Transition to Market

Chapter 17 Algeria: A National Approach To Market-Oriented Tax Reform

Vito Tanzi
Published Date:
June 1993
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Ernst-Albrecht Conrad

In many respects Algeria can be described as a country in transition. In the mid-1980s, as the command economy began to exhibit severe strain, a political consensus emerged for a gradual move to a market-oriented system. Most observers would agree, however, that Algeria's point of departure for this transition was different from that of most other centrally planned economies.

Several factors called for a national approach to the transition, particularly as regards taxation. The command system, while fully established in the heavy industrial and oil sectors, had not completely penetrated the rest of the economy. Algeria was among the first centrally planned economies to embark on a broad reorientation toward a market system and, as a major member of the Organization of Petroleum Exporting Countries (OPEC), had benefited from and had become dependent on the inflow of external resources. Moreover, throughout the socialist period it had preserved the financial structure of the former French government.

Nevertheless, Algeria was confronted with many of the same basic issues that other centrally planned economies have had to deal with: how could a gradual path toward transition best be chosen, and how could reforms of the major economic policies effectively be coordinated? The latter issue was particularly important for domestic resource mobilization. It was recognized at an early stage that tax reform needed to be handled as an integral part of the transition. Economic liberalization required the tax system to shed its interventionist role, and, equally basically, reform of the major taxes on income and production made sense only if incomes and prices were liberalized.

This paper first draws a broad picture of these specific national factors and then discusses the principal issues in tax reform. The paper concludes by describing the program for strengthening the tax administration.

Setting for Transition

Historical Background and Reorientation of the Economy

When Algeria became independent in 1962, it was suffering from the trauma of a costly civil war that had ended nearly a century of its special status as a French territory. Understandably, the political leaders were strongly motivated to move away from Western European tradition, which may help explain Algeria’s initial swing toward the East under Ben Bella. In the subsequent decade, however, President Boumedienne added a more genuine ideological dimension to Algeria's socialist policies.

On the economic side, the creation of a vast hydrocarbon sector helped centralize industrial power. This process was reinforced through the establishment of public enterprises in most other industrial sectors, the nationalization of financial institutions and of medium- and small-scale industries, and the conversion of private farms into state-run agricultural conglomerates. In parallel, the control function of the market was gradually replaced by the central planning of production, by control of prices and labor markets, and, more generally, by the establishment of the system of intervention in most areas of economic activity that constituted a common feature of the centrally planned economies.

In spite of these developments, a core element of a free-market economy remained intact. Both domestic and foreign observers often express surprise at the size and pervasiveness of the parallel economy in Algeria. This shadow economy was not limited to the small-scale informal sector, but apparently also permeated the production and distribution activities of the socialized economy. In addition, imports outside the licensing system were officially tolerated under certain conditions. In the 1980s, the shadow economy further gained in importance as it helped enterprises and consumers to obtain critical materials and goods when the central distribution system began to weaken. This may have helped the transition.

In 1986, Algeria embarked on a broad but gradual program to promote a market economy. Privatization was initiated in the agricultural sector by leasing land to farmers. Real estate, including residences and apartments held by the Government, was sold, mostly to the tenants. Subsequently, the industrial and service sectors were granted more autonomy, while the capital assets of many large enterprises were regrouped in eight holding funds. In addition, transformation of the labor market commenced with the introduction of a new set of laws governing the organization and activities of trade unions. Exchange reform was initiated and a more liberal pricing system was introduced, which limited the use of administered prices to a few essential consumer items while margin controls remained in force for certain other goods and services. The regulatory framework was also gradually dismantled.

In all, progress toward a market system is now clearly apparent, although the transition remains to be completed and many structural economic problems, including creation of employment and effective decentralization of industry, remain to be solved. Tax reform is in a relatively advanced stage of implementation.

At the political level, a program for democratic reforms, including the establishment of a multiparty system and free elections, was initiated concomitant with the economic transition program. However, severe civil disturbances were reported in the 1980s and early 1990s. A fundamentalist movement emerged and dominated local elections in 1990, as well as the first of two rounds of national elections in late 1991. In early 1992, the President resigned under pressure from the military, and elections were suspended. These events have, at least temporarily, distracted attention from economic reform.

Early Start of Transition

Algeria’s economic reforms were set in motion a few years ahead of those in many other centrally planned economies. Moreover, they were conceived as an evolutionary process, as opposed to the revolutionary or sudden events that later occurred in Eastern Europe and the former U.S.S.R. Because this transition was initiated within the framework of unchanged political institutions and political leaders and senior civil servants remained at their posts, the change in direction was less abrupt.

