Value-Added Tax

    All CIS countries have unified VAT rates except for Russia and Uzbekistan. In these two countries, dual-rate structures were introduced, comprising a basic rate and a reduced rate of 10 percent on basic food items and, in Russia, some other “necessary” goods.

    While there has been some progress in broadening coverage, a large number of exemptions and zero-rated items remain in many countries, even after the adoption of new tax codes (e.g., Georgia). During 1997, a number of exemptions were removed in Azerbaijan (foodstuffs, non-CIS imports), Belarus, and Ukraine (electricity for business use). However, the amendment to the VAT law in Ukraine introduced many additional exemptions. In Moldova, the reduction in VAT exemptions implemented in the beginning of 1997 was later partially reversed by parliament: however, a new government and parliament eliminated a large number of exemptions in mid-1998. A few countries (Armenia, Georgia, and Ukraine) raised the exemption threshold for small traders and Georgia extended the VAT to nonjuridical persons. Tajikistan eliminated most VAT exceptions; agricultural products are now subject to VAT.

    In most cases the VAT continued to be implemented according to the origin principle for trade with CIS countries and the destination principle for non-CIS countries.20 However, in 1997 Armenia and Moldova switched to the destination principle for CIS countries and Kazakhstan and the Kyrgyz Republic made partial moves in that direction. Effective January 1, 1998, Georgia switched to the destination principle with all the Baltics, and other countries of the former Soviet Union, except Russia. Belarus and Russia imposed in the law a 20 percent VAT on imports from Ukraine while retaining the VAT on their exports. It is not clear, however, that this VAT on imports has been applied by Russia.

    Regarding accounting and payment procedures, the assessment of VAT liabilities was shifted to an accrual basis in Kazakhstan, although certain transitional problems remain to be addressed. Azerbaijan, Georgia, and Ukraine began to require invoices, and together with Tajikistan and Uzbekistan, also started to grant immediate credit for VAT paid on inputs. The retail sector was shifted from the gross margin basis to a credit method in Armenia, Azerbaijan, and Ukraine. Starting in 1997, excess credits were to be refunded on a timely basis in Georgia, Tajikistan, and Ukraine. In Armenia and Ukraine VAT on imported goods is to be collected by Customs, instead of after the domestic sale takes place. The Kyrgyz Republic has adopted an accrual invoice-based VAT with a credit mechanism for inputs. Rates are unified, but the agricultural sector is exempt.

    Excise Taxes

    In Kazakhstan, the Kyrgyz Republic, Tajikistan, and Turkmenistan, the coverage of excises was extended to include petroleum and petroleum products, with rates unified for domestic and imported production. Moldova reduced the number of excisable goods to more manageable levels and a draft law to this effect is under preparation in Ukraine. In Tajikistan, specific rates replaced ad valorem ones.

    Several countries modified the structure of excise tax rates. Rates were raised significantly on certain products in Armenia, Kazakhstan, the Kyrgyz Republic, Moldova, and Turkmenistan. In Kazakhstan, the rate hike was accompanied by a lowering of rates on other products. These adjustments represent moves (albeit incomplete in many instances) toward the alignment of rates with international levels, the elimination of disparities vis-à-vis neighboring countries, and the equalization of rates for imported and domestic products. Tajikistan equalized excises on domestic goods and imports and corrected an anomaly whereby domestic production was taxed more heavily than imports.

    The choice between specific and ad valorem rates has been an issue in some instances. While a few countries at present maintain an ad valorem approach, the authorities in many cases have felt that the potential revenue loss from inflation was outweighed by concerns regarding potential underinvoicing under the ad valorem approach. In Armenia and Georgia rates for cigarettes and alchoholic beverages were switched to a specific basis.21 A floor price and an ad valorem excise rate are applied to gasoline in Armenia. In the Kyrgyz Republic, specific rates on cigarettes, alcoholic beverages, and petroleum products are set in U.S. dollar terms to avoid erosion of effective rates due to domestic inflation. Tajikistan recently adopted specific excises of tobacco, alcohol, and petroleum products to help combat overinvoicing.

