8/10/2019 Bird Tax Reform

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8/10/2019 Bird Tax Reform

3/7

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8/10/2019 Bird Tax Reform

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tasks: facilitatingoonrplhnce,

inonitotingcompliance.

find

Jdiny

with

noncompliance.

Facilitating

ampfiance

nvolves

suchelements

as

improving-ices

to taxpayers by providing them clear

instructions,

undmtandilble

forms and assistan- and information

as

nuoesswy

(LEBaube and

Vehom

(Chapter

9 in this volume)). Monitoring c o m ~

equires

tstablishing

and

maintainingcurrentm n t s ftaxpaymaad manage

meat

information

systems

-yering both ultimate

laxpayers

and

third-

patty agents,

such

ash k s , nvofvcd nthe tax system

W@ucz-Cm,

Reid,

and Bird

(I%U)),

as well

as

appropriate and

prompl

pro&tr*s

to

detect

and fobw upon

nonfilers and

delayed paymentre. Deterring

noncompliance

requires bothcshblisbing

a

msanablerisk detection

and applying-tie9 tffectiwIy

(Sjlviwi

(Chapter8k his

vdumt)).''

The ideal qpmach

is

to

combine these m e m m

so

as to maximize

their

tf t

on

comp

it w m , tomove a country from a low-

cmnphm toa" h ~ c o m p l i i * 'avironmeltt. For

example whsn

introducing

a

VAT orother

new

tax, e m p h i s shodd

&st

be giva to

misting taxpaycm to compEy with the

new

ta-see, form p l e , he

Triaidad and Tobago

cagediscussedby

Due and G m y Chapter 5

in

&is v o l u m e ~ e no detecting m c o m p h , and M y oapplying

@ties.

As a d ,

ucmdd

reform

strate

require

an

ap-te

dl

of all th s appmda,

he taxpayer s decisionto

comply, or notto

coslp y,

with bir fiscal

obligations sdmm c

he subject of helarge

o n d

bsomthl

litera-

ture

on the ecmomiw of tstx

evasion

(Cowell (1990)). While some

~ b a s h m t r d e b 0 t h i n ~ t b e s ~ g i c s t s p e c t s

of

the

evasion

decision

in a w c bmwd

and

in

mod*

it in

pdmcipd-agent terms,

much

remains

to

be done befom the

msub

OlsucBsrnalysisqcUely w,havemucbtosayabouttbereal world

gsune indevdopiqcountries.'' Kprexample, apar~romapioneering

paperby V i d fW),irt ky d h t entire economic IiitermrturcMI tax

emhi

assumes

ht

tax

arc wmplctdj hmrc. lf

dl

oflkkls

are h e s t

( a d n Be:

xpcted

utility

frameworku d n moat

of

he

theoretical

limu~e

t

not

clear

why

they

should

k

x p l d

tobt , the

game

is

rwy d i f f m t than t b t

usually

mtdeled, ''I ;kqw

costs,

as

Shaw (t981) dl?

hat

portion of x avenues tltitl

flows

into

the

pockets of officidst ther han into the coffers of

yc~vcrnrilcd,

m y imply be

transfen

in qunomic terms but they may ~wr~albcks*

I

Wcmcourst

it

is also lmponsnt

to

emurn

thar

judidal

p r d u h l c

natillltkrrn

hrr

such p g

fQ M i t a l e

tbt pmper

r p p b h acx

kws

and ponallicn.

IS &

Gw lz , kinganurn. a d

Wilde 11W) a d

Udngmwj and

Wikle I W I

ilka a~uncgm

t

Jantschrr and Riclurrd hi inl 9

msuit in si~ificant istortions as new

taxes are

inrrpduced and

tax

mtei

are

increased

in

attempting to

make up

or

the revenue loss.

In addition to this serious gap

in

thc existing f d nalysis,

tbe

litemture

has

not as yet managed to d e l

ery

weH either the

long-

term

repetitive

nature

o

the

tax

game

or the roIe of

mms

in

determining

how

peopleptay

thc game. &&-tion of the

t e m w

dimension

of

tm

administration

sttesses

tlPe

importance

both

of

tk.

intoraction afdl iciah and taxpayers and of changes in tax techpd

w nd tapayer

atti-

to g ~ v m m e a t . ~

his

dimension is c s p

M y

mg omn ~

n the context of tbe p s e n t b d s

dnce the

p d l e m

of

Lax administration refom

is

e s s d d y

bow

to

dtw

tho outoomcar

administrative effort by w e

nvestment in

developing

new

lq and o ~ z a t i o n a lrameworks, adopting mew mhflofogy (such

as

computerization), and

changing the

allocationof

administrative

reSOUrCe8.

Finally,

in recent

years

virhrallydl

attempts to

reformtax

administm-

tion

havq

centered

arolvnd

some

form a cornpaterimion.

