Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund

APPENDIX I

Features of Tax Administration in Selected Middle Eastern Countries

A definition of the tax administration features and the terms used to assess the specific situation in the table below are as follows:

  1. Reform strategy. This refers to whether or not there is a formal strategy in place for tax administration reform. An IMF-recommended reform strategy typically includes specific recommendations and a high-level timetable for their implementation, success criteria, and proposals for effective management of the strategy, including governance and project management principles. The comment “plan” refers to situations where a reform strategy has been recommended but implementation is at the early stages only.

  2. VAT. This refers simply to the existence of a VAT, or plans for one, and does not deal with the nature and performance of the particular VAT.

  3. Self-assessment. This refers to the existence of full self-assessment for tax administration. A comment that says “LTO” implies there is self-assessment in the LTO. “VAT” means there is no self-assessment for income tax, but only for VAT.

  4. Function-based organization. This refers to whether the tax organization(s) is (are) based on functions (registration, returns processing, audit, etc.).

  5. Integrated direct and indirect tax administration. This refers to whether or not direct and indirect tax administrations are integrated, primarily VAT and income tax.

  6. LTO. This refers to the existence, or absence, of a dedicated organization to serve large taxpayers.

  7. Segmentation. This refers to whether or not the tax administration has undertaken, or plans to undertake, services to specific taxpayer groups other than the largest taxpayers (e.g., medium and small taxpayers).

  8. TIN. This refers to the existence, or not, of a unique taxpayer identification number, (TIN), controlled by the tax administration and used by all revenue collecting operations.

  9. Taxpayer services. This category refers to taxpayer services specifically, and is primarily intended to indicate whether or not there is a trend toward improving these services.

  10. Tax operations. This is a general reference to all tax operations (accounting and payment, audit, collection enforcement, appeals, etc). These are areas where FAD usually makes specific recommendations for improvement. Because this covers a broad range of topics, it is difficult to summarize the situation in a single word. However, the intention is to indicate a general starting point, and the extent to which there has or has not been improvement from the early 1990s.

  11. Information technology. IT investments have often been a big part of tax administration reform. Where they have been effective they have focused on re-engineering and simplifying business processes, not merely automating existing, inefficient processes. The intention is to categorize IT status in a single word or phrase to capture the starting point and the trend.

Table 6.

Features of Tax Administration in Selected Countries, Early 1990s vs. Today

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I = improved; MI = minor improvements; Part. = partially; * = status not known.

APPENDIX II

Features of Customs Administration in Selected Middle Eastern Countries

A definition of the customs administration features and the terms used to assess the specific situation of each country in the table below are as follows:

  1. Reform strategy. This refers to whether or not there is a formal strategy in place for customs administration reform. An IMF-recommended reform strategy typically includes specific recommendations and a high-level timetable for their implementation, success criteria, and proposals for effective management of the strategy, including governance and project management principles. The comment “plan” refers to situations where a reform strategy has been recommended but implementation is at the early stages only.

  2. Customs law. This refers to the legislation that governs customs operations and often the organization of the customs function in the government. The term “adequate” means there are or were no major problems with the legislation at a point in time; “needs revision” means the IMF and others have recommended revisions to the legislation, to modernize and/or to reflect new trade arrangements such as the WTO agreements.

  3. Customs procedures. Where customs procedures are or were characterized by repetitive checking, unnecessary complexities, a lack of transparency, etc. status is shown as “overly complex” or if slightly better than that, “basic”. The term “improved” indicates recognition of problems and implementation of a number of specific actions to make progress (for example, the single administrative document). “Minor improvements” signifies a start in the right direction only.

  4. Post-release verification. This category refers to the existence or not of risk-based controls exercised after goods have been cleared for entry, with a de-emphasis of non risk-based physical inspection at point of entry.

  5. Effective organization. This refers to whether or not the customs administration has organizational structures and institutional processes that are conducive to integrity and effectiveness in customs administration.

