Role of International OrganizationsRole of International Organizations

Center for Taxation and Public Governance Prof. Dr. Geerten M.M. MichielseProf. Dr. Geerten M.M. Michielse

Tax Reforms in Developing Tax Reforms in Developing and Transition Economiesand Transition Economies

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International OrganizationsInternational Organizations

• International Monetary Fund (IMF)International Monetary Fund (IMF)• World BankWorld Bank• UN Expert CommitteeUN Expert Committee• Organization for Economic Organization for Economic

Cooperation and Development (OECD)Cooperation and Development (OECD)• World Trade Organization (WTO)World Trade Organization (WTO)• World Customs Organization (WCO)World Customs Organization (WCO)• European Union (EU)European Union (EU)

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International OrganizationsInternational Organizations(based on co-operation)(based on co-operation)

• Inter-American Development BankInter-American Development Bank• Asian Development BankAsian Development Bank• Bilateral Donors (e.g. USAID, DFID, Bilateral Donors (e.g. USAID, DFID,

Danida, SIDA)Danida, SIDA)

• Regional Co-operations between Tax Regional Co-operations between Tax Administrations (e.g. CIAT, IOTA, Administrations (e.g. CIAT, IOTA, CREDAF)CREDAF)

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International Monetary FundInternational Monetary Fund

• Policy makerPolicy maker– Driven by macro-economic stability

• Technical AssistanceTechnical Assistance– Tax policy– Legal drafting– Revenue administration

• Tax administration• Customs administration

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Tax Policy AssistanceTax Policy Assistance

• Assessment of tax systemsAssessment of tax systems• Providing alternative tax policy Providing alternative tax policy

solutionssolutions• Providing quantitative impacts of Providing quantitative impacts of

these solutions on macro-economic these solutions on macro-economic environmentenvironment

• Formulates best tax practicesFormulates best tax practices

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Revenue Administration Revenue Administration AssistanceAssistance

• Support the revenue mobilization Support the revenue mobilization component of IMF-supported programscomponent of IMF-supported programs

• Improving the effectiveness of tax Improving the effectiveness of tax administrationsadministrations

• Increase of taxpayer complianceIncrease of taxpayer compliance• Development (and monitoring the Development (and monitoring the

implementation) of reform strategies implementation) of reform strategies for tax and customs administrationsfor tax and customs administrations

• Establishment of “Large Taxpayer Establishment of “Large Taxpayer Units”Units”

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Legal Drafting AssistanceLegal Drafting Assistance

Transformation of formulated tax Transformation of formulated tax policy and revenue administration policy and revenue administration policies into legal documentspolicies into legal documents

– Laws– Regulations– Explanatory memoranda

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Tax Policy “Package”Tax Policy “Package”

• Single-rate broad-based VATSingle-rate broad-based VAT

• Broad-based income tax with minimum Broad-based income tax with minimum tax incentivestax incentives

• Streamlining of excise dutiesStreamlining of excise duties

• Reduction (elimination) of import Reduction (elimination) of import tariffstariffs

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Single-rate broad-based VATSingle-rate broad-based VAT

• Important sectors (e.g. services) are Important sectors (e.g. services) are still left outstill left out

• Restrictive (or absence of) refund Restrictive (or absence of) refund mechanismmechanism

• Multiple rate structureMultiple rate structure

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Broad-based income taxBroad-based income taxwith minimum tax incentiveswith minimum tax incentives

• Business incomeBusiness income• Multiple (branch depended) ratesMultiple (branch depended) rates• Incoherent depreciation schedulesIncoherent depreciation schedules

– Too many asset categories– Excessively low depreciation rates

• Investment incentivesInvestment incentives– Tax holidays– Capital recovery incentives

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Legal Drafting PrinciplesLegal Drafting Principles

• ““Tailor-made” assistanceTailor-made” assistance• Simple and clear languageSimple and clear language• Consistency with local drafting styleConsistency with local drafting style

• Caveat:Caveat: often seen as last prerogative often seen as last prerogative of sovereignty (especially if related to of sovereignty (especially if related to IMF-funded program)IMF-funded program)

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Influence of IMFInfluence of IMF

• Conditionality (LOI):Conditionality (LOI):

• Performance criteria (quantitative or Performance criteria (quantitative or structural)structural)– Formal conditions of obtaining IMF finance;

considered critical to achievement of program goals

• Structural benchmarksStructural benchmarks– Points of reference against which progress may

be monitored

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Influence of OECDInfluence of OECD

• OECD:OECD:

– Harmful Tax Competition• Low effective tax rate• Exchange of Information

– Anti Money Laundering / Terrorist Financing

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Influence of EU/WTOInfluence of EU/WTO(conditions for membership)(conditions for membership)

• European Union:European Union:– Implementation of Directives– Compliance with:

• “four freedoms”• Code of Conduct

• World Trade Organization:World Trade Organization:– Protection against export subsidies– Introduction of transfer pricing rules

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Influence of (Traditional) Influence of (Traditional) Technical AssistanceTechnical Assistance

• IMFIMF– Legal drafting

• World BankWorld Bank– Implementation of administration policies (including

training)

• Bilateral or Regional donorsBilateral or Regional donors– Implementation on a day-to-day basis (providing long-

term experts)

• ““Twinning” of tax administrationsTwinning” of tax administrations– Practical possibility to draw on partner’s experience