CCIWII~,

it

is dficult to conceve

of

a tax administration

that can

perfom its

tasks

efficiently wi hou usingsome f m t computer techndogy.

la

too

many instames, however,

the

expectation

ofgreater

effectiveness

fmm

computerization

has not

mkrki i

Evidence

indicates

that

the

mwc successful reforms did not

merely

involve computerizing

anti-

quated processes but also the redesign and streamlining of systems

and procedure-uch as consolidating

return

and payment

forms

and

eliminating unmcmsary

and unused

information required romtaxpay-

ers, As Corfmat (

1985) emphasizes

and the study of S p inby Moya

and

SsartEago (Chapter 6

in

li~irrvoiume)abws

mcudd amputerhtiion

must be accornpniedby afondmental morgaahtionof bolh systems

and pmcdures

and

-1

be used

by itM

to

side-step such

needed

reforms.

Ill. m n d a

or

F w t h

Research

AH mcntiuncd

above, in

recent years there

has

k n

onsiderable

rewciwch on 1hc theory

and,

to a limited extent, the

fads with

respect

lo t i r x cuasion

and

tax

compliance.

Because

of such

work, much

has

bccn icarncd

about taxpayers:

why

and when t h y

complyand do

not

comply.

whi~t fl'ects variws penalties and

inducements

have on heir

8/10/2019 Bird Tax Reform

6/7

10 The

orm

of

Tax Administration

i lka Cusanegra

de

lantsckr and

Richard

M ird

11

hhavior,ands o n Elffm 199

11 .

S U o g i s t s , psychdogitils,ccitncb

mists, and admhbWors

have

all mtributtd

o

this lileralurc

and

w

iiMy to

contio6k

to

do s given

the

theotetical uttmcrivcmsn i~nd

pmdc l

impdance of the suuect. Unfortuaatdy ntensting and lu

m e xtent

useful

as

this work has

bcen.

much of

it

bas pmvcll

to

he

ofonly l i i M diroct relevance o theon-going twkdtaxadmir~isinrlion

in developingcwntrk.

Oue ~ e m n

or

his

lack

drelevance

is th

very dicmn t

cnvimnrncnt

of tax adminis4ration in

&v&ging

countries than in LC c v c l r q d

countries in

whichthisresearch

has

been

carried

wl. Anol

b r rnpumnt

m

owever, is

that there have

been

almoQl no sludics in any

country of

tax ofkia1s.

of

why and

how they do what thcy

du.

Tux

administration

can k hwght oCas encompassingb t h

muss (roucinc)

and individua?(discretionary)asks. The f o m ndudes

functions

car

ried wt across a wide ranged

ransactions

such as

withhotding,

the

maintenance d i q m y e r cumnt a ' m n t s , and

odlaction;

h e atter

iwludesaudit, investigation suspectql fraud, and so on, As S l e m d

1989)

haspointedout,

even

io developed

couatrks

the

most neglected

aspea

~f tax aaalysis i s

how

tax offroiah

act

What are the decision

rules th y use? What

s

the cvidenoeonwhich such rules are based?

What

is

the

reiiability and validity

of

such

rules

Almost

nothing

is

krlown abut such matters

ia

m y

owntry.

Govenunents

in

some

dcvetopi~g ountries have little daydoday control

over

tax

dlicialr,

little knowledge of

what they

do,

and, furthermore, rso easy way to

obtain such

For

centuries

p vm m en ts inthe now devel-

oped

mutr ies

had to s p n d almost

wi mucht

snd effort

trying to

wnisd the p a d a t i o ~ s nd extortions m v m - a s

rying

to sgue~e oro revenue

wt

of an unuawi[ iag W e b k and

Wildavsky

(I &)).he

c i r c u m ~

n

some

o o u n ~

today

are that

diffmnt; the n d

o keep tight oontro over

the hdliagM

cash

a d

o

monitor

& d y

the gatherim# and

use

of

information

by t x is is thus

a

higlqwiority task

s h o w a i n ~ o f ~ c ~ d i ~ ~ h ~ b o o k , t h e ~ i l -

ity do@cids*cme

mprovedboth

by

s s m a h s unctions for

example, usiogoontroWe thir p - t k ucbasW r nd

withholding

" P a P a ~ ~ ~ H ~ d ~ ( t 9 9 0 ) ~ m p w r t b a t r ) r r ~ h ~ o E r a l s

e x a m i x K a l l i a e a m e u ~ ~ s m d ~ ~ B # ~ i ~ ~ , b u t W t h

a p p e a r ~ k n o L r m a l r e k e t i o D e r i t ~ ~ a n d a o l y r l ~ l a d m 0 n i t o M O r a d

rslalirPting h p u l hmmd ~t

aUbi

emM

k

w w udgmc~t f horr

~ S u e l l a r y l m e m m ~ y w o r l r ~ i a ~ ~ d h N a l h e d a n d s .