  6. Information technology. IT investments are an important part of modern customs administration. A number of customs application software systems have been acquired by developing countries. Where they have been effective they have been adapted to re-engineered and simplified business processes, and they have avoided the automation of outdated and often inefficient processes. The intention is to categorize IT status in a single word or phrase to capture the starting point and the trend.

Table 7.

Features of Customs Administration in Selected Countries, Early 1990s vs. Today

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A = adequateC = overly complexI = improvedMI = minor improvementsRR = revision or review required++ = ASYCUDA

APPENDIX III

Selected Case Studies

1. EGYPT—Tax and Customs Administration
Background

While Egypt has benefited in recent years from an upswing in global economic growth, the fiscal deficit has widened and a decline in revenue is a contributing factor. Implementation of reforms has been slow and incomplete, downward pressures on revenue remain significant and the tax system still has important weaknesses. There has recently been a firm and renewed commitment to reform of tax and customs administration. Revenue administration remains fragmented between an income tax department (ITD), a sales tax department (STD) and a customs department. Integration of the tax departments is an important feature of the new strategy for reform, beginning with the creation of an integrated LTO. The existing reform strategy for customs has been revitalized.

Table 8.

Egypt: Consolidated Revenue Collection, 2001/02–2004/05

(In percent of GDP)

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Source: IMF compilation.
Technical assistance

The IMF-FAD has provided upstream TA on customs administration in 2002–03. Following the appointment of a new minister of finance in 2004, the reform effort has been expanded to include also tax administration, with a full revenue administration mission undertaken in December 2004. That mission’s recommendations now serve as the underpinning of the emerging reform strategy, and FAD has approved a series of visits of a senior advisor to assist the authorities in implementing their reform strategy.

The USAID has provided funding for tax administration reform in the past and is currently actively engaged in customs administration reform. Both the USAID and the European Commission have indicated a strong interest in providing long-term TA to support the revenue administration reform that is being developed with FAD assistance.

Tax policy issues

Over the course of recent years, Egypt has received a number of tax policy missions and has been provided with advice on the implementation of the General Sales Tax (GST) as well as the drafting of new income tax legislation adopted in the spring of 2005. Advice has also been offered on tariff reform. A tax policy mission is set for May 2005 and will look specifically at the GST and provide advice to improve its functioning. At the same time, the mission will consider options for a presumptive tax regime for small taxpayers in Egypt.

Status of tax administration reform and modernization

The modernization strategy is based on six components: (1) an adequate tax policy framework; (2) simple legislation and procedures; (3) a full regime of self-assessment for large and medium-size taxpayers; (4) function-based organization structures and modern business processes; (5) integration of domestic tax administration; and (6) a strong focus on taxpayer segmentation, beginning with large taxpayers.

Status of customs reform and modernization

Reform of the customs administration has been implemented with significant USAID support based on a strategy developed with FAD assistance in 2002. The key components of the strategy include: (1) development of a new law and procedures; (2) implementation of risk management; and (3) closer collaboration with other government agencies.

Overall assessment of revenue administration reform

Until recently, the main focus of revenue administration reform in Egypt has been on customs, with insufficient attention paid to reform of tax administration. The introduction of the GST in the early 1990s provided an opportunity to build a modern tax administration, but in the absence of integration, the ITD has lagged significantly behind the STD.

A major revenue administration reform is being implemented by the minister of finance. Resources have been made available to engage professional consultants for the LTO implementation phase. Additional funding will be sought from donors to continue providing the needed expertise for implementation of the full reform program and ensure the necessary knowledge transfer. Strong government support and a commitment to integrate the ITD and STD in the medium term are indicators that the reform strategy is on solid footing.

2. JORDAN—Tax and Customs Administration

Background

Jordan has decided to modernize its revenue administration by creating an LTO in Amman, establishing a function-based unified tax department headquarters, developing plans for several medium-size taxpayer offices, and developing simplified administrative arrangements for small taxpayers. Revenue administration in Jordan had been organized by tax type, with three departments (customs, income tax, and GST) reporting to the minister of finance. The separate GST department (GSTD) was carved out of customs when the GST was extended to the retail sector in 2001.

