The review has a twofold objective. First, it describes the nature and scope of the advice that the Fiscal Affairs Department (FAD) has offered to countries through recent technical assistance missions. It identifies themes applicable to all countries and special elements designed to address issues unique to a specific country or a subset of countries. Second, it ascertains, to the extent possible, the impact of FAD’s tax policy recommendations by assessing the extent to which the countries receiving technical assistance have subsequently implemented measures based on the recommendations.
FAD tax policy advice has tended to emphasize the need to enhance the neutrality of different taxes and, in line with international reform trends, to ease the resource demands on tax administrations. In general, FAD missions have recommended two courses of action: (1) simplifying the structures of existing taxes (such as by reducing the number of rates, broadening the bases, and eliminating preferential treatment of particular economic agents or activities); or (2) introducing new and simple taxes (such as a single-rate value-added tax to replace old and complicated ones (such as a multi-rate turnover tax).
When countries have sought FAD advice for the express purpose of identifying policy options to mobilize additional budgetary resources, technical assistance missions have been uniformly guided by the principle of designing measures that would generate adequate revenue to meet the countries’ budgetary needs in as economically neutral a manner as possible. However, as circumstances warrant, they have also suggested interim measures that deviate in varying degrees from the long-term goals of tax reform.
In general, FAD tax policy advice has had a discernible impact on the course of tax reform in many countries. By type of tax, reform recommendations on the domestic consumption and international trade taxes have met the greatest success in terms of the extent to which they have subsequently been implemented. By geographical location, technical assistance advice has had the greatest influence on Western Hemisphere economies and selected economies in transition. As is to be expected, timely and concrete policy actions have materialized more frequently when the technical assistance advice was given in the context of Fund programs. But even when Fund resources were not involved, the missions’ analytical work supporting their recommendations often provided significant assistance to the authorities in their policy deliberations.