To what extent has this gradualism accelerated or slowed the pace of economic reform? As regards taxation, the first indications are that a core of experienced senior officials made it possible to design reforms swiftly and to introduce even major changes (such as the structural reorganization of the service) within a tight timeframe. On the other hand, because the political framework changed only gradually, less radical tax reforms were adopted than those chosen later by Eastern European countries. In particular, the rate structures of the new value-added tax (VAT) and of the new global income tax clearly show a continued emphasis on social objectives.

Availability of External Resources

Following the two increases in oil prices in the 1970s, the share of foreign-generated resources in budget revenue expanded sharply and reached about half of total receipts in the early 1980s. As in other OPEC countries, the availability of foreign resources imparted a disincentive to the tax system. There was no compelling need and little public support for vigorously tightening tax provisions and modernizing the tax administration. This factor also contributed to the very visible degradation of the material facilities of the tax administration and the neglect of training and other efforts to upgrade the skills of the service.

Role of Former French Tax System

During the war and following independence, there was an exodus of those who opted to live in France, including many senior civil servants and technicians. The remaining staff struggled with an administrative apparatus designed to function as part of a developed country rather than to serve the needs of a newly independent nation.

In this difficult situation, French administrative tradition, which predates Napoleon, continued to provide welcome support for public sector management. Like other Francophone countries in North and sub-Saharan Africa, Algeria continued to operate within this framework. However, while the neighboring countries remained open to the evolutionary process in government finance and tax systems, Algeria followed a route of relative isolation. Although the tax laws were modified each year and some new levies were added, basic tax provisions and administrative techniques were left relatively untouched during the last three decades.

Algeria’s tax administration is highly decentralized. Although based on French tradition, decentralization is also a common element in the Maghreb countries and the Mediterranean area in general. It is motivated by the belief that the tax officials should be able to closely observe the taxpayer.

There can be little doubt that a Western-style tax system, even if antiquated and administratively decrepit, helped Algeria to push through tax reform legislation and a basic overhaul of the tax service within a short time.

Selected Policy Issues in Tax Reform

The National Tax Reform Commission (NTRC), established in 1987, was charged with a comprehensive review of Algeria’s tax system to adapt it better to a market economy. It was headed by a former minister and included representatives of the relevant agencies. The IMF was requested to provide policy advice to the Commission in 1989 and a staff team was invited to participate in some of the meetings.

The NTRC began by analyzing the purposes of the tax system and by defining objectives for its reform. The market-oriented objectives included promoting private savings and investment. The NTRC also anticipated the impact that liberalization of prices and the expansion of the private sector would have on the tax system. The proposed basic direction for tax reform was identical to what later became the standard package for countries in transition, namely, the introduction of a personal income tax, a separate corporation tax, and a VAT. The need for further decentralization of taxing power to the local authorities was also recognized.

In addition to the NTRC, a Committee, composed of members with different ideological backgrounds, also met during the early phases of the transition. The Committee wanted the tax system to continue to intervene in the market mechanism. In particular, it continued to place a high priority on such objectives as promoting vertical equity. The Committee was aware, however, that the gradual transition would entail the added difficulty of dealing for a longer time with the inconsistencies between the two economic systems.

As a compromise, the Committee recommended graduated rates for the VAT, sector-specific rates for the corporation tax, and a strongly progressive schedule for the individual income tax. Although these recommendations were somewhat watered down in the ensuing debate and political process, the rate structures actually introduced (see below) clearly emphasize social objectives at the expense of economic efficiency and administrative ease.

Reform of Taxes on Income and Profits

Algeria had preserved schedular taxes on income, a common feature of the traditional French system. They were meant to facilitate assessment and to promote vertical equity when the tax administration was believed not to be equally efficient with regard to different sources of income. The Algerian tax on wages and salaries was legally a monthly levy. This eliminated the need for filing an annual return by individuals with no other sources of income and for processing refunds, which are seldom processed in developing countries. The income tax on business and industrial profits applied to corporations with a flat rate (with preferential rates for reinvested profits) and to individuals with a progressive rate. Assessment based on verifiable accounts (real system) was limited, however, to incorporated businesses and large private enterprises. The bulk of small businesses was assessed on the basis of an estimate by the tax administration, which relied on the value of purchases and certain external signs of the size of the business (forfait system).