    Custom Duties and International Trade Taxes

    There was some reduction in the dispersion of import duty rates during the year (Armenia, Kazakhstan, and Ukraine) and Tajikistan adopted a low 4 percent customs rate with only four exemptions. Georgia replaced the prevailing low uniform rate by a dual-rate structure, with a basic rate of 12 percent and a rate of 5 percent applicable to selected raw materials. In Azerbaijan, the uniform rate of 15 percent (which in practice applied to a narrow base due to exemptions) was supplemented by a lower rate (5 percent) for capital goods, accompanied by some reduction in exemptions.

    Export taxes were abolished in Azerbaijan and the Kyrgyz Republic, and eliminated on all but two items in Ukraine. During the course of 1998 Tajikistan reintroduced and then eliminated a number of export tariffs.

    In other areas, Azerbaijan and Russia eliminated a number of import exemptions, while the personal duty-free allowance was reduced in Armenia, Azerbaijan, and Moldova.

    Corporate Income Tax

    Several countries passed legislation unifying the rate of corporate income tax as follows: Azerbaijan (32 percent); Georgia (20 percent); the Kyrgyz Republic (30 percent); Moldova (32 percent); Tajikistan (30 percent); and Ukraine (30 percent). Armenia reduced rates to two (15 percent and 25 percent) while Kazakhstan implemented a three-tiered system (30 percent for legal entities; 20 percent for special economic zones; and 10 percent from the direct use of land).

    Some progress occurred in reducing special regimes (i.e., preferential rates, specific allowances, and exemptions) in Armenia, Georgia, and Ukraine; this is also envisaged in the proposed Russian tax code. However, the recently passed Law on State Investment in Kazakhstan provided for increased tax exemptions for a broad category of investment activities.

    Other modifications introduced included the adoption of accrual accounting (Kazakhstan, Ukraine); permission to deduct all legitimate business expenses (Armenia, Azerbaijan, Georgia, Moldova, Ukraine); limits on the deductibility of general reserves (Armenia, Ukraine); the simplification of depreciation rules (Armenia, Georgia, Moldova, Ukraine); indexation of assets for inflation (Ukraine); the inclusion of reasonable loss carryover provisions (Georgia, Moldova, Ukraine); and, by way of what could be viewed as presumptive taxation for small businesses, the introduction of a 5 percent sales tax on all enterprises (Uzbekistan); in the Kyrgyz Republic a land tax was introduced as a presumptive tax on agricultural income.

    Personal Income Tax

    Georgia and Moldova expanded the tax base to include previously exempt groups. Similar measures are envisaged for Russia and Ukraine (proposed).

    The rate structure was simplified in Moldova to encompass only two rates and Turkmenistan adopted a single tax rate. The proposed legislation for Ukraine and Russia also provides for a simplification and restructuring of tax rates.

    In other initiatives, attempts to limit personal allowances and exemptions were successful in Georgia and were proposed in Russia. Similar efforts were rejected by the Kyrgyz parliament, and are being strongly opposed by the Ukrainian parliament; Georgia, Moldova, and Ukraine also moved to include noncash remuneration. Finally, Georgia and Moldova introduced withholding taxation on interest income; introduction of a similar measure by the end of 1997 was a structural benchmark under the IMF’s ESAF program with Armenia. In Ukraine, withholding on interest is included in the proposed income tax legislation.

    Payroll Taxes

    Very little was planned (or indeed achieved) by way of reform of the payroll tax system during 1997, especially as regards broadening the tax base. Nevertheless, with a view to improving compliance, tax rates were reduced in Georgia by 2 percentage points, in Tajikistan by 8 percentage points, and in Ukraine by 3 percentage points. In Ukraine this was accompanied by a 0.5 percentage point increase in the share of the employee’s contribution. The Kyrgyz Republic increased the payroll tax by 2 percentage points, to cover new health insurance, while Azerbaijan raised the tax rate on self-employed and individual contractors from 5 to 20 percent.

    Other Fees and Charges

    During 1997, Kazakhstan, Turkmenistan, and Uzbekistan introduced user fees, while in Azerbaijan the free use of public utilities was eliminated. In Ukraine, proposed legislation provided for the elimination of some fees and introduction of others. A planned doubling of the auto registration fee in the Kyrgyz Republic has not yet occurred.

