Tools and Frameworks
The landscape of tools and frameworks to support countries in formulating and implementing tax system reforms, in its multiple stages, has evolved in the last two decades. Different tools have been developed by PCT Partners to serve the varied needs of countries in the analysis of their robustness of tax systems as well as data collection and reporting.
Tax system reform (TSR) comprises four distinctive stages: diagnostic, design, implementation, and monitoring and evaluation. At the beginning of 2000, there were only a few tools and frameworks available to support these phases. Data on tax administrations was gathered by multiple organizations in parallel exercises, which imposed significant costs on countries.
Now, countries and Development Partners (DPs), can access a variety of tools and frameworks to inform aspects of, and assist with, the different TSR stages. Some of these tools have been developed by individual PCT Partners (e.g. the IMF's Revenue Administration Gap Analysis Program (RA-GAP)); other frameworks in cooperation among PCT Partners (e.g. UNDP/OECD's Tax Inspectors Without Borders (TIWB)); and some tools by PCT Partners in collaboration with the broader community of DPs, such as the Tax Administration Diagnostic Assessment Tool (TADAT) and the International Survey on Revenue Administration (ISORA).
In supporting the different TSR stages, these tools serve varying purposes and should be used in applicable ways. Given the broad scope of TSR and capacity development (CD) support available, the tools also vary in terms of the level of specificity that they provide, and the extent to which they are designed to integrate with CD programs.
TSR's Diagnostic Stage Tools
- The diagnostic tools aim to assess different components of a country’s tax system. Some are focused on assessing the strengths and weaknesses of revenue administrations in a targeted (e.g. RA-GAP, CD missions) or comprehensive (TADAT, CD missions) manner. Others are focused on assessing the tax policy setting also in either targeted or comprehensive ways (Fiscal Analysis of Resource Industries (FARI), Tax Policy Assessment Framework (TPAF), Tax Expenditure Assessment (TEA), CD missions). In both cases, the tools are applied on a country-specific basis.
- The data gathering tools aim to collect cross-country information of a tax system for a region or worldwide (e.g. ISORA on tax administration, Revenue Statistics by the IMF and OECD). Data from these tools feed into the application of diagnostic tools to inform assessments (e.g. while conducting a TADAT in a country, data from ISORA informs the TADAT assessment). Similarly, information from ISORA and Revenue Statistics feed into CD missions conducting diagnostic assessments in policy and administration, the latter not necessarily using TADAT.
TSR's Design Stage Tools
- In this stage, the main tools for designing reform strategies for the tax system as a whole or for its different elements (policy, administration, legal framework) are CD projects and missions. Strategy-design CD missions benefit from assessments on the current situation from several diagnostic tools, so they can advise countries on a forward-looking reform strategy. The latter can be comprehensive, taking a holistic approach to the tax system's main elements. For example, following a TADAT assessment, which diagnoses the strengths and weaknesses of a tax administration, a comprehensive reform strategy can be designed to address said weaknesses and strengths and achieve enduring tax administration improvements. CD missions can also assist in designing targeted, forward-looking reform strategies by focusing on certain aspects of the tax system (e.g. a modernization of specific tax and customs administration areas, a reform path to meet international standard commitments, a reform of an existing tax or the introduction of a new tax). Some diagnostic tools also support CD missions in the designing of specific reform options. For example, the IMF/WB's TPAF helps identify design options for different taxes, while FARI helps assess and determine fiscal regime options for extractive industries.
- Analytical work plays a key role in assessing the revenue, distributional, and efficiency impacts of potential reforms. Microsimulation studies (e.g. Commitment to Equity analysis conducted by the WBG and other researchers) are also of significance; however, economic analysis can require country specificity, which has limited the scope for standardized tools in the past.
TSR's Implementation Stage Tools
- A wide variety of tools are now available for this stage, consistent with the complexity of implementing tax system reforms in a targeted or comprehensive manner. Following the TSR's design stage, which provides a forward-looking reform strategy, there is a need to translate it into medium- term implementation plans. Tools like Maturity Models and DIAMOND help in this process by drilling down and deepening the understanding of a particular area (e.g. debt management, human resources, information technology systems, business processes) with the view to design or guide the changes to be undertaken to achieve transformation.
- Considering the need for effective institutional changes, beyond changes in systems and processes, training of revenue agencies and ministries of finance are key enablers to success. Multiple DPs and PCT Partners provide these implementation tools. The OECD/UN's TIWB, for example, focuses on audit training in the workplace and elevates the skills of auditors in recipient countries by providing auditors from other countries. Analytical work, documenting international good practice and experience, is also a key implementation tool, which helps countries come to grips with international trends and emerging practices, tailoring them to their own realities. Networking and peer learning from other agencies is another important implementation tool. The Federation of Tax Administrators (FTA), in particular, created a network of capacity building to share the experience of tax administration agencies providing this support on a bilateral basis.
- The CD programs carried out by the PCT Partners and DPs are critical tools to support TSR implementation, which vary in modality and scope. The crucial feature of CD programs is their medium-term nature. This is particularly relevant in countries with low capacity, which require close support to design, lead, and manage reform strategies to successful implementation.
TSR's Evaluation and Monitoring Stage Tools
- This stage particularly benefits from the previous stages. Several of its diagnostic tools can also serve to evaluate progress. For example, a TADAT assessment takes a picture of the 'health' of a tax administration in a specific year. When conducting a TADAT a few years later, after a reform strategy has been designed based on the initial TADAT and implemented to address the tax administration's weaknesses and consolidate the strengths, the repeated TADAT should showcase the progress and effectiveness of the reform strategy and its implementation. RA-GAP, ISORA, and other diagnostic and data gathering tools can serve a similar purpose.
- Analytical work can also be targeted to evaluate the effectiveness of TSR and assess CD programs supporting TSR. Peer reviews are another critical monitoring and evaluation tool, particularly used by the OECD and the Global Forum to assess (and also assist) countries in meeting their commitments to international standards. The FTA capacity-building network Is also a good example of peer learning and evaluation.