The reform of the income tax is now nearly complete. A new law, providing for a global income tax on individuals and a separate tax on corporations, was published in late 1990 and became effective in fiscal year 1991/92. The rate schedule for the individual income tax continues to be strongly progressive, with 12 brackets up to 70 percent. The corporation tax rate is 42 percent on distributed profits and 5 percent on reinvested profits. Other features of the new taxes (for example, family allowances and depreciation rules) are more closely aligned to the prevailing systems of Western European countries. One notable exception is that the income taxes (as well as the VAT) retain the standard assessment of small business, which appears to have worked relatively well in Algeria and is adapted to the cultural and economic environment and to the decentralized structure of the tax administration.

Reform of Taxes on Production and Services

Throughout the socialist period, Algeria had maintained a turnover tax on imports and production (TUGP), which provided for credit on the tax paid on purchases and investment. It had nine rates ranging from about 7 percent to 670 percent (on a tax-exclusive base), with the higher rates serving an excise function on such products as tobacco and alcoholic beverages. On services, a sister tax (TUGPS) was used, which did not provide for credit and used seven different rates.

These taxes were different from the turnover taxes used in most other centrally planned economies and again reflected French tradition. They were based on ex-factory prices (rather than administered retail prices). The number of rates was not as high as in most Eastern European countries, and the credit feature was a precursor for a VAT. Nevertheless, the spread of tax rates was substantial and resulted in an intended differential effect on prices. In this latter regard, the TUGP was similar to the turnover taxes that were used in other centrally planned economies.

There was general agreement that the two turnover taxes should be replaced by a VAT, but the design of the tax rate structure was the subject of some debate. Two points were made by the NTRC. First, while simplification was one of the stated objectives, the reduction in the number of rates from 16 (for the two turnover taxes) to 5 for a VAT was considered a major and sufficient step in this direction. Second, maintenance of a number of rates with a significant spread between them was seen as desirable on equity grounds.

Some Algerian and foreign advisers argued for a simpler rate structure on grounds of economic efficiency and administrative simplicity. Simulation studies showed that a single rate in the 10-12 percent range could be revenue neutral if exemptions were limited to those needed to protect the poor. These studies also indicated a negligible distribution effect of differentiated rates because income and consumption patterns across households were rather similar (if survey data could be relied on), as would be expected in a socialized economy. Moreover, nearly half of all products, including most basic food items, were exempt from the TUGP or the TUGPS. The use of additional excises was recommended instead of an increased VAT rate. However, in the national debate, neutrality and administrative simplification were not considered of the highest priority.

The VAT law was adopted and published in late 1990 and the tax became effective in April 1992. The law provides for four tax rates, namely reduced rates of 7 and 13 percent, a standard rate of 21 percent, and an increased rate of 40 percent on a few luxuries and excisable products.

That the TUGP already had features of a VAT is expected to facilitate the changeover. Taxpayer information campaigns have been undertaken. However, automation for the processing of a huge number of returns will need more time to be developed.

Fiscal Federalism

The decentralization of resources and the deconcentration of tax administration had been objectives in Algeria in the socialist period (when they formed uncharacteristic elements of a centrally planned economy) and received new attention in the context of the present reform. The provinces (wilayate) and municipalities benefit from shares in several taxes. More important, two transactions-based taxes, the TAIC (2.55 percent) on industrial and commercial activity and the TANC (6.05 percent) on noncommercial activity, are entirely earmarked to the local authorities. In addition, the latter receive the revenue from the property tax and the sewage tax, and there are a few minor locally administered fees. In all, the local levels of government receive fiscal revenues of as much as 9 percent of GDP, an unusually high ratio.

At present, there are three principal issues in fiscal federalism in Algeria. First, the distribution of revenue at the local levels is clearly uneven and not in line with the needs for essential services, although equalization devices, such as special redistribution funds, have been used. Second, the local authorities have little political say and no part in the assessment and collection of these receipts. Third, some of the taxes, namely the TAIC, overlap with the base for the VAT, and there is a need for harmonization. The authorities have established a working group and hope that proposals can be developed in time for implementation in 1993. Another working group is reviewing the legislation for miscellaneous taxes and fees (Code de l’Enregistrement).

