Outline of Presentation I. Trends in Revenue Mobilization II. Growth Friendly Tax Policy III. Importance of Revenue Administration 2
I. Trends in Revenue Mobilization Trends in Overall Revenues - Median tax ratios to GDP by group Government Revenue 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Low Lower middle Upper middle High 3
I. Trends in Revenue Mobilization VAT revenues CIT Revenues Percent of GDP 8 7 6 5 4 3 2 1 0 Low Lower middle Upper middle High 1990-1999 2000-2009 2010-2013 Percent of GDP 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Low Lower middle Upper middle High 1990-1999 2000-2009 2010-2013 PIT Revenues Trade Tax Revenues Percent of GDP 12 10 8 6 4 2 0 Low Lower middle Upper middle High 1990-1999 2000-2009 2010-2013 Percent of GDP 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Low Lower middle Upper middle High 1990-1999 2000-2009 2010-2013 4
I. Trends in Revenue Mobilization VAT has spread out Number of countries 0 20 40 60 80 100 120 140 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 High 1994 1995 1996 1997 1998 1999 2000 Other countries 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 5
I. Trends in Revenue Mobilization CIT Revenue in a Share of GDP Low Income Countries 2.0 50 1.8 45 1.6 40 1.4 35 1.2 30 1.0 25 0.8 20 0.6 15 0.4 10 0.2 5 0.0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Median Top CIT Rate CIT Revenue in a Share of GDP Lower Middle Income Countries 4.0 40 3.5 35 3.0 30 2.5 25 2.0 20 1.5 15 1.0 10 0.5 5 0.0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Median Top CIT Rate CIT Revenue in a Share of GDP Upper Middle Income Countries 3.5 45 3.0 40 35 2.5 30 2.0 25 1.5 20 1.0 15 10 0.5 5 0.0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Median Top CIT Rate CIT Revenue in a Share of GDP High Income Countries 4.0 40 3.5 35 3.0 30 2.5 25 2.0 20 1.5 15 1.0 10 0.5 5 0.0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Median Top CIT Rate CIT revenue (% of GDP) CIT rate (right axis) 6
I. Trends in Revenue Mobilization Tax Systems Have Become Less Progressive 70 Top Marginal Personal Income Tax Rate, 1980 and 2012 (Percent) 2.0 Ratio of Direct to Indirect Tax Revenue 60 2012 50 40 30 CAN GBR NLD SWE AUT BEL GRC FRA AUS PRT DEU ITA IRL JPN LUX KOR ISL NZL USA TUR MEX FIN NOR 20 DNK CHE 10 10 25 40 55 70 85 1980 Source: IMF(2013) Fiscal Monitor, October 2013 1.5 1.0 Advanced economies Emerging market economies 0.5 1970 1975 1980 1985 1990 1995 2000 2005 2010 7
I. Trends in Revenue Mobilization Median tax ratios to GDP by low and lower-middle group 19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Developing Asia(WEO) Middle East and North Africa(WEO) Latin America and Caribbean Sub-Saharan Africa(WEO) 8
II. Growth Friendly Tax Policy In the least harmful way for growth... Growth friendly tax policy By shifting tax composition to the least distortionary taxes (taxes on consumption, excises, taxes on property), and broadening tax base 9
II. Growth Friendly Tax Policy VAT CIT PIT Replacing inefficient production or sales taxes by a simple VAT Levying a VAT on a broad base, with a high threshold and avoiding multiple rates Building CITs that are simple and sufficiently broad-based to allow statutory rates competitive by international standards Extending the coverage of the PIT (particularly through inclusion of smaller businesses and professionals) Establishing coherent taxation of capital With effective rate structure consistent with the authorities distributional preferences 10
II. Growth Friendly Tax Policy Specific tax policies helping growth Labor participation Reduce tax wedge by PIT and social contribution Incentives for elderly/women/low skilled? Physical capital Taxing rents or excess returns Incentives for specific capital formation? Productivity Incentives for R&D? 11
