This section summarizes the principal initiatives implemented by CIS countries, including those under revenue action plans in the areas of tax policy and tax administration, as well as the current status of tax policy and administration in the Baltics, Russia, and other countries of the former Soviet Union. Tax policy and tax administration are treated separately.
Tax Policy
At the beginning of the process of economic transformation, the revenue instruments in the Baltics, Russia, and other countries of the former Soviet Union largely reflected the needs of a planned economy and were ill-suited to an environment in which economic activities were to be increasingly determined by market forces. Nothing less than the complete overhaul of the tax systems was needed.9 But the effective reform of tax systems is time consuming. One could accordingly envisage a path for tax revenues as a ratio to GDP that would initially decline but subsequently stabilize or recover as tax policy and administration reforms took hold.10 Of course, attaining this path depends on a commitment to comprehensive tax reform.
Now that several years have passed, it is clear that revenue performance in many of the countries has suffered in varying degrees as a result of both the inevitable difficulties of implementing comprehensive tax reforms and political difficulties. These difficulties have had implications for the tax structures that have emerged in many of those countries. Specifically, the historic approach to levies in the Soviet system combined with the economic and political culture since liberalization have produced a complex and massive system of statutory and ad hoc exemptions that narrow the set of taxpayers who actually pay, and therefore necessitate fairly high tax rates on narrow tax bases for those taxpayers.
In addition to the exemptions, the structure of the taxes themselves began, and remains, in many ways inappropriate to a market economy. The major issues are outlined in the Appendix Tables A1—A7. Many of the inappropriate structural aspects of the existing taxes in the CIS are directly rooted in the planned economy. For example, the vast scope and nature of many of the exemptions themselves can be seen as reflecting the continuation of a system where “prices” and “profit margins” were merely administrative accounting devices that bore no necessary relationship to value—thus, comparability of “rates” with respect to various activities would have been an exception, rather than a desirable end. Similarly, the accounting system underlying the tax on profits does not reflect an actual measurement of profits in the market economy sense. The endemic inability to correctly apply crediting and refunds in the VAT reflects a similar disconnection with the measurement of real value added. The initial appearance of the so-called “excess wage tax” (either an explicit levy with respect to the extent by which the average salary paid by an enterprise exceeds a specified limit, or a limitation on the deduction of such an excess amount from taxable income), which has now been almost universally eliminated, certainly reflected a lack of trust in the market system. The use of the origin basis for applying the VAT to trade among the CIS countries, while trade with the rest of the world is taxed on the destination basis as under all other countries’ existing VATs, is reflective of the fact that the economic area of the Soviet Union was formerly unified.
Perhaps most important, revenues have been reduced by a culture of noncompliance (or, more properly, the historic lack of a culture of voluntary payment of real taxes), coupled with the inadequate structure and practice of the tax administration system.11 A vicious cycle has resulted, which makes it quite difficult politically to alter the status of tax policy, in the absence of widespread belief in the efficacy and fairness of the system as applied to all.
Major Initiatives Taken During 1997/98
Appendix I enumerates the measures actually implemented in the 1997 to mid-1998 period, some of which were envisaged under the “revenue action plans” developed by the IMF. In summary, and as might have been expected, the most significant recent tax policy reforms have taken place in those countries where preparations were well advanced, and reforms were embodied in comprehensive tax legislation. Such legislation has been recently introduced in a significant number of cases:
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A comprehensive new tax code for Georgia became effective in June 1997, including major changes in the VAT and the corporate and personal income taxes.
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Armenia adopted legislation involving a significant overhaul of the VAT and the corporate income tax regime.
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Uzbekistan adopted a new tax code.
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A new VAT law was passed by the Moldovan parliament at the end of 1997 and implemented in July 1998. Moldova also adopted a new income tax law.
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A new tax administration law was enacted by the Russian Duma in July 1998, but the new legislation has significant shortcomings.12
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Reforms of the VAT and partial reforms of the corporate income tax were introduced in Ukraine. However, other aspects of the corporate income tax remain under discussion in parliament, together with a draft law concerning the individual income tax; moreover, subsequent amendments to the VAT law reversed some of the initial progress.
