- Andrea Lemgruber, Andrew Masters, and Duncan Cleary
- Published Date:
- May 2015
This paper analyzes the results of the first round of Revenue Administration Fiscal Information Tool (RA-FIT)1 country survey in an aggregated manner, for the most part by income group, but on occasion also by IMF region. As could be perhaps expected from such a large data-gathering exercise, round 1 data are not fully complete and suffer from a number of shortcomings in terms of quality. However, the analysis of these preliminary data has helped identify trends, draw broad conclusions (albeit cautious ones), and identify areas for further research. The paper also begins the process of making cross-country information available to developing economies in order for them to improve their revenue administration performance. Some initial results are summarized here.
Value-added tax (VAT): VAT’s relative importance, as a share of total revenue, has increased over the past decade for all income groupings but particularly for low-income countries (LICs). However, from RA-FIT data, it is evident that LICs have a much higher number of credit VAT returns (essentially refund requests) on average than the other income groupings—42 percent of total returns received. Yet of all the income groupings, LICs make the least refunds as a percentage of total gross VAT—7 percent as opposed to a 36-country mean of 18 percent.
Tax and customs organization: Tax and customs administrations have traditionally been organized as separate administrations within the structures of the Ministry of Finance (MoF). Forty percent of surveyed respondents have now adopted an institutional arrangement outside of the Ministry, mainly as semi-autonomous bodies. This model predominates in Anglophone Africa, where 85 percent (17/20) of surveyed respondents indicated they have a revenue authority, with tax and customs administrations combined into a single organization.
Tax and social security contribution collections: The similarities of the processes to administer taxes on labor income—namely the personal income tax (PIT) and social security contribution (SSC), which are important revenue bases in more advanced economies—may have been the catalyst for choosing to combine tax and social security collection functions in some of these countries. Indeed, most tax administrations collecting SSCs (11/15) are found in upper-middle-income countries (9) and high-income countries (2).
Large taxpayer administration: On average, 77 percent (62/81) of the RA-FIT respondents reported having a large taxpayer office (LTO). Average revenue under LTO management as a percentage of total domestic revenue was lower than expected, at around 48 percent. Ratios of LTO staff to LTO taxpayers are also lower than expected.
Small taxpayer administration: Slightly more than half of the RA-FIT respondents have implemented a simplified regime for small taxpayers. These regimes are more common in LICs, where 85 percent of the administrations have special simplified small taxpayer regimes. This policy choice may be related to the profile of these economies (for example, higher informality, cash economies, and large numbers of the working population seeking to earn an income in an environment with limited employment opportunities) and the overall weaker capacity of the tax administrations.
Taxpayer register profile: More than two-thirds of taxpayer registers in LICs contain PIT payers for salaried employees, and universal filing is often a prerequisite. This is despite the fact that most of this tax is withheld by the employer and paid over directly to the tax administration.
Return filing: On-time filing rates for corporate income tax (CIT) and PIT returns across all income groups were much lower than expected. The average on-time filing rate for CIT was 49 percent and for PIT 45 percent. The average on-time filing rate for VAT was much higher, 69 percent, which may be attributable to a greater frequency of return filing, the self-enforcing nature of VAT through the input tax credit mechanism, and possibly more modern systems and processes given that VAT is a much more recently introduced tax in many countries.
Arrears: Corporate income tax arrears as a percentage of total CIT annual collections are much greater than for other taxes such as PIT and VAT. While the overall sample size for all income groupings was much smaller than for other aspects examined, total tax arrears as a percentage of total domestic revenue was lower for LICs than for low middle-income countries (LMICs) and upper middle-income countries (UMICs). This finding may be linked to poor overall return filing rates, meaning that taxes due and payable have not yet been recorded by the administration as outstanding, and as such have also not been subjected to any recovery action. Further, many administrations were unable to answer all questions in RA-FIT relating to arrears, particularly with respect to their age. Many administrations need to ensure more accurate reporting on this important category.
Release times for imported goods: Release times for imported goods subjected to physical inspection tended to decrease with income level, from LICs to high-income countries (HICs). By contrast, release times for goods not undergoing physical inspection in LICs (via air, land, and sea modes of arrival) were lower than their LMIC counterparts.
Customs traffic by channel: Although physical inspection of goods is necessary, it is often used too intensively, especially in the developing world. RA-FIT data suggest that on average LICs inspect 52 percent of imported goods (red channel), compared with 34 percent for LMICs, 26 percent for UMICs, and 20 percent for HICs. Such a trend suggests weak risk management and control selectivity for developing economies, with a potential increase in trading costs and reduction in trade competitiveness.
Box 1.Brief Overview of the RA-FIT
The Fiscal Affairs Department (FAD) provides extensive technical assistance (TA) to its member countries to modernize their tax and customs administrations. As part of this service, data collection, validation, and analysis underpin the guidance FAD gives to the respective countries. In the area of revenue administration, detailed questionnaires soliciting data are sent in advance of all diagnostic missions to the respective revenue administrations. FAD analyzes the responses, identifies key issues, and—based on a combination of the analysis of data and relevant documents and meetings with country officials—proposes recommendations to address the critical areas in both tax and customs.
This approach, which has served its purpose well, does have limitations. For example, some revenue administrations have considered such reporting to be onerous, as a one-off exercise for purposes of the TA mission. Further, the data are not standardized and consolidated into a central and reusable database—this requires future technical teams to search for the original responses, request the same information again, and leave the acquired data in repositories that are not widely accessible.
RA-FIT started off as a response to the need for standard data to help revenue administrations, particularly LICs, to better assess and track their performance. The RA-FIT can also be the common platform that other international organizations involved in gathering revenue administration data will use.
The RA-FIT aims to:
- Gather and analyze core tax and customs administration data annually.
- Make data and analysis available to member countries to enable them to monitor their performance and benchmark themselves vis-à-vis other countries.
- Establish baseline measures (key performance indicators) for TA programs of all providers, and provide a more detailed data source for a Results Based Management framework.
- Help target TA strategies and improve the quality of TA.