Institutional Constraints

Although the Algerian tax reform process had started from the policy side, the authorities soon realized that they also needed to strengthen the tax administration to pursue effectively the new policy objectives. In fact, it became clear that what was needed was no less than a basic overhaul of the tax administration, covering (1) the development of a strategy for reform, (2) the reorganization of the structure of the service, (3) the streamlining of working procedures, (4) the development of training programs, and (5) the adoption of improvements in data processing.

The following sections focus on selected issues from each of these broad areas.

Planning for Reform

A point of general significance for economies in transition appears to be the need to first create awareness of the importance of addressing the conceptual issues in administrative reform and then to establish an adequate capacity for dealing with these issues. Ideally, a task of the planned magnitude and complexity should be based on a master plan for reform. The major objectives for strengthening the tax service should be identified, taking into account the policy orientations that the new system is to serve, and priorities should be set and the sequencing of reforms should be worked out. On a more technical level, it would be necessary to design the specific measures and to define the resource requirements in terms of both material resources and know-how.

In reality, centrally planned economies typically lack the time and resources to approach administrative reforms in a strictly systematic way. Algeria, while departing from a relatively favorable basis, used a pragmatic approach. Although basic priorities were established and timetables for some of the tasks were laid down, these efforts still fell short of a comprehensive, well-coordinated, and generally agreed plan for reform. As the entire process would take several years to complete, it became clear that it could best be handled flexibly in the light of changing circumstances.

Algeria asked for and received technical assistance to supplement the national capacity. The IMF followed up on its advice on tax policy with assistance on the reform of the tax administration. With the help of the United Nations Development Program (UNDP), a technical assistance project was formulated for which the IMF agreed to act as executing agency. In addition, technical as well as financial assistance was negotiated with other agencies and donors in such specific areas as computerization.

The priority for technical assistance in tax administration was to assist in the planning of reform. As a matter of urgency, a steering committee was established at the ministerial level with subcommittees for reorganization, training, and data processing. These were staffed with senior officials of the tax department who provided the counterpart structure for external assistance. In addition, the tax department organized a large seminar to which senior tax officers from throughout the country were invited and in which senior headquarters staff and external experts outlined the scope for reform and solicited broad support.

One of the most critical constraints the authorities faced at this stage was the shortage of suitably qualified and diversified staff. Most of the members of these committees had other commitments and were able to devote only a fraction of their time to these tasks.

Review of Organizational Structure

The analysis of the organizational structure of the tax service revealed a poorly defined headquarters function and a far too decentralized network of local offices.

Headquarters Function

At the ministerial level, the functions and powers that usually make up the headquarters of the tax service were dispersed among several departments. The department in charge of running the tax administration (Tax Control) was not responsible for the development of tax policy options and the drafting of laws and regulations. These functions were entrusted to a small separate department (Tax Legislation). Most important, the budget of the tax service, including responsibilities for personnel matters, maintenance of buildings, and the supply of office materials, was handled by the general administration department of the ministry. The Secretary General of the ministry was the lowest ranking official in whom all these functions converged. He had no supporting staff and had to allocate his time between tax-service matters and other responsibilities. By contrast, the Customs Department, coming from a paramilitary tradition, was organized as a separate, unified, and rather independently managed service.

The central office of the tax administration department was a small unit at the ministerial level with four divisions. It was difficult to draw a clear line between its headquarters functions and its involvement in operational matters. Several divisions of the central office dealt directly with taxpayer files, such as the assessment of large public enterprises and the handling of certain appeals. The staff was also accessible to important individual taxpayers. These responsibilities left little time for conceptual issues and the management of the service. Moreover, because personnel and material resources were handled elsewhere, it was difficult to maintain an overview of the operational needs of the service and to redirect resources according to priorities.

Neglect of the headquarters function appears to be a common problem for the tax administration of centrally planned economies. Many observers of economies in transition have been struck by the fact that, in spite of the focus on central planning, management in a corporate sense had been largely absent in public administration.

In the tax reform reorganization of the central office became a high priority of the Algerian authorities. In early 1990, a new headquarters organization was implemented that elevated the tax service to a General Directorate with authority over all aspects of the service that formerly were dispersed, including the tax policy formulation function, personnel administration, and authority over all other budgetary resources. At the same time, the headquarters function was separated more clearly from the operationally oriented decentralized services, and the central office ceased to deal with matters related to individual taxpayers. These were decisive initial steps. It must be realized, however, that to build an effective management capacity is an involved process that requires years of determined effort for its completion.

