The subject of tax administration is extremely important both to those concerned with the key role increased tax yields can play in restoring macroeconomic balance and to those concerned with tax policy and its effects on the economy in general. As Tanzi (1987) has pointed out, tax administration plays a crucial role in determining the real (or effective) tax system, as opposed to the statutory tax system. Indeed, there is a growing conviction among tax policy specialists in developing countries that “policy change without administrative change is nothing” (Bird (1991, p. 39)) and that it is critical to ensure that “changes in tax policy are compatible with administrative capacity” (World Bank (1991, p. 51)). In a very real sense, “tax administration is tax policy” in developing countries (Casanegra de Jantscher (1990, p. 179)).
Achieving good tax compliance involves a variety of factors such as the tax administration’s image, its employees’ credibility, their readiness to serve, and so on, many of which have already been discussed in this volume. In this paper we emphasize two fundamental factors that affect the efficiency and effectiveness of any organization: (1) organizational structure and (2) human resources. These factors are the pillars of any organizational development strategy.
To speak of privatizing tax administration is risky, despite the winds of reform blowing in that direction in this early part of the 1990s. At first sight, the title of this study may possibly suggest a major contradiction in terms. The administration of a country’s tax system, along with the administration of justice and national defense, are probably the most frequent examples of what ought not to be privatized. Or at least they ought not to be privatized in the sense that, being functions inherent to the state, there should be no loss or delegation of autonomy. However, this does not mean that certain administrative tasks should not be contracted out to the private sector where this can be clearly shown to improve efficiency or effectiveness. The difference is that the state loses no autonomy if certain administrative activities are delegated. A company or a person is not free to establish a tax; this must be done by law or by a government decision.
This study describes two different experiences in the area of tax administration. Each was successful: each brought about a significant increase in the effectiveness of tax administration and, consequently, a rise in the collection of internal revenue.
It is almost inevitable that a report on taxation in a developing country, especially if prepared by an outside advisor or a donor, will end by pointing out that the primary problem is one of poor administration. Because low-income countries do not efficiently administer the systems they have in place, they fail to collect the true amount of revenue due, the efficiency objectives of the tax structure are not realized, and both the horizontal and vertical equity intent of the nominal tax structure are compromised.
Over the past thirty years, the Colombian income tax has undergone more or less constant change as the result of efforts by some to reform it and efforts of others to reverse that process. On balance, the system has been improved greatly, and Colombia now has one of the best income taxes of any developing country.1 Progress, however, has often lagged in one important area, that of the administration of the tax.2 This is especially troubling since, in the words of Milka Casanegra, an expert from the Fiscal Affairs Department of the IMF, in developing countries “tax administration is tax policy.”3
Trinidad and Tobago is a member of the Caribbean Community (CARICOM), one of the Community’s “big four” (together with Barbados, Guyana, and Jamaica). Following independence and the formation in 1973 of CARICOM, the four countries had many features in common: unusually high dependence on income taxation,1 with steeply rising marginal rates, a uniform (with minor exceptions) external tariff that the countries could not unilaterally raise under terms of the CARICOM agreement, and the traditional excises applying only to domestic production.2 However Trinidad and Tobago differs from the others in that it is an oil exporting country—petroleum exports accounted for 84 percent of its exports in 1965 and 72 percent in 1987.
This paper comments on the experiences of several countries with regard to tax compliance and suggests certain general guidelines for improving it, particularly in countries where there is a relatively high level of noncompliance.