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Progress in indirect taxation (both VAT and excises) occurred in Azerbaijan and Kazakhstan in 1997.
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In 1998, Tajikistan implemented important reforms to the VAT, excises, and customs duties, and the parliament enacted a comprehensive new tax code in November 1998.
Current Status of Tax Policy Reform
Table 3 summarizes the current state of lax policy in the Baltics, Russia, and other countries of the former Soviet Union by category of tax; a more detailed picture is provided in Appendix II, Tables A1—A7. Since 1992, considerable reforms have been implemented in some countries, and, for many, the current status with respect to a number of important issues reflects a significant improvement. However, progress has not been uniform.
Progress by Major Area of Taxation
While Ukraine has adopted the destination principle unilaterally vis-à-vis Russia, the Russian authorities appear to be seeking to reverse the Ukrainian position. It appears that if Russia could be persuaded to adopt the destination basis, most or all of the other countries would be eager to follow suit quickly. Many of the new VAT laws adopted across the CIS do include the destination basis, but provide in the law or as a matter of practice that these provisions will be overridden by agreements. Russia has not agreed to adopt the destination basis with respect to any of the other countries.
Progress by Major Area of Taxation
| Category | Most Progress | Least Progress |
|---|---|---|
| Value-added tax | Nominal correction of failure to credit all inputs (in particular capital assets); however, an unwillingness to grant refunds for excess credits in almost all cases renders this measure far less meaningful. | Removal of inappropriate exemptions. |
| Switch in practice to a destination basis for trade with CIS countries.1 | ||
| Maintenance of single, unified rate. | ||
| Enterprise profits tax | Unification and adjustment of rates. | Reform of accounting system. |
| Elimination of excess wage tax or cap on deductibility of wages. | Removal of holidays and incentives. | |
| Implementation of loss carryforwards. | ||
| Excise taxes | Adoption of specific rates for alcohol and tobacco. | Restriction of coverage to a few important appropriate commodities. |
| Symmetric treatment of domestic production and imports. | ||
| Personal income tax | Adoption of appropriate rate structures. | Effective taxation of small businesses. |
| Payroll taxes | Reduction of excessively high rates, now generally ranging from 31 to 45 percent. | |
| Customs duties | Almost universal abolition of export taxes. | |
| Legal framework | Adoption by most countries of either a full new tax code or complete new laws for one or more of the major taxes. |
While Ukraine has adopted the destination principle unilaterally vis-à-vis Russia, the Russian authorities appear to be seeking to reverse the Ukrainian position. It appears that if Russia could be persuaded to adopt the destination basis, most or all of the other countries would be eager to follow suit quickly. Many of the new VAT laws adopted across the CIS do include the destination basis, but provide in the law or as a matter of practice that these provisions will be overridden by agreements. Russia has not agreed to adopt the destination basis with respect to any of the other countries.
Progress by Major Area of Taxation
| Category | Most Progress | Least Progress |
|---|---|---|
| Value-added tax | Nominal correction of failure to credit all inputs (in particular capital assets); however, an unwillingness to grant refunds for excess credits in almost all cases renders this measure far less meaningful. | Removal of inappropriate exemptions. |
| Switch in practice to a destination basis for trade with CIS countries.1 | ||
| Maintenance of single, unified rate. | ||
| Enterprise profits tax | Unification and adjustment of rates. | Reform of accounting system. |
| Elimination of excess wage tax or cap on deductibility of wages. | Removal of holidays and incentives. | |
| Implementation of loss carryforwards. | ||
| Excise taxes | Adoption of specific rates for alcohol and tobacco. | Restriction of coverage to a few important appropriate commodities. |
| Symmetric treatment of domestic production and imports. | ||
| Personal income tax | Adoption of appropriate rate structures. | Effective taxation of small businesses. |
| Payroll taxes | Reduction of excessively high rates, now generally ranging from 31 to 45 percent. | |
| Customs duties | Almost universal abolition of export taxes. | |
| Legal framework | Adoption by most countries of either a full new tax code or complete new laws for one or more of the major taxes. |
While Ukraine has adopted the destination principle unilaterally vis-à-vis Russia, the Russian authorities appear to be seeking to reverse the Ukrainian position. It appears that if Russia could be persuaded to adopt the destination basis, most or all of the other countries would be eager to follow suit quickly. Many of the new VAT laws adopted across the CIS do include the destination basis, but provide in the law or as a matter of practice that these provisions will be overridden by agreements. Russia has not agreed to adopt the destination basis with respect to any of the other countries.