    The land tax was adopted by the Kyrgyz Republic as a presumptive tax on agricultural income. By contrast, in Tajikistan land tax rates were lowered. During 1997 Uzbekistan introduced gold royalties which is a resource tax on gold.

    Other Measures

    Apart from modifications to the applicable excise tax regime, initiatives in the area of energy taxation were confined to only a few countries. In Ukraine, the elimination of the tax exemption for joint ventures (see above) implies that in theory such firms in the energy industry will henceforth be subject to profit taxes, but firms can apply for exemption on an individual basis. Also the enterprise tax law in Ukraine restricts all depreciation and field development costs to offsetting income from specific fields (“ring fencing”) to help ensure incentives for investment while maintaining revenues from current fields. Similar provisions are included in the proposed tax code for Russia.

    A one-time incentive scheme for the clearance of tax arrears was implemented in Kazakhstan and Ukraine, which also provided for a tax amnesty, while there were attempts to implement such a scheme in Turkmenistan.

    A few countries (Azerbaijan, Kazakhstan, and Moldova) planned to reduce and/or eliminate barter and clearing arrangements during 1997. Kazakhstan was not fully successful, but in Moldova some reduction in use of payment in kind for pensions occurred, albeit less than targeted.

    In Tajikistan, presumptive taxes on cotton and aluminum were converted to sales taxes as planned; these sales taxes are to be eliminated over time, beginning in January 1999, with agricultural producers being made subject to the profits tax. Belarus introduced a sales tax on vodka, tobacco, and jewelry as part of the 1997 budget.

    In Russia, a presidential decree eliminating all tax offsets for the federal government was passed in 1997 (effective from 1998).22

    In Armenia, starting in August 1997, the government abandoned the use of netting-out operations.

    Appendix II Background Tables
    Table A1.Progress in Tax Policy by Type of Tax
    Tax and IssuesSubjective Ranking1Status
    Value-Added Tax
    Number of rates1Majority of countries maintain single rates; Russia and Uzbekistan have introduced preferential rates.
    Degree of exemptions3Some reform, but by and large either as extensive as originally or marginally restricted; even in countries with new codes, exemptions remain excessive.
    Input credits for capital purchases1Largely corrected in the laws; however, in practice the refusal to give refunds of excess credits vitiates the effect.
    Adoption of credit/invoice method for all transactions; elimination of gross margin method2In roughly half of the relevant (non-Baltic) countries, this has been changed to apply credit/invoice method through the retail level.
    Adoption of destination basis for all trade, including with the CIS countries2–3A few countries have recently adopted destination basis in the law.
    Enterprise Profits Tax
    Progress on accounting system3Little reform.
    Unification and level of rates1–2In general, satisfactory.
    Removal of holidays and incentives3Little improvement; even some countries that had restricted these somewhat have reversed course.
    Appropriate business deductions and depreciation2Improvement in most countries.
    Elimination of excess wage tax or equivalent limitations1Largely eliminated; three countries retain some limitations on deduction of wages.
    Implementation of loss carryforwards1Adopted in most countries.
    Excise Tax
    Limited coverage2–3Good progress in appropriately limiting coverage in some; others still cover far too many products.
    Symmetric treatment of imports and domestic production3Not yet achieved.
    Rate levels2Rates in general are low.
    Specific vs. ad valorem rates1–2Movement toward specific rates for alcohol and tobacco.
    Personal Income Tax
    Rates1–2Roughly two-thirds of the countries have achieved appropriate rate structures.
    Final withholding on interest and dividends2Roughly half of the countries have final withholding.
    Use of presumptive taxes for small business3Effective taxation of small businesses in all the countries is still a major problem.
    Customs Duties
    Uniform rates2Some progress toward uniform rates.
    Abolition of export duties1Almost all eliminated.
    Duty-free import level1–2Mainly adequate; but again even where progress has been made on achieving suitable levels some countries have turned back.
    Payroll Tax
    Rates3Essentially no reductions; all countries are still at least in the mid-thirties, ranging into the mid-forties.
    Status of Legal Drafting and Consolidation ReformsAs of mid-1997, almost all of the Baltics, Russia, and other countries of the former Soviet Union have passed either new codes, covering most taxes, or have passed one or more of a series of completely revised individual tax laws.The quality varies greatly, however, with respect, both to transparency of the law and to degree of reform of the policy content.