II. Growth Friendly Tax Policy Relationship Between the Tax Wedge and Employment Rate 1. Advanced economies 2. Developing economies Tax wedge (percent of labor costs) 60 50 40 30 20 GRC ITA LVA ESP SVK BEL DEU FRA AUT CZE SVN FIN SWE PRT EST NLD DNK JPN USA IRL GBR KOR ISR CAN AUS NOR NZL CHE 10 0 y = -0.7877x + 81.033 R² = 0.2888 40 45 50 55 60 65 70 Employment (percent of working age population) ISL Tax wedge (percent of labor costs) 70 60 50 40 30 20 10 HUN TUR BGR ROU LTU POL ARG IND CHL COL UKR UZB HND TJK NIC MEX RUS BRA IDN KAZ y = 0.0336x + 32.415 R² = 0.0005 CHN BOL PER 0 40 45 50 55 60 65 70 75 80 Employment (percent of working age population) Sources: Institute for the Study of Labor; Organisation for Economic Co-operation and Development; and IMF staff estimates. Note: Line shows an ordinary least squares (OLS) regression line. Source: IMF(2014) Fiscal Monitor, October 2014 12
II. Growth Friendly Tax Policy Social contribution Widely adopted in advanced countries as a source of social spending (pension / healthcare), because earmarked revenues to specific spending by design (grouping), easy to understand closer relationship between burden and benefit easy to keep compliance by withholding labor wages 13
II. Growth Friendly Tax Policy Social contribution Can we continue (start) to rely on it, considering function as labor wedge declining working age population less flexibility for designing system (especially, after fixing a system for social groups) 14
II. Growth Friendly Tax Policy Taxation on wealth/property Less adopted, because affecting incentives for (domestic) saving not easy to keep compliance 15
II. Growth Friendly Tax Policy 5 Taxes on wealth / property 4 Taxes on financial and capital transactions Estate, inheritance and gift taxes Recurrent taxes on net wealth Recurrent taxes on immovable property Revenue 3 2 1 0 MEX EST CZE SVK SVN AUT HUN DEU TUR NOR CHL FIN PRT POL SWE GRC NLD DNK NZL ITA IRL ESP CHE ISL AUS BEL JPN ISR KOR USA LUX CAN FRA GBR Source: OECD Revenue Statistics 16
III. Importance of Revenue Administration Administrative Effectiveness 100% Current Effectiveness Compliance gap and Policy gap Compliance Gap Actual Collections Policy Gap Potential Collections Current Normative Structure Structure Tax Structure 17
III. Importance of Revenue Administration Revenue Gain from Closing Half of Compliance Gap and Policy Gap (percent of GDP) 4 3.5 Compliance Gap Policy Gap 3 2.5 2 1.5 1 0.5 0 LUX ESP IRL DEU AUT NLD FIN DNK BEL GBR GRC FRA ITA SWE PRT CHL PER COL MEX HUN LVA ADV EME Source: IMF(2013) Fiscal Monitor, October 2013 18
III. Importance of Revenue Administration 60 Trend in Compliance gap 50 40 30 20 10 Latin America ave (VAT) EU ave (VAT) Australia (GST) Japan (VAT) Colombia (CIT) Mexico (CIT) Mexico (Excise) UK (CIT) UK (Excise) 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: IMF(2015) Current challenges in revenue mobilization - improving tax compliance 19
III. Importance of Revenue Administration Effective revenue administrations making proper use of withholding and thirdparty information, implementing voluntary compliance and self-assessment limiting opportunities for rent seeking by designing and applying forceful and efficient strategies to deal with non-compliance 20
III. Importance of Revenue Administration Diagnostic tools RA-GAP: Potential vs. Actual Compliance Gap 12% 30% 10% 25% % of GDP 8% 6% 4% 2% % of potential VAT 20% 15% 10% 0% 2007 2008 2009 2010 2011 2012 Potential VAT Accrued collection 5% 0% 2007 2008 2009 2010 2011 2012 Source: IMF(2014) Estonia: Report of the Findings from the Revenue Administration Gap Analysis Program 21
III. Importance of Revenue Administration RA-FIT: Collects RA data and establish baselines/benchmarks TADAT: Assessment tool Accountability and Transparency Integrity of the Registered Taxpayer Base Operational Efficiency and Effectiveness Assessment and Mitigation of Risk Tax Dispute Resolution Performance Outcome Areas Supporting Voluntary Compliance Ensuring Accuracy of Reporting Payment of Obligations Filing of Tax Returns 22
Concluding Remarks Global trends in shifting to tax base with less distortion while causing concerns for equity issues Design of each revenue components still matters VAT, CIT, PIT, SC, WT Strengthening institutional capacity could be an important element for efficient revenue mobilization 23
Reference IMF(2011) Revenue Mobilization in Developing Countries IMF(2013) Fiscal Monitor Oct 2013 IMF(2015) Current challenges in revenue mobilization - improving tax compliance 24