Local Level

At the decentralized level, a number of organizational issues were identified, including the need to concentrate the service in fewer local offices and the desirability of assigning functions in a more efficient way. In all, the reforms that have been set in motion will, over time, result in the complete reorganization of the field services.

The Algerian tax administration continues to be characterized by a high degree of decentralization. It is well known that taxpayer attitudes in the Mediterranean countries make it difficult for the authorities to assess income for tax purposes. Scholars of the Maghreb have pointed out that in this region paying taxes also carries the stigma of being considered a form of tribute to the ruler and is therefore seen as being an expression of submission. In Algeria, as in other countries, these taxpayer attitudes have caused the tax service to focus on assessment and especially on the full discovery of income. As a consequence, the Algerian tax administration is organized to maintain close proximity to the taxpayer.

There are some 1,300 tax and collection offices, some staffed with only very few officials serving a small number of taxpayers. Although decentralization had always been a tradition in Algeria, the number of tax offices was increased further in the last two decades, because the number of provinces was nearly doubled to 48 with the concomitant creation of additional circles (diara) and municipalities. As a matter of principle, tax offices were then established in each new circle and in the large townships or groups of municipalities. The motivation may have been political (to demonstrate the presence of government) rather than the result of a critical analysis of actual need for a tax office.

The second issue relates to the basic pattern of organization. The old French system (which has since been abandoned in France and some Francophone countries) provided for the organization of the tax service on a tax-by-tax basis. In Algeria, local tax offices were always created in pairs (that is, one for direct taxes and one for indirect taxes). In addition, a third office was usually established for tax collections. However, the cashiers offices usually also assisted the Municipal Councils in administering their budgets and were also often in charge of maintaining the accounts of certain local enterprise units, especially hospitals.

The new organizational plan, now being implemented, calls for a restructuring of offices by type of taxpayer rather than type of tax, and for the transfer of the extraneous functions to the Treasury. This is to permit the service to focus more clearly on priority tasks. In particular, more attention can be given to the largest enterprises, which often account for the bulk of tax collections. Another obvious advantage of this organizational principle is that the information available for one tax could also be used in the assessment and audit of another. The same applies for information on tax collection. Especially for taxes collected monthly, such as the VAT, a separation between assessment and collection is clearly impracticable. Even in France, where traditionally the Treasury has been in charge of the collection of most direct taxes, the VAT is collected by the tax administration.

As an initial step toward reorganization along these lines, a unified tax service that reports to one director has been created in each province. The complete reorganization down to the local office level will require more time to complete. In early 1992, 698 tax inspectorates still existed, excluding collection offices.

The re-establishment of an intermediate administrative level linking the headquarters to the district office was another important step toward streamlining the organizational structure. Although Algeria’s administrative structure does not recognize regions as political entities, the tax service established nine regional directorates in mid-1991. These have supervisory and other management functions and will represent the highest level within the tax service at which individual taxpayer matters, including appeals, are handled.

In all, the structural reorganization of the tax service is now nearly complete, encompassing the headquarters function at the ministerial level, the establishment of regional directorates, and the reorganization at the local level. This reorganization will permit the gradual application of more efficient procedures and should facilitate administration of the new taxes. However, it will take several years until material facilities are upgraded to the requisite levels, full use is made of automation, all staff members are trained to face up to their new tasks, and the number of tax offices is reduced in line with efficiency requirements.

Streamlining of Procedures

As regards assessment and collection, the previous French system had remained largely intact during the socialist period. Nevertheless, some procedures had deteriorated, partly because of the weak management structure and the lack of sufficient instructions, documentation, and training of staff. In the framework of administrative reform, these issues were approached from different sides.

First, the establishment of the intermediate management layer at the regional level and the streamlining of the organizational structure under a single director at the provincial level have provided a much-improved basis for administrative guidance and control of field offices.

Second, the authorities intend to issue a revised set of regulations to clarify questions of interpretation of the tax law and to prepare a comprehensive and detailed procedural manual for the service. The latter would need to deal with a broad range of matters where, in the past, field officers had been given leeway to devise their own procedures. It would need to cover file management, methods to detect quickly late-filers and stop-filers, control of penalties, and the timely follow-up on pending issues. A few local offices had on their own initiative installed microcomputers and developed applications to deal with some of the above tasks.

Third, material support will be needed in the form of upgrading office accommodations and providing equipment. The administration has embarked on a far-ranging program for these purposes that will require a number of years to complete. Training is another major aspect, along with office automation and improved support of tax administration in general (see the following two sections for more detail).