With respect to some particular elements—for example, the elimination of export taxes and the excess wage tax—virtually all countries have moved forward, perhaps partly because the measures were not technically difficult to implement. By contrast, little progress has been made on some technically complex or politically controversial issues, such as the development of market-oriented accounting systems and the elimination of exemptions and preferences. Abolishing exemptions and preferences has proven particularly difficult; even in the most reform-oriented countries, there has been a tendency to backslide.
With respect to overall progress across countries, as of mid-1998 several subgroups can be distinguished;
The Baltic countries moved very quickly to dismantle the uniform legal models inherited from the former Soviet Union, and adopted new tax laws that generally reflect internationally accepted market-oriented practices. These laws, as well as further changes currently planned, were designed to be in harmony with the tax system prevailing in the European Union (EU).
Georgia and Kazakhstan adopted comprehensive and generally appropriate new tax codes, after long periods of deliberation and extensive technical assistance. Kazakhstan, however, has implemented some revisions to its 1995 code, such as tax holidays, that will erode the tax base.
A third group (Armenia, Azerbaijan, Moldova, the Kyrgyz Republic, Tajikistan, Uzbekistan, and Ukraine) fell somewhere in the middle as of mid-1998.13 The nature and extent of the changes vary considerably among these countries; several of them have adopted new tax laws but their content reflects varying degrees of reform.
Finally, Belarus, which tends to follow Russia, and Turkmenistan have made less extensive or modest changes to their tax systems. Russia, despite much work on tax reform within government, has not succeeded in actually adopting extensive reforms to date, although some aspects, such as the excess wage tax, have been changed.
Why have some countries made more progress in tax reform than others? Experience suggests correlations with some or all of the following: (1) the degree of interest and attention of authorities at high levels of government; (2) relations between the executive branch and parliaments; and (3) the efficacy of technical assistance (which depends on the interest of the authorities as well as on many other factors, including the officials’ technical expertise and experience). It is worth noting that in Georgia, Kazakhstan, and, subsequently, Tajikistan, the authorities sought technical assistance at all stages of the reform process—from initial policy advice through final drafting of the laws—and used this advice very effectively, working extensively on the projects with advisors over an extended period.
Table 4 sets forth a subjective ranking of the Baltics, Russia, and other countries of the former Soviet Union with respect to their degree of progress in tax policy reforms between the dissolution of the former Soviet Union at the end of 1991, and the middle of 1998. Several things should be emphasized in connection with this table. First, these rankings are, as noted, highly subjective, and are intended only as a rough estimate of each country’s degree of progress relative to a theoretically achievable norm. More important, this is a snapshot of a rapidly moving picture. Some countries—for example, Tajikistan—have made further significant progress since mid-1998. Others have experienced some policy reversals—for example, Georgia—which illustrates how difficult maintaining good policy is. Finally, these rankings refer only to de jure tax policy, as embodied in the written laws and subsidiary regulations, and not necessarily as actually implemented by the tax administrations in each case.
Progress on Tax Policy1
Scale from 1 (high degree of appropriate market-oriented reform) to 5 (very little, if any, reform).
Tajikistan subsequently adopted a new tax code that would move its score to 1.
Progress on Tax Policy1
| Country | Assessment of Degree of Policy Reform from 1992 Through Mid-1998 |
|---|---|
| Armenia | 2 |
| Azerbaijan | 3 |
| Belarus | 4 |
| Estonia | 1 |
| Georgia | 1 |
| Kazakhstan | 1 |
| Kyrgyz Republic | 3 |
| Latvia | 1 |
| Lithuania | 1 |
| Moldova | 2 |
| Russia2 | 4 |
| Tajikistan | 3 |
| Turkmenistan | 5 |
| Ukraine | 3 |
| Uzbekistan | 4 |
Scale from 1 (high degree of appropriate market-oriented reform) to 5 (very little, if any, reform).
