Tax in Developing Countries: Increasing Resources for Development

DFID Tax Projects Summary - February 2012

Afghanistan

DFID Afghanistan is providing technical assistance over four financial years (2011-12 to 2014-15) to the Afghanistan Revenue Department (ARD) in the Ministry of Finance (MoF) of the Government of Afghanistan (GoA). This assistance is intended to help increase domestic revenue collection.

Key activities include modernising tax administration, e.g. computerised tax admin system; providing technical support to build capacity, including writing tax laws and assisting with institutional reform; and setting up a taxpayer awareness unit, which produces leaflets on obligations and how to pay and promotes this to large and medium taxpayers through ARD.

The purpose of the support is to assist the GoA in sustaining the impressive progress made in domestic revenue collection in recent years, in part achieved through a DFID-funded project (Strengthening Tax Administration, 2007-2012 [1] . This support helped ARD establish a working base for tax administration reforms.

The current project is expected to play a key role in supporting the GoA in meeting its domestic revenue collection targets and is in line with the UK objective of ensuring a viable Afghan state that provides increasing levels of key basic services within the context of a stable and growing economy.

Domestic revenue collection has been increasing over recent years reaching a high of 11.2% of GDP in 2010/11, or about AFS 80.1 billion. Tax collection in 2010/11 grew by 20% and customs duties by 25% over 2009/10 levels.

Bangladesh

DFID is supporting Bangladesh's National Board of Revenue through a ‘Tax Administration - Capacity and Taxpayer Services’ (TACTS) project, costing £7.1m, between 2007 and 2015.

The government has ambitious targets to increase tax revenue. The project supports this, with objectives to improve the