Fourth, as an expedient for reorganization as well as for improvement of procedures, a census of the tax administration was initiated in an earlier phase of reform. Based on a detailed questionnaire to be answered by each field office, it called for information on the number and type of tax files, structure and qualifications of staff, and other matters. A preliminary evaluation of answers showed considerable variation in workloads from one office to another. The establishment of realistic workload standards will be useful for streamlining the service.

For the reasons discussed above, the tax administration in Algeria, as in most other Mediterranean countries, monitors the affairs of the taxpayer closely so as to be able to assess income as comprehensively as possible. Self-assessment in the form practiced in the industrial countries of Anglo- Saxon origin is generally not used in this area, although the administration, which determines tax liability, relies in most cases on the declaration by the taxpayer. Full and general reliance on self-assessment appears premature, but it could be considered for certain groups of taxpayer corporations, if supported by effective audit procedures.

Development of Training Programs

The initial analysis of the tax administration revealed a critical need for training and the enforcement of job standards in filling vacancies. Senior officials reported that in the last few years, officers had, in fact, been hired with very little formal training. Within the service, there was no structured system of on-the-job training. As public sector salaries had become unattractive, there were vacancies in spite of the relaxation of hiring standards. A survey by the service had shown that some 7,000 tax officers, of a total of some 13,000, were in urgent need of training in one form or another. The initial training of tax inspectors on various levels had been handled by the National Institute of Finance, which addressed all training needs of the Ministry of Finance and some other organizations. Training in tax matters was confined to a special course for prospective staff of this service, which had a total capacity of about 250 students a year.

In order to redress the situation, the authorities are implementing programs at two levels: (1) creating a specialized training institution for the tax service, and (2) introducing systematic on-the-job training.

In 1990, a separate tax-service school was established as an intermediate step toward the creation of a National Tax Academy that could satisfy the requirements of the service in the long run. A particular short-term need was the expansion of senior staff, as only about 2 percent of all serving officers had a university degree. As an emergency measure, more than 1,000 university graduates were hired in 1990 and put through a oneyear crash course.

As to in-service training, courses conducted by senior staff are being organized at the regional and local levels. In Algeria, a remaining small group of highly trained and qualified officials is nearing retirement age. It is therefore of particular importance that suitable individuals from this group be used to provide in-service training in their specialization.

Better Integration of Data Processing into Tax Administration

Taxpayer identification is a prerequisite for successful computerization of the tax administration. Algeria used locally issued taxpayer numbers, often based on geographic criteria, but had no national identification scheme in use by the tax service. It was recognized that a nationwide system is a basis for a taxpayer master file, which becomes indispensable when the income tax system is moved to a global basis and the system of product taxes is changed to a VAT. Therefore, the establishment of a taxpayer identification numbering system, and subsequently a master file, became one of the early priorities in the tax reform process. An agreement was reached to use a common identification scheme based on birth records. In addition, a system for the identification of business was constructed. Implementation of these measures was nearly complete in early 1992.

The authorities, recognizing the need for improvement in dataprocessing facilities early in the reform, created a working group for this purpose. The administration had reduced staffing of the computer center to the minimum needed to maintain ongoing operations, and a sufficient number of competent private sector companies had not been established. Most local expertise was concentrated in two public enterprises, which had many clients and found it difficult to focus on the specific needs of the tax administration. Algeria obtained technical assistance for analyzing options, including the degree of decentralization, the integration of microcomputers, and the use of on-line access.

The development of a comprehensive and internally consistent strategy or master plan for the use of data processing in the tax administration proved more difficult than had been expected. In the early stages of the process, the precise features of the new taxes had not been agreed upon, the numbers and the types of taxpayers, their reporting requirements, and the treatment of certain types of income and transactions had not been determined, and organization, staffing, and operational procedures of the tax service had not been spelled out in sufficient detail.

Other countries in transition are likely to face similar problems. It is safe to conclude that computerization becomes the acid test of tax reform planning. Frequently, there is pressure to push ahead with the procurement of hardware. But it is difficult to develop a satisfactory concept for electronic data processing support before basic tax policy decisions have been taken and the scope and timeframe of administrative reform have been determined.

Algeria is now establishing three regional tax processing centers, which will replace the outdated single facility in Algiers. It plans to create a microcomputer-based system of decentralized administrative support for the treatment of the monthly VAT returns and payments.

Ernst-Albrecht Conrad is an Advisor in the Fiscal Affairs Department.

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