Tajikistan subsequently adopted a new tax code that would move its score to 1.
Progress on Tax Policy1
| Country | Assessment of Degree of Policy Reform from 1992 Through Mid-1998 |
|---|---|
| Armenia | 2 |
| Azerbaijan | 3 |
| Belarus | 4 |
| Estonia | 1 |
| Georgia | 1 |
| Kazakhstan | 1 |
| Kyrgyz Republic | 3 |
| Latvia | 1 |
| Lithuania | 1 |
| Moldova | 2 |
| Russia2 | 4 |
| Tajikistan | 3 |
| Turkmenistan | 5 |
| Ukraine | 3 |
| Uzbekistan | 4 |
Scale from 1 (high degree of appropriate market-oriented reform) to 5 (very little, if any, reform).
Tajikistan subsequently adopted a new tax code that would move its score to 1.
One might expect progress in tax reform to be significantly correlated with revenue performance in the various countries. However, much of the reform has occurred only over the past 12 to 18 months, far too recently for effects to be seen. Further, many appropriate tax policy changes do not translate into higher lax revenues in the short run; in fact the contrary may be true for certain areas where it appears that some of the greatest progress has been made (e.g., elimination of excess wage taxes and export taxes).
Tax Administration
In general, progress in tax administration reform in CIS countries has been slow for several reasons. First, tax administration continues to be a highly politicized function of government, where tax liabilities are largely negotiable instead of being determined by law. Efforts to determine tax liabilities based on the law are greatly complicated by the constant changes and uncertainly of many countries’ tax legislation and related laws (e.g., civil code and bankruptcy laws). Moreover, in many of the CIS countries, the tax administration is not equipped to handle the significant increase in the number of taxpayers and the different types of taxpayers, particularly small-and medium-sized taxpayers in the private sector, which have emerged in the course of the economic transformation. In addition, the pervasiveness of barter trade, noncash transactions, and the use of monetary and tax offsets to pay taxes has complicated the tax administrations’ task of collecting taxes in cash from important segments of the taxpaying population. Finally, in many countries, political commitment at the highest levels of government to fundamental tax administration reform has been lacking, and the instability in the tenure of the tax administration’s senior management has also impeded the effective implementation of reforms.14
The experience of other countries demonstrates that reforming the tax administration’s organization, systems, and procedures is neither simple nor quick. Tax administration reform usually involves many issues (see Appendix II, Table A8) and takes time and resources to implement effectively. In that connection, the IMF has been extensively involved in providing technical assistance on tax administration issues in only a subset of the CIS countries—Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Russia, and Ukraine.15 Against this background, this section summarizes recent progress in the implementation of administration reforms and reviews the current status of tax administration reforms.
Initiatives Taken During 1997/98
Reforms have focused on (1) enactment of tax administration legislation consistent with the shift to market-oriented economies; (2) management and organizational reforms, including the establishment of a large taxpayers unit;16 (3) development of systems and procedures, including audit programs, taxpayer registration procedures, filing and payment procedures, and computerization; and (4) collection enforcement and determination of the scope of noncompliance (i.e., the size and type of tax arrears and the numbers of stopfilers and delinquent taxpayers).
Progress in implementing reforms has tended to be slow and uneven, even where extensive technical assistance was provided. Georgia introduced a comprehensive unified tax administration law in mid-1997 and made substantial progress in organizational reforms, establishment of a large taxpayer unit, collection and enforcement, taxpayer registration, sanctions and penalties, filing and payment procedures, computerization, and VAT administration. The Kyrgyz Republic updated the 1996 tax administration law in early 1997—a significant positive step—but implementation of specific reforms has been somewhat slower. In Russia, three million enterprises now have been assigned taxpayer identification numbers, and there are plans to establish a few large taxpayer units (15 to 20).