Table 9.

Jordan: Consolidated Revenue Collection, 2000–04

(In percent of GDP)

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Source: IMF staff estimates.
Technical assistance

Over the past three years, three IMF-FAD TA missions have been provided, including a major review of all revenue administration issues in 2003. Currently, a series of peripatetic assignments of a senior FAD expert is being provided to assist Jordan in implementing its tax administration reforms.

FAD assistance is closely coordinated with the UNDP and France. The UNDP has an ongoing program and funding to support modernization of the income tax department (ITD), particularly computerization. The UNDP continues the support since the decision of the government to integrate domestic tax administration into a unified department. France has also assigned an expert to the tax administration to support the tax administration reforms and implement a comprehensive training strategy.

Status of tax administration reform and modernization

Status of customs reform and modernization

Overall assessment of revenue administration reform

A comprehensive program of reform and modernization is well underway for both tax and customs administration. Integration of domestic tax administration forms the cornerstone of reform, and should eventually provide many benefits to the administration and to taxpayers.

The authorities have made very good use of FAD strategic TA, which has been closely coordinated with the long-term assistance provided by the UNDP and France.

3. LEBANON—Tax and Customs Administration

Background

Significant progress has been made in the 1990s in implementing a customs reform program and the introduction of VAT in February 2002 has been successful. However, important weaknesses remain in the administration of income tax, which if not addressed will severely compromise the implementation of the planned global income tax from 2006.

Table 10.

Lebanon: Consolidated Revenue Collection, 2002–04

(In percent of GDP)

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Source: IMF compilation.
Technical assistance

The IMF-FAD has provided significant TA in recent years, including three revenue administration missions in 2001, 2002, and 2003. These missions have closely coordinated their work with the long-term tax policy and administration advisors financed by the UNDP and Canada. Since end-2004, the METAC has also assigned a peripatetic expert to help establish the LTO.

In spite of large scale assistance since 1998, performance of the various parts of the revenue administration and the pace of reforms remains inconsistent, mainly due to significant difficulties in adopting the necessary laws (including the VAT administration act, the tax procedure code, and the income tax law).

Tax policy issues

In recent years, FAD has also sent a number of tax policy missions to support VAT implementation and replacement of scheduler taxes with a global income tax (GIT). The latest mission in December 2004 provided advice, among others, on the treatment of small businesses (i.e., sole proprietorships with an annual turnover below the VAT threshold), which are not covered by the VAT, and a simplified regime may need to be considered.

Status of tax administration reform and modernization

FAD has recommended a modernization strategy based on four main components: (1) completion of existing initiatives, including the tax registration and deductions at source programs; (2) establishment of an LTO; (3) creation of a unified, function-based tax administration; and (4) development of an implementation plan for the GIT. A substantial legislation program, including a tax administration law, a tax procedure code, and a GIT law will need to accompany this program

Status of customs reform and modernization

A program for customs administration modernization was embarked upon as early as 1996, based on principles of self-assessment.

  • Post assessing—post-release unit has been established and staff trained. Improvements are still needed with respect to penalties, and appropriate delegation of authorities.

Overall assessment of revenue administration reform

The successful introduction of VAT in 2002 has contributed to stronger tax revenue performance, and the new VAT administration can provide a sound basis for restructuring overall domestic tax administration. In contrast, the administration of income taxes is poorly organized with an inappropriate mix of staff, ineffective automation, and inefficient business processes and work practices. In relation to customs administration, a solid reform plan is well underway. Further improvements in the areas of tax policy and administration will depend on the political situation and the authorities’ commitment to tax reform.

4. MOROCCO—Tax and Customs Administration

Background

Morocco’s economic performance over the last three years has been favorable. Despite this, there continue to be a number of reasons for concern. Morocco has entered in to two free trade agreements (with the EU and the United States) which will ultimately reduce customs duties and increase reliance on the tax system. Efforts to increase tax revenues have concentrated on direct taxes with some success, while VAT collection has remained relatively static. The VAT legislation is in need of extensive revision to bring it into line with the modern principles of a VAT.