    Numbers reflect subjective grade on scale of reform from 1 (considerable reform) to 3 (little or no reform).

    Table A2.Progress in Value-Added Tax Policy by Country
    RatesExemptionsTreatment of Capital Goods– Credit for Inputs?Gross Margin Taxation of TradeOrigin/Destination Method for CIS Trade
    ArmeniaSingle rateImprovedYesAll credit/invoiceDestination in law
    AzerbaijanSingle rateLittle improvementYesAll credit/invoiceOrigin
    BelarusTwo ratesImprovedYesOrigin, except Ukraine
    EstoniaSingle rateImprovedYesNot applicable
    GeorgiaSingle rateImprovedYesAll credit/invoiceDestination
    KazakhstanSingle rateImprovedYesAll credit/invoiceOrigin, except for the Kyrgyz Republic and Ukraine
    Kyrgyz RepublicSingle rateImprovedYesAll credit/invoiceDestination Kazakhstan and Ukraine; origin others
    LatviaSingle rateImprovedYesAll credit/invoiceNot applicable
    LithuaniaSingle rateImprovedYesAll credit/invoiceNot applicable
    MoldovaSingle rateLittle improvementNoStill have gross marginOrigin (1998 budget changes)
    RussiaStandard and reduced (2)ImprovedYesStill have gross marginOrigin
    TajikistanSingle rateImprovedYes—in new codeCredit/invoice in new codeOrigin for CIS; exports to non-CIS countries exempt without tax credit, while imports taxed; fixed in new code
    TurkmenistanSingle rateLittle improvementNoStill have gross marginOrigin
    UkraineSingle rateLittle improvementYesAll credit/invoiceDestination, except Russia and Belarus
    UzbekistanStandard and reduced (2)Little improvementNoStill have gross marginOrigin (1998 budget would change)
    Table A3.Progress in Excise Tax Policy by Country
    CoverageTreatment of Imports Versus DomesticRate LevelsSpecific Versus Ad Valorem Rates for Alcohol and Tobacco
    ArmeniaToo broadHarmonizedToo lowSpecific
    AzerbaijanImprovedRecent proposals to harmonizeToo low; although rates on petroleum products increased twice in 1998Mixed
    BelarusToo broadNot fully harmonized
    EstoniaGoodToo low (petroleum goods)
    GeorgiaGoodNot fully harmonizedToo lowSpecific
    KazakhstanImprovedNot harmonizedImproved; still lowSpecific
    Kyrgyz RepublicToo broadHarmonizedSpecific
    LatviaGoodHarmonizedToo low (petroleum)Specific (shifting)
    LithuaniaToo broadHarmonizedImproved, still lowSpecific
    MoldovaImprovedNot harmonizedImprovedSpecific
    RussiaImprovedSpecific
    TajikistanToo broadHarmonizedLowSpecific
    TurkmenistanToo broadHarmonizedImprovedAd valorem
    UkraineBroadNot harmonizedImproved; still lowSpecific
    UzbekistanImprovedNot harmonizedToo lowAd valorem
    Table A4.Progress in Profits Tax Policy by Country
    Progress on AccountingRates–Levels and UnificationHolidays/ IncentivesAppropriate Deductions for Business ExpensesExcess Wage Tax or EquivalentLoss Carryforward
    ArmeniaNoImprovedImprovementImprovedNoneNo
    AzerbaijanNoAdequateImprovementNoNone
    BelarusNoAdequateInappropriateNoStill haveNo
    EstoniaAdequateGoodGoodNoneYes
    GeorgiaNoAdequateGoodGoodNoneYes
    KazakhstanNew lawAdequateGoodGoodNoneYes
    Kyrgyz RepublicYesImprovedImprovedImprovedNoneYes
    LatviaAdequateGoodNoneYes
    LithuaniaNoAdequateInappropriateGoodNoneYes
    MoldovaNoAdequateInappropriateImprovedNoneYes
    RussiaNoInappropriateImprovedNoneNo
    TajikistanNoNot improvedInappropriateNo1Still have1No1
    TurkmenistanNoNot improvedInappropriateNoStill haveNo
    UkraineNew lawImprovedLaw improved but cabinet discretionImprovedNoneYes
    UzbekistanNoImprovedInappropriateNoNone

    To change in new tax code (effective January 1999).