Other countries made less progress. Detailed recommendations for Ukraine were developed in early 1997, supplemented by specific proposals in the audit area, but implementation to date has been quite limited. Small groups have been formed to work on audit planning, selection, methods, and reporting, but concrete steps to implement modern audit techniques have not yet been taken. In Azerbaijan, recommendations made in early 1997, especially in the areas of collection enforcement, sanctions, and penalties, have not yet been implemented. In Kazakhstan the authorities developed plans relating to management and organizational reforms, drawing on the 1995 Tax Code, but other recommended steps have not been taken. There is little tangible progress to report for the other CIS countries.
Current Status
How well tax administration reforms can be implemented depends crucially on the structure of the tax system. Fundamental institutional and technical changes, which require much time and effort, are, however, also needed. In the end, progress with administrative reform depends on a country’s degree of political commitment to the reform; securing that political commitment can be difficult given the specialized nature of tax administration and the fact that policymakers may not appreciate the importance of, or have a particular vested interest in, pressing for tax reforms. The stability of the tax administration’s management is another crucial element in ensuring that institutional and procedural changes can be carried out. In some countries, constant changes in the director and senior managers have certainly impeded the design and effective implementation of reforms.
It is therefore not surprising that progress so far has been sluggish. In a subjective assessment of the degree of reform across countries, relatively good progress can be noted only in two CIS countries—Azerbaijan and Georgia. Both have made progress toward putting in place well-thought-out organizational structures, strategies, and mechanisms for effective collection and enforcement. At the other extreme are three countries—Tajikistan, Turkmenistan, and Uzbekistan—that have achieved limited progress at best. Nevertheless, in Tajikistan, the government recently accelerated the tax administration reform process; it established a large taxpayer unit, and plans to introduce a taxpayer identification number for entrepreneurs. For a middle group of seven countries—Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Moldova. Russia, and Ukraine— only modest reform has taken place.
Tax administration reform covers a wide variety of activities. For ease of presentation, these activities are grouped into four categories:(1) the legal framework, which is distinct from the legal basis of tax policies; (2) organization; (3) systems and procedures; and (4) special measures aimed at compliance.
The legal framework
Almost all of the countries, except Moldova and Uzbekistan, have enacted or plan to enact a tax administration law. In many cases the law provides the tax authorities with legal powers to undertake collection enforcement actions, such as seizure of property. In practice, however, the tax authorities are often reluctant to use these legal powers because (1) specific procedures for their application have not yet been developed and officials are unfamiliar with how they should be carried out; (2) enforcement has traditionally been the responsibility of other government agencies; and (3) enforcement officials have been threatened by taxpayers and sometimes fear for their own safety. One limitation of the legal framework in several countries is the lack of a clear specification of taxpayers’ rights, making it difficult to strike a proper balance between the rights of the government to collect taxes and the rights of citizens to receive uniform treatment and to appeal decisions of the tax authorities. Another limitation is that the actual enforcement power may rest in the hands of the tax police, who in many countries do not closely coordinate their enforcement actions with the tax administration.
Organization
In general, tax administrations in the CIS are not organized in an effective manner according to their major functions—returns filing and payment; collection enforcement; audit; appeals; and taxpayer services (assistance, information, and education)—but are typically a melange of different organizational models. Different departments are organized by function, type of tax, and type of taxpayer, with the resulting fragmentation often producing overlapping and conflicting responsibilities.
Several tax administrations have sought to increase their effectiveness through the establishment of special offices to administer and control the largest taxpayers. Although these large taxpayer offices have led to some organizational improvements and better audit techniques, implementation is often hampered by a lack of serious commitment from the most senior government officials, as well as a lack of cooperation from regional and local tax offices, which must relinquish control over their most important taxpayers when the large taxpayer units are established. Large taxpayer units have been formally established so far in Armenia, Azerbaijan, Georgia, the Kyrgyz Republic (for audit purposes), Russia (the first of multiple planned units), Tajikistan, and Ukraine. In Georgia, these units cover taxpayers accounting for about 40 percent of total tax revenue, while in Azerbaijan and Tajikistan the coverage is about 60 percent of total revenue. In most countries, the introduction of large taxpayer units has been slow. Implementation of large taxpayer controls in Azerbaijan, Armenia, and Moldova has been initially limited to monitoring these taxpayers with regard to their payment of arrears, while local offices continue to be responsible for their day-to-day supervision. The large taxpayer unit in the Kyrgyz Republic is in the process of being transformed from an audit operation to a full-fledged unit.