Table 11.

Morocco: Consolidated Revenue Collection, 1999–2003

(In percent of nonagricultural GDP)

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Source: IMF compilation.
Technical assistance

IMF TA through FAD was centered on tax policy and customs administration through the late 1990s, using TA missions. More recently, missions in 2000 and again in 2004 have focused on tax policy and tax administration. The 2000 mission proposed a reform strategy that included the simplification of the VAT and the modernization of the tax administration. The 2004 mission expanded on broad recommendations for reform of the tax administration.

Morocco has received extensive assistance from France and the EU, largely in the form of training and study trips. More recently, the EU has launched a large initiative in Morocco and will focus on tax policy enhancements, beginning this fall.

Tax policy issues

The tax system in Morocco can be fairly characterized as highly complex. A VAT with multiple rates, a low threshold and many exemptions all contribute to make the tax an ineffective vehicle for the government to raise tax revenue and a complicated tax for both the taxpayer and the tax administration. Issues in direct taxation relate mainly to a number of distortions, which have resulted from almost continuous amendments to the various taxes.

Status of tax administration reform and modernization

Based on the 2000 mission’s recommendations, the tax administration was able to advance on a number or fronts, including: creation of two LTOs in Casablanca and Rabat, and transfer of the tax collection function for VAT and the corporate profit tax from the Treasury to the tax administration. The 2004 mission also made a number of recommendations that are captured in this section of this annex.

Status of customs reform and modernization

The customs administration is recognized as leader in reform and modernization efforts. Since 1996, the administration has pursued a reform strategy built around 4 principal objectives: automated review of customs declarations, targeted selection for review, reduced release times and a dialogue with business.

Overall assessment of revenue administration reform

Revenue collection continues to be constrained by weaknesses in tax administration and policy. From a tax policy perspective, the VAT can no longer be depicted as a neutral and efficient tax, given the number of exemptions and rates that apply. Revenues from the direct tax system (IS and IGR) are likely to plateau and customs duties will continue to drop in light of the free trade agreements with the EU and the United States. From the administrative perspective, the tax and customs administrations have made progress in recent years on a number of fronts (e.g. LTUs), but more remains to be done in a more coherent and deliberate fashion.

5. PAKISTAN—Tax and Customs Administration

Background

Pakistan’s recent economic performance has been encouraging—real GDP averaged about 3.5 percent over the last few fiscal years. Notwithstanding this progress, tax revenue collection continues to remain a weak spot. Revenues remain below the level needed to finance Pakistan’s debt obligations while ensuring needed increases in social expenditures. Improvements to the tax system (policy and administration) remain critical.

Table 12.

Pakistan: Federal Revenue Collection, 1999/00–2003/04

(In percent of GDP)

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Source: IMF compilation.
Technical assistance

IMF TA through FAD has been comprised of a number of TA missions in the 1990s and early 2000s (at least 5 since 1997) and the provision of peripatetic and full time technical advisors (about two FTE over the same time period). The 2001 mission developed elements of a reform strategy including a new agency for tax and customs administration with increased autonomy, establishment of an LTO, income tax structured on a functional basis with integration of income and sales tax operations, extension of self-assessment to all income tax payers, and dedicated taxpayer services and audit functions.

Following the 2001 FAD mission, the World Bank has developed a customs and tax administration reform project (to be supported by a loan agreement). A World Bank consultant has been engaged to assist with detailed planning for the revenue administration reform program, and to prepare required project documentation.

Tax policy issues

Tax policy issues impacting on tax administration center mainly on the existing GST. This tax continues to suffer from weak design features including complex refund rules and inappropriate input tax credit restrictions.

Status of tax administration reform and modernization

The need for reform has been recognized by the authorities, and recent measures have included the extension of the GST to services, a re-write of the income tax law, new national tax numbers, improved audit and appeals, and plans for expanded self-assessment. However, in the past, many issues have compromised effective revenue administration such as poor organizational structure, ineffective IT, weak management, and concerns about integrity.