W h m q h k d

o

Idmush. [his 6yslem ltft

mueh 10

beM s Gillirs

(1990)

notes

agents, which facilitates

checking

and verification) and by instituting

systematic

internal

consistemy

and security

checks (forcmple ,

main-

taining tight

internal security

on ~compuZerizeddata

bases)

to

ensure

th t

no improper activitiesoccur in

these

W i n e

tasks,

While much

remains to onedong these lines in some

countries,

what needs o

be done is not mystcry.

The

problem of

ensuring accountability is

muchmom

dimcult, however,with

respect to

such inevitably selective

and

discretionary

tasks

as

audit.

While there

is

much

stilt to

be

learned

about

this subject, there

appars to be

no

substitute

for

establishinga

group ofwell-trained and adequately

compensated oMciats, whose

work

s subject to regular monitoringand review.

m ften when the

directorof

taxes ina

developingcountry

isask d

for data, i t transpires that the only number r e d l y

a v a i l a e is

the

amount of money collected yesterday,

last

week, or last month. Of

course,

collectiondata

are

highly

important,

but they

are

not enough.

To run

u

g o d

tax a d m i m i o n , one must

know

whe n the money

ulmc Iiom

rmd

what

the costs aid k d t sof various

possible

changes

in

lcgd

rr~mcwork nd

institutional idmstmcture might be.

In

thc nhscnceof such knowledge, it i s dificult todevelopan appro

priate

alniicgy

for

the reformof

taxadministration,The key information

missing

in

most

countries

includes

11)

P

dekiled

breakdown

of the

uses

of

udministrulivc rcsmrces;

(2) informationon

he

results

of such

uses

with

respcci to I

he

various outputs-revenues, numberso

cases

han-

dlcrl, ;md MI on-of intmst;

3)

infunnation on ax bases, both

tlcttlul

UMI

tcntid. The first two

ofthese

items

are

needed fora

nraniqwrncnt

i o h m a t h

system in

my

case;

the

third

i s

needed both

for

round tax

wlicy

and sound t x administration policy . As

tax adrnin-

istr;ltiona thmughout the

world

move

into

the twenty-ikst.aentury with

con)ptrtcriisod

di~ta

ases

mwe

and more infomtioa will

begenerated.

l'u

cnxttrc that this

information is

both usabk and is

actually used,

h w c v c r .

t ia critical that it

be

both

timely

and reliable a d hat both

opn~ting dminisfrators and researchers be

closely

involved in

the

.tlcvckbpmcnl of

ittx

magement

infomation systems. Computerized

i~lriirnnulion

s

curt

important

to

buth

tax

administration

and

tax

policy

lo he Icn lo computer

specialistsdone

Allhou~gh. s

thin book demonstrates,

knowledge is p l u a l l y

beimg

ecyaircd in many

countries on

many important

matters

related

to

the

wft~rnld' 1i1x dministmtion and

tax policy,

much remains tok one

to

aysten~utim nd

cvaluate this k ~ w ( c d g c . ome

of the topics

on

which

mrrc

systcmatic

research sccms needed are

listed below.

'I't~c

111cax~rcn1en1

f

tan

gaps

(between

potential and

dmlared

t i l xc~ .

hctwccn

d e c l d

axes

and taxes paid, and between taxes

piid

ilnd

thosc that reach the

treasury).

8/10/2019 Bird Tax Reform

7/7

12

T k

Rcfwm of

Tax Administmtion

-*

The real resource costs (adminisirative, compliancrr, cmciw~cy.

evasion) of alternative tax sttuctum

a d

adn~i~~istn~livc

rtcu-

d w .

The relarive

effects

of ptnaltics, information syxlcm~1vptwtinf L1).

simplicity of aws), and

publicity

on cwnpliancc,

The

use

of rasumptive techniques to

lax

hrd-to-t;~x

rrQotx.

The tikiency

with

which

audP

resources

are

ullmxicut.

and p~icisi-

H e

analyticalb a a

or

the

adminislrdive

rules

d

bsrnl~

ud

Jcci-

sioa

ruks

used to

sekt'Feturnsfar

examirwlim.

The

pros

md cans of the

lwgc

taxpayer ap(xrutch di.wtrmd

cerlier.

The appropriate c o r n ~ n hystem

for third-party

cullccIion

agentsIfor

axampla,

banks).

The costs

and benefits

t a x ammsties see.

for

cx;~nplc, tdh

(1%9)).

The

administrative implidom of

rak

difforenliatiun

und cxcmp-

t b s

for

example,

in

a VAT; seeTait 19911).

Thc incidence and a l l ~ i v effects

ofjudicial

appctli prrxd~mq.

Possible systems for

linking

administwive r c w d a o

dni r is tw-

tire

e m ;

T k

osts

e d t s of

alternative

refunding

proccdurex.