In most countries, inadequate staffing, low wages, and lack of equipment have contributed to low morale and widespread corruption among tax officials, and has led to an erosion of tax compliance. As a result of weak personnel policies, many unsuitable tax officers have been recruited. Bonus systems linked to the collection of undeclared taxes have provided some additional remuneration for tax officers, but these systems tend to be Band-Aid solutions to poorly designed personnel salary structures and have generally failed to improve performance; in Russia, such allowances, which often amounted to one-half of an employee’s wage, have now been removed entirely.
Systems and procedures
Planning. Tax administrations in CIS countries still lack a clearly articulated strategy for maximizing taxpayer compliance through programs that balance tax audit activities, enforcement, and the provision of taxpayer services. Little, if any, attention has been given to medium/long-term institutional and systemic reforms. Where strategies have been developed with external technical assistance, the authorities, with the exception of Georgia, have generally not adhered to their detailed proposals and related implementation timetables. Commitments to strategic tax administration reforms made under IMF-supported programs often have not been kept, and where reforms have been undertaken, regional and local tax administration offices often have acted independently from the instructions provided by headquarters. This is especially a problem in the largest countries, such as Russia and Ukraine, with many regional and local offices.17
Audit programs. Most CIS countries have made only limited progress in improving critical compliance activities—especially audit planning, selection, and methods—and have not developed formal audit plans and reporting systems to ensure that resources are allocated in the most productive manner. Headquarters’ planning activities tend to be limited to the issuance of general instructions to guide the operations of local offices and do not normally seek to ensure consistency between the workload and resources of field offices. As a result, field offices lack needed guidance in setting their audit priorities and have too few auditors to carry out tasks.
Tax administrations in CIS countries have not adopted modern, analytical methods for selecting taxpayers to be audited. Instead, some countries still follow the inefficient practice of auditing each taxpayer every two years, regardless of the taxpayer’s compliance history. Audits are not targeted at those taxpayers identified as having the highest noncompliance rates and the highest probability of yielding significant additional assessments; as a result, audit productivity tends to be low. In most CIS countries, auditors continue to concentrate on simply validating the arithmetic accuracy of taxpayers’ accounts rather than the more demanding task of probing for unreported income. As a result, audit assessments are often made for minor transgressions while major understatements go undetected. More efficient audit methods have been introduced in countries where improved large taxpayer controls have been established, but even these improvements generally have not been extended to the bulk of audits.
Self-assessment. In general, taxpayers are still required to personally deliver all their tax returns, including regular VAT returns and quarterly profits and loss statements and balance sheets, to specified tax inspectors, who review the returns and other documents for arithmetic accuracy, compute the liability, and agree on the amount of tax due. For enterprise taxes on profits, planned or advanced payments may also be negotiated between the enterprise and the tax inspector. Experience shows that such negotiations may provide the opportunity for collusion between the parties. Moreover, many countries outside the CIS have moved from assisted assessment to self-assessment systems because they have found that assessing individual taxpayers’ tax liabilities is inefficient and costly and prevents the use of resources for targeted compliance enforcement efforts. Although most tax administrators in CIS countries acknowledge the merits of self-assessment principles as part of a strategy to promote taxpayers’ compliance, in practice such procedures have not been implemented on a widespread basis. There have been some experiments with self-assessment in Russia and Ukraine, and a pilot project is being introduced in Kazakhstan; Georgia is moving from assisted-assessment to self-assessment, a transition that is being supported by the computer processing of VAT returns.
Tax forms and publications. With the exception of the Kyrgyz Republic and Georgia, where tax forms were redesigned in 1997. lax forms are generally complex and require information that is not always suited to determining a tax liability.18 Few tax administrations have a designated office that focuses exclusively on taxpayer services, and publications that may assist taxpayers in complying with liabilities are not always readily available. Often, tax laws are only published in local newspapers, and forms and publications are generally confusing and are not provided free of charge. In many countries, it seems as if taxpayers are actually discouraged from filing their returns accurately and on time, and it is not unusual for taxpayers to have to go to the local tax office to copy by hand tax forms from bulletin boards.