Status of customs reform and modernization

The approved customs reform and modernization strategy represents a solid planning framework. Specific plans are now being developed to address outdated legislation, slow and complex procedures, overstaffing and the requirement for better-trained staff. These measures are necessary to reduce inefficiencies and prevent revenue losses through undetected under-valuation, tariff misclassification, and exemption fraud.

Overall assessment of revenue administration reform

Revenue collection continues to be constrained by a mixture of tax policy design and tax administration issues. From a tax policy design perspective, Pakistan has a low number of income and GST taxpayers relative to its size. Tax exemptions for special interests or particular sectors also undermine the tax system, though the authorities have significantly reduced the number of tax exemptions in recent years and have largely refrained from introducing new exemptions. There is some scope for broadening the GST base by extending it further into the service sector. From the administrative perspective, there is a lack of adequate, computerized data and inefficient resource allocation within the tax administration, which allows many potential taxpayers to escape into the shadow economy. Tax evasion is also fostered by taxpayers’ fear of arbitrary and excessive tax assessment, and a lack of resources available for audit and enforcement.

However, revenue administration is being enhanced through the reform initiatives. Moving toward a functional organization that relies on voluntary compliance, self-assessment, risk-based audits, minimal face-to-face contacts between taxpayers and officials, and post-assessment reviews in customs, should improve revenue performance.

6. SUDAN—Tax and Customs Administration

Background

The government of Sudan foresees sustained economic growth over the medium term, dependent on progress in implementing a peace agreement. Efforts to strengthen tax revenues are an important part of its current programs.

Table 13.

Sudan: Consolidated Revenue Collection, 2000–04

(In percent of GDP)

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Source: IMF compilation.
Technical assistance

Sudan has received considerable FAD TA in the revenue administration area. In 1999 and 2000, two missions and six visits by a peripatetic expert were undertaken to assist the authorities in their preparations for a VAT. Following implementation of the VAT on June 1, 2000, three additional peripatetic visits were made to assist with VAT-related issues, and provide limited advice on customs, income tax procedures, and computerization. A mission in September 2003 recommended a strategy for reform of the tax and customs administrations to support the government’s objective of increasing non-oil tax revenue.

Tax policy issues

Administrative improvements alone will not enable the government to meet its revenue objectives and steps have been taken to eliminate widespread tax exemptions. Although improved revenue performance in 2004 have been attributed to a removal of exemptions, further reduction of exemptions is needed.

Status of tax administration reform and modernization

Status of customs reform and modernization

Overall assessment of revenue administration reform

The successful introduction of VAT in 2000 has contributed to stronger tax revenue performance, and the new VAT administration provides a sound basis for reorganizing overall domestic tax administration. In contrast, the administration of direct taxes is poorly organized with too many staff, too many offices, no automation, and inefficient business processes and work practices. A strong push to remove exemptions, especially on customs duties, also yielded large benefits.

In relation to customs administration, initiatives are underway that will have a significant impact on the future customs administration—negotiations for membership in the WTO; implementation of ASYCUDA ++; and negotiations for the COMESA customs union. These initiatives can be used as the basis for modernizing customs operations to both improve service and increase the effectiveness of revenue collection.

1

Jean-Paul Bodin is a division chief in the Revenue Administration Division 1 of the IMF’s Fiscal Affairs Department (FAD). William Crandall is a senior panel expert (FAD). The authors are grateful to Mr. Abdel Rahman for his support and advice. They are also thankful to Michael Keen and Mario Mansur (from FAD Tax Policy Division), Olivier Benon (from the Middle East Technical Assistance Center—METAC), Gene Leon (from the Middle East and Central Asia Department), and David Kloeden, Maureen Kidd, and Egil Martinsen (from FADR1) for their comments. The authors alone are responsible for any errors.

2

These will be identified as “Middle Eastern” countries in the remainder of this paper.