    Table A5.Progress in Customs Duty Policy by Country
    Rates on Imports–Unification and LevelsExport Duties Removed?Duty-Free Import Level for Individuals
    ArmeniaGood$500
    AzerbaijanGoodYes (strategic export tax)$200
    BelarusPoorYes$1,000
    EstoniaHas noneYes
    GeorgiaGoodYes$230
    KazakhstanImprovedYes
    Kyrgyz RepublicGoodYes$300
    LatviaImprovedAll but four items
    LithuaniaImprovedNo
    MoldovaImprovedYes$600
    RussiaGoodYes$1,000
    TajikistanPoorYes
    TurkmenistanHas noneYes
    UkraineImprovedYes, except on two items$100
    UzbekistanPoorNo$2,000
    Table A6.Progress in Personal Income Tax Policy by Country
    RatesFinal Withholding on Interest and Dividends?Presumptive Taxes on Small Business
    ArmeniaAdequateNoYes
    AzerbaijanToo highYesYes
    BelarusImprovementYes
    EstoniaAdequate
    GeorgiaAdequateYesYes
    KazakhstanMany bracketsYesYes
    Kyrgyz RepublicSlightly highYesYes
    LatviaAdequate
    LithuaniaAdequateYesNo
    MoldovaAdequateYes
    RussiaAdequate
    TajikistanNoYes
    TurkmenistanAdequateNoYes
    UkraineAdequatePendingYes
    UzbekistanToo highNo taxation under PITYes
    Table A7.Payroll Tax Rates by Country(Employer’s and employees contribution as percentage of wage)
    CountryRates
    Armenia34/1.6
    Azerbaijan35/1.0
    Belarus35/1.0
    Estonia33/0
    Georgia31/2.0
    Kazakhstan32/0
    Kyrgyz Republic34/5.0
    Latvia28/9.0
    Lithuania30/1.0
    Moldova30/1.0
    Russia35/1.0
    Tajikistan30/0
    Turkmenistan30/1.0
    Ukraine42.5/1.5
    Uzbekistan38/1.2
    Table A8.Selected Basic Features of Modern Tax Administration
    Tax Administration (Legal Framework)Organization
    CountryTax administration lawLegal powers for collection enforcementLegal provisions for taxpayers’ rightsOrganizational structureLarge taxpayer unit
    ArmeniaYes.Yes.Yes.Mixed (by type of tax, type of taxpayer, and function).Yes. for the largest 220 taxpayers.
    Azerbaijan*Planned for 1998.Yes.Yes.By function.Yes.
    BelarusYes.Yes.Yes.(not clear.)No.
    EstoniaYes.(not clear.)Yes.By function.(not clear.)
    Georgia*Tax code approved in 1997.Yes, in new tax code.Yes, in new tax code.By function.Yes, for the largest 230 taxpayers.
    Kazakhstan*Yes, part of 1995 tax code.Yes, Article 172 of tax code.Yes, Article 142 of tax code.Order initiated for functional organization (Sept, 1997).No separate official large taxpayer unit.
    Kyrgyz RepublicYes; part of tax code.Yes, but court approval required.Implicit in tax code.By taxpayer, but moving to functional.Yes.
    LatviaAmendments plannedYes.(not clear.)By function.Established in 1995, it now covers the 200 largest taxpayers.
    LithuaniaYes.Yes.Yes.By function.No.
    MoldovaFormal tax administration code to come in force in January 1999.Yes, but not always used.Yes.Mixed (by type of tax, type of taxpayer, and function).Work under way to establish a large taxpayer unit.
    Russia*Draft tax code submitted to Duma.Civil code takes precedent over tax laws.In the new tax code.Mixed organizational structure, but local offices are moving toward a functional organizational structure.Planned for in 1997 (about 15-20 large taxpayer units).
    TajikistanPlanned for 1998/99 reforms.Planned for 1998/99 reforms.Planned for 1998/99 reforms.Planned for 1999.Established in 1998.
    TurkmenistanNo, perhaps in 1998/99.No.No.Mixed (any type of tax, type of taxpayer, and function).No, but there is a concentration on large taxpayers within the existing organizational structure.
    Ukraine*No single law exists.Only a limited range with uncertainty on how to apply powers.No.Moving toward a functional organizational structure.Large taxpayer units established in 6 oblasts.