Revenue accounting systems. Revenue accounting systems exist in all countries, often in manual form; accounts are updated when payment advances are received from banks. Revenue accounting is ineffective, however, because most countries do not have modern accounting systems or double-entry bookkeeping. In some countries, there are delays in the provision of payments to the tax offices. Also, errors with taxpayer identification numbers and the use of different kinds of identification numbers on tax returns and payment forms make it difficult to keep accurate revenue accounts. In addition, when lax-payers fail to file monthly returns or make tax payments, follow-up action generally does not occur until after the quarterly profits and loss accounts and balance sheets have been submitted, by which time the best opportunity to correct the situation may have been lost.
Internal procedures and guidelines. Internal guidelines and procedural instructions range from minimal to nonexistent. Staff training generally is limited to reading the tax laws. Training programs provided through external technical assistance, with few exceptions, have been of limited effectiveness because of the inappropriate selection of candidates and lack of follow up. Basic enforcement powers are not clearly established in some countries, especially when there is a separate tax police, as in Russia. In others, such as Georgia and Kazakhstan, although legislation may provide sound enforcement powers to tax officers, the tax authorities have not yet produced internal procedural documents that interpret the law and provide guidance to staff on its proper execution.
Computer systems. Computer departments of tax administrations are reasonably well funded in most CIS countries, either through external grants or loans, or from internal budgetary resources (Tajikistan is an exception). But tax authorities in the CIS, as elsewhere, frequently have unrealistic expectations about the capacity of computers to improve efficiency, without the implementation of complementary reforms of basic administrative procedures, especially in the case of enforcement and audit. In some countries, there is a need for an overall computerization strategy as local offices are often proceeding on their own to develop software to support their operations.
Penalty regimes. Penalties generally are highly punitive and—depending on the rate of inflation— may bear no relationship to the actual tax liability. This has contributed to problems in collecting tax arrears; by the time a serious effort is made to collect outstanding taxes, penalties, and interest, it is often beyond the ability of enterprises to pay. Also, statistics on actual penalties collected for different taxes tend to be nonexistent or of poor quality.
Taxpayer registration. Most tax administrations now accept that registration of taxpayers and assignment of taxpayer identification numbers are prerequisites to computerization and monitoring the taxpayer population.19 In general, with the exception of Turkmenistan, countries have either completed the process or have taken significant steps in that direction.
Compliance
Few CIS countries have made significant progress in improving the collection of outstanding tax debt (collection enforcement). While some administrations (e.g., Azerbaijan and Georgia) now have an improved capacity to produce aggregate information on the total level of tax arrears, the accuracy and timeliness of this information is less certain. Moreover, few countries have the capacity to disaggregate data on arrears into meaningful categories, such as the “age” of arrears (e.g., how long the overdue tax debt has been outstanding) and the types of taxpayers involved. The absence of such detailed data complicates the critical tasks of determining the amount of arrears actually collectible and establishing priorities and targets for collection enforcement.
Many CIS tax administrations have improved their capacity to identify stopfilers (taxpayers who suddenly cease to file required periodic returns after doing so previously) and delinquent taxpayers within a reasonable period after the close of the tax filing period, but few have developed effective measures to tackle noncompliant taxpayers. Most tax administrations continue to rely mainly on issuing payment orders on taxpayers’ settlement accounts to collect arrears rather than using modern enforcement measures—such as appropriation of accounts receivables, seizure and sale of properly, assignment of personal responsibility for taxes collected but not remitted, use of installment agreements, and settlement of tax obligations for less than full value. Even in countries where legislation provides for some modern collection enforcement measures (e.g., Azerbaijan, Kazakhstan, and Georgia), tax officials frequently seem reluctant to apply them or do not know how to use them. Some countries require a court order authorizing their use. Moreover, in some countries, where the tax police has separate but overlapping enforcement responsibilities, primary responsibility for enforcement is unclear. Finally, the common practice of requiring collection enforcement staff to carry out other clerical tasks, including processing tax returns and tax payments, in addition to their enforcement activities continues to weaken the collection of tax arrears.