3

The authors are grateful to Abdel Rahman for his support and advice. They are also thankful to Mario Mansur (from FAD TP), Olivier Benon (from the Middle East Technical Assistance Center—METAC), and David Kloeden, Maureen Kidd, and Egil Martinsen (from FAD R1) for their comments.

4

A presentation of the preliminary conclusions of this paper was made during the Conference on Fiscal Reforms in Middle Eastern Countries that was organized in Beirut on May 18–19, 2004.

5

These would include timing, the noncomparability of data, differences in classification of taxes, and the like.

6

Unweighted. For each revenue classification, only countries for which data are available are included.

7

1990 is actually 1989–90 for most countries, and 2000 is 1999–2000. For Saudi Arabia, it is 1992 and 2002. Lebanon is a special case: tax files were lost during the war, and efforts in the 1990s focused on customs reforms.

8

And more so than any sales tax that may have been in place prior to the introduction of a VAT.

9

Liam Ebrill, Michael Keen, Jean-Paul Bodin, and Victoria Summers, eds., The Modern VAT (Washington: IMF, 2001).

10

A higher threshold (EUR 200,000) is applied to retailers.

11

In addition, customs has a major role to play in the protection of society. In recent years, the security role of customs administrations at the border has been increasingly emphasized. Furthermore, tax laws are sometimes used to deliver subsidies through refundable tax credits, although this is more common in OECD countries.

12

Michael Keen, ed., Changing Customs: Challenges and Strategies for the Reform of Customs Administration, (Washington: IMF, 2003).

13

As Bird and Casanegra de Jantscher put it in the early 1990s, “Policy change without administrative change is nothing…” (Richard M. Bird and Milka Casanegra de Jantscher, Improving Tax Administration in Developing Countries; Washington: IMF, 1993).

14

Appendix III presents cases studies providing details for six of the countries reviewed.

15

“Upstream” refers to the notion of providing TA at the strategic or direction-providing stages.

16

Self-assessment for income tax in Egypt is also currently developed.

17

Resistance to self-assessment on the part of tax officials and policymakers is often a result of perceptions about the illiteracy of small traders in low-income countries, inadequate education of businesses in tax matters, and lack of confidence that taxpayers would be willing to pay voluntarily. Nevertheless, experience has shown that self-assessment systems, administered properly, are actually much more effective in addressing these issues than other systems, and do so in a way that minimizes opportunities for collusion, so rampant in other systems.

18

This is a legacy of the British approach to domestic tax administration where separate organizations were established for income taxes (Inland Revenue) and for customs operations and excises (Customs and Excise). Subsequently, when the VAT was introduced, responsibility for its administration was added to Customs and Excise. However, the United Kingdom has recently decided to merge VAT and income tax administration.

19

Typically, large taxpayers account for 60–70 percent of total tax collections, medium-size taxpayers for 25– 30 percent; and small taxpayers for less than 5 percent.

20

As indicated in Appendix II, modernization of the customs administration in Morocco is considered as a very successful reform, which included an improved customs code, streamlined and simplified procedures, implementation of control based on risk assessment, performance standards, and effective internal audit, effective use of information technology, and a consultation process with the private sector.

21

The assignment of a regional revenue administration advisor in the IMF’s Middle East Technical Assistance Center (METAC) that was created in October 2004 has enhanced this approach in several countries covered by the center (e.g., Egypt, Jordan, Lebanon, Libya, Sudan, Syria, West Bank and Gaza, and Yemen). Through frequent contacts with tax authorities and TA providers in the region, the advisor has been particularly instrumental in (1) identifying reform needs; (2) coordinating the revenue administration assistance provided by the IMF (FAD and the METAC) with others donors; and (3) providing follow-up assistance to implement major reforms.

22

Continuation of the IMF upstream assistance to support implementation of revenue administration reforms is normally subject to regular evaluation of progress achieved and assessment of authorities’ commitment.

23

This includes merging direct and indirect tax administration, and transferring all tax collection responsibilities from the treasury to the tax administration.

24

Projected.

25

Projected.