    UzbekistanYes.Yes.Limited,By taxes and regions.Planned.
    CountryPlanningRegistrationFiling
    Strategic planAnnual audit planAnnual taxpayer registerExistence of a unique Taxpayer Identification NumberSelf-assessment
    ArmeniaYes.Part of strategic plan.Yes.Yes.Yes.
    Azerbaijan*No.Yes.Yes,Only for profits tax. Taxpayer identification number remains an issue for 1998.Yes
    BelarusYes.No.Yes.Yes.No.
    EstoniaUnder development.Yes.Yes.(Not clear.)Yes.
    Georgia*An effective informal strategic planning process exists, but no formal written plan has been produced.Under development.Yes.Yes.In the new tax code.
    Kazakhstan*Yes, but priorities have not been implemented.Partially, an action plan specifies priority areas for audit, but does not provide complete guidelines for field audits.A national register is under development.No, unique only within each rayon.In law, but not in practice.
    Kyrgyz RepublicNo.No.Yes, but coverage restricted to businesses.Assignment of unique taxpayer identification number planned for March 1999.Yes but limited.
    LatviaUnder development.Yes, and there are plans to select taxpayers on the basis of objective risk criteria.The business register is completed.Yes.Yes,
    LithuaniaYes.Yes.Enterprise registration number.Only VAT payers.Yes.
    MoldovaYes.No.Yes, but coverage incomplete.Taxpayer identification numbers are being introduced.No.
    Russia*Only a revenue action plan exists.Yes, first developed in 1996, but very rudimentary.No.Legal entities have been assigned taxpayer identification numbersNo.
    TajikistanNo.No.Planned for 1999.Scheduled for implementation for enterprise by end-1998.No.
    TurkmenistanNo, State Tax Service views this as a Ministry of Finance responsibility.No.(not clear.)Part of 1997 planned reforms.Very limited.
    Ukraine*Under development.IMF advisor developed an audit plan; it will be applied on a pilot basis in Kiev during 1998,Under developmentUnder developmentYes.
    UzbekistanNo.Yes, but along traditional lines.Yes.Yes.Limited.
    CountryCollection Enforcement
    Detection of nonregistered taxpayersDetection of stopfilersDetection of delinquent accountsSystem to monitor arrears
    ArmeniaLimited.No.Yes.Yes.
    Azerbaijan*Planned.Yes, but not universally computerized.Yes, but not universally computerized.Yes.
    BelarusNo, but trying out selected methods on a trial basis.Yes, but not universally computerized.No.
    EstoniaNo.Under development.Under development.Yes.
    Georgia*Yes, a systematic program is in place.Yes, detection takes 7-14 days.Yes.Yes, classified by age of debt.
    Kazakhstan*No.Only at pilot office.No.Only at pilot office.
    Kyrgyz RepublicUnder development.Yes, but limited.Yes, in process.Yes, but computer system is not fully integrated.
    Latvia(not clear.)Yes.Yes.Yes.
    LithuaniaTask force established.In place, but not effective.(not clear.)Yes.
    MoldovaNo.Yes, but limited.Yes, but limited.No.
    Russia*Tax police are responsible for this.Partially in place, but there is no automatic printout of stopfilers.Partially in place, but there is no automatic printout of delinquent taxpayers.Not a high priority.
    TajikistanNo.Not systematic.Not systematic.No,
    Turkmenistan(not clear.)(not clear.)(not clear.)(not clear.)
    Ukraine*State Tax Administration does not have a systematic program; but responsibility for this activity rests with the Tax Police.New computer systems can identify stopfilers, but measures to control them have not been developed.New computer systems can identify delinquent accounts, but measures to control them have not been developed.No.
    UzbekistanNot systematic.In place.Yes.Yes.

    Indicates that the Tax Administration Division of IMF has had recent experience with the actual implementation of administration reforms.

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    143. Adjustment for Growth: The African Experience, by Michael T. Hadjiinichael, Michael Nowak, Robert Sharer, and Amor Tahari. 1996.

    142. Quasi-Fiscal Operations of Public Financial Institutions, by G.A. Mackenzie and Peter Stella. 1996.

    141. Monetary and Exchange System Reforms in China: An Experiment in Gradualism, by Hassanali Mehran, Marc Quintyn, Tom Nordman, and Bernard Laurens. 1996.

    140. Government Reform in New Zealand, by Graham C. Scott. 1996.

    139. Reinvigorating Growth in Developing Countries: Lessons from Adjustment Policies in Eight Economies, by David Goldsbrough, Sharmini Coorey, Louis Dicks-Mireaux, Balazs Horvath, Kalpana Kochhar, Mauro Mecagni, Erik Offerdal, and Jianping Zhou. 1996.

    138. Aftermath of the CFA Franc Devaluation, by Jean A.P. Clément, with Johannes Mueller, Stéphane Cossé, and Jean Le Dem. 1996.

    137. The Lao People’s Democratic Republic: Systemic Transformation and Adjustment, edited by Ichiro Otani and Chi Do Pham. 1996.

    Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.

    Bibliography

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      Mutén, Leif1992,Income Tax Reform,in Fiscal Policies in Economies in Transition, ed. by VitoTanzi (ed)(Washington:International Monetary Fund).

      Silvani, Carlos, and Katherine, Baer, 1997,Designing a Tax Administration Reform Strategy: Experience and Guidelines.IMF Working Paper 97/30(Washington:International Monetary Fund).

      Silvani, Carlos and JohnBrondolo, 1996,Administering the VAT in Countries in Transition,paper prepared for the Fiscal Affairs Department(unpublished; Washington:International Monetary Fund).

      Silvani, CarlosRichardFulford, Charles, Vehorn, and John, Brondolo, 1996,Improving Audit Procedures in Countries in Transition,paper prepared for the Fiscal Affairs Department(unpublished; Washington:International Monetary Fund).

      Summers, Victoria P. and Emil M.Sunley, 1995,An Analysis of Value-Added Taxes in Russia and Other Countries of the Former Soviet Union,Tax Notes International Vol. 10(June 19), pp. 2049–72.

      Tait, Alan1992,Introducing Value-Added Taxes,in Fiscal Policies in Economies in Transition, ed. by VitoTanzi (ed)(Washington:International Monetary Fund).

    The Commonwealth of Independent States (CIS) includes Armenia, Azerbaijan. Belarus, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

    The values for 1993–94 for Tajikistan are suspect; if, however, one assumes that revenues in the early 1990s were even as low as 27 percent of GDP, that would still imply a decline of” at least 15 percentage points,

    See European Bank for Reconstruction and Development (1998) for a comparison of progress in reforms.

    Where civil strife occurred, the pattern is mixed, with some countries experiencing a rapid decline very early, even before 1993 in some cases (Azerbaijan, Georgia, Tajikistan), then a substantial recovery from very low levels. Armenia, in contrast, saw the greatest declines after 1994 and only a slight recovery in 1997, while Moldova’s pre-1993 decline was followed by a strong recovery as early as 1994.

    Note the similarity of this conclusion with that for growth recovery—delaying reforms can minimize the output decline of transition, but the best result comes from strong reforms that lead to early recovery and sustained growth (Havrylyshyn, Izvorski, and van Rooden. 1998).

    Offsets are a nontransparent mechanism in which amounts owed by the government to the private sector for acquisition of goods and services are canceled out against unpaid taxes owed by the same companies.