7 % ~osts and benefits

of

different degreesofwlministrutivc

dcccn-

tmfization,

The Pole of specialist tax

p~eparersfm exampk.

accounlun(s)

in

developing

cwmlries.

With r e q ~ ~ to theseand many otherpossible topics, dificrentm u l t

s

may

be expected in differcat w unt r i e s - k nrbmm

or

exam-

ple,

difkrent

mmwcmnoqnic environments enflation); diffwences in

market sttWu~es,

isk timepreferences,

wid

wclfa* functiom,

informationcostsand wailrrbiliy

, ad

m c t h

unctions;

and

differeat

eavirunmcnts with

r e s w o

rehtions with

gwemnaent, theWUN

of

government

expendim, ''motale, and soon. W l e

manyof

these

t e r n are

rather

nebuIwti=@

s u m

a vwyhg

interpretath, me

cannot

formwkquatejudgmentson

he many @icy issuesexplicit

and

implicit

inthe prectding list without muck more caefbl and % y s t w t i c

analysis

than is

now available

of the

elation

between

such differeut.

contexts

and

the questionsraisedin the l is t

IV. Conclusion

Thrrs while

much

remains to be learned h u t ax administration

reform in developing countries. as this ok

shows,

a

great

deal is

Mllku Casanegra

dc

Jautsckrr and RichardM.

M

13

a l d y nownaboutthesubjat

andmu&

hasbeenachieved

in

practice

i n

a

number

of

ountries

to

improve their t x

admi0istration. s

noted

earlier, more could t~ done

to

improve tax administration if more

people,

in both the

tax

administration and researsh

mmmunities,

were

in~ercatcdn it. In effect,he

task

is to find

ways in which to O o d i

thcprcwnl "expert diagnosis systemofcopingwith ax administtation

r e fm by

rrecing it as

much asmsiblr

from

the

country-specific

and

time-apcih

biases

we

all

Am The

task

is

not

easy;

but

it

is

important,

and worthy of

much

mwe effort

and

nwurcas than have

SQ

far

k e n

&voted

to

it. Moreover,

sincegovcmmcnts

and

taxes seem more l i y

lo

gmw in

importam

in

most d d o p i w

cauntries in

se Mum than

to

shrink.

Iht problem

b

not going

to

go away,

Thep r o b h sare

hwe;

thc methods and

the

information needed to

tackle

them are

in

thek

formurive stages:

whal w d a to

be done is b

eize the

upportunity

to

nu~kc inow rryststcmatic inmad into this important

area.

ihc

exwrienccs discussed q his h k rovide usefullessons

mgwd-

ing tax udminisfn;ion refom.White there

is

no

consensus

on

a number

d ssucn, il

is Riir to conclude

that m i

uthors aod ammentrttors

ilyrcc

hut

thme main

ingredients are nwssary

for

a

su-sfuf

tax

~d~t~itrialnbtiondm in developing counuies.

First,

he tax mudure

IIS~IHIIY

d s

o

he

simplitiedfor

ease

of cormplianceand adlninistratioo.

. k t r ~ u l .l rcfurm

W e g y

suitableto the

specific

c h m s t a n c c rofa c h

umnt

ry must hc

&vet@;

gimmicks or quick 6xcs

are

no substitute

lirr

il

cr~nrprchcnsivc

trategy.

Finally,

nd above

all, there must be

a

st

rungp~lical ctlrnrnilment to lhe impmvemt d x administratioh;

trthcrwisc.

cvcn

the

best intentianadand

best

designadm a ill W.

Uird.

Wichird

M

Irmome Tax Rcfbrm nDtveloping

Countries:

hcAdmiois-

t~ W i v r .limenrion, B u l I r i n f . J ~ r e r n u f i d iscal Docurnentation

VoI.

37

No.

1

(l983),

pp,

S14,

.

7h

dministrative

bimcmion ofTax

Rcform

in

Dcvtloping

Corn-

tries, in Tax R&m n Developing Countrleg, ed.

by

Malcolm Willis

Durham, orth

Orollha.

Duke UniversityRe=,1W).

- Tax ad m i^^ ond Tax Rdwm:

d k t i m

w

Exparien~~,

in

Tax

Polfey n Dm&ylng Caunlrics,

4 by Javad

Kbaliltadeh-SW

and Anwar

hah WosbiWdn: World Bank 199 .

-, Tax

Rdorm

io Latin

America:

A Review of

Some Rtceat

Ex@

ences, Latin

AmerfeM Research

R e ~ k w ,

ol.

27.No. (19921, pp. 7-36.

Boyd, Colin, 'Tl eE nfm um to f k ompliance:

Somc

Thscm~ 1~ wr , "

Canadian Tat Journal,Vd. 34CMayDunc

1986),

pp.

S8S W.