    The Kyrgyz Republic and Russia also experienced slight declines relative to the comparable period of the year before.

    See Gaddy and Ickes (1998) for a discussion of this phenomenon.

    As in the case of declining revenues, a good deal of” analysis has been done elsewhere regarding the specific issues and problems encountered in moving from the “tax system” of the planned economies to a true tax system as needed in a capitalist economy, reflective of real costs and prices (e.g., Hemming, 1995; Lopez-Claros and Alexashenko, 1998; Gandhi and Mihaljek, 1992; Mutén, 1992; Tait, 1992; Summers and Sunley, 1995; and Baer, Summers, and Sunley, 1996.)

    Where the tax ratio eventually stabilizes will depend on several factors, including public expenditure commitments and the capacity for revenue mobilization. In that connection, it should be noted that the average tax-to-GDP ratio of non-OECD countries is about 20 percent (this result holds both for low-and middle-income countries) in contrast to an average revenue ratio of approximately 35 percent for the Baltics, Russia, and other countries of the former Soviet Union in 1992, when declines had already begun to be experienced from the level in the Soviet Union in the mid-1980s (Cheasty and Davis, 1996).

    The State Tax Services in most countries have been unable to cope with the collection of funds from entities that are not subject to regular and automatic accounting transfers to the state, and remain in most cases substantially unchanged from their pre-1992 status, as discussed in the following subsection. Conversely, though, some analysis suggest that a significant portion of the problem actually arises from the very nature of the state sector. The continued implicit support of the old state enterprise sector through misstatement of prices has meant that the nominal level of taxes assessed, though correct from a de jure, statutory perspective, may bear little relation to the true productivity of the formal economy. If true, allowing this misstatement of output (and implicit subsidization) to continue could certainly be classified as one of the political problems undermining the tax system (Gaddy and Ickes, 1998).

    Major substantive legislative revisions to the various taxes have been under development and discussion for some time and have been reflected in a controversial series of drafts of a comprehensive new tax code. Movement on this front halted subsequent to the August 1998 financial crisis, but policy change is again being contemplated under the new government.

    The new Tajik tax code, when implemented, will clearly move Tajikistan into a category with Georgia and Kazakhstan.

    A number of previous papers have analyzed the special problems of reform of lax administration in transition economies. For additional background, see Casanegra de Jantscher, Silvani. and Vehorn (1992), Silvani and others (1996), Silvani and Brondolo (1996), and Silvani and Baer (l997).

    Because of this, a thorough assessment of the most recent experience in implementing reforms has been limited to five countries: Azerbaijan, Georgia, Kazakhstan, Russia, and Ukraine.

    A large taxpayer unit is a division of a tax administration that ideally is responsible for all aspects of audit, collection, and enforcement from taxpayers representing tax revenues over a certain threshold level. Relatively few such taxpayers are typically the source of a large fraction of total revenues. Experience has shown that such units can effectively increase compliance by the major taxpayers.

    This problem can be attributed in part to the current assignment of taxes to different government levels, which in most countries raises potential conflicts in setting priorities for collecting national versus local taxes. In addition, the national tax administrations are often inadequately funded to carry out their work and are reliant upon regional and local governments to provide accommodation, cover office operating costs, and even pay employees’ wages. This reliance on regional authorities has greatly increased the influence of regional governors and local politicians regarding tax compliance priorities.

    In Kazakhstan and Russia, although tax forms were redesigned with the assistance of tax administration advisors, they were not adopted by the authorities.

    The only individual who arc generally required to he registered are those who carry on business activities. Most CIS countries, appropriately at this stage, do not require individuals for whom wages are the only source of income to register and file returns.

    Under the origin principle valued added with respect to production within the country is taxed, even if exported, and imports arc not taxed. Under the destination principle, conversely, all consumption within the country is taxed—imports are included and exports are zero-rated.

    In Georgia, specific taxes apply only to imported liquor; domestically produced beverages still attract tax on an ad valorem basis.

    However, use of offsets at the federal level has again occurred in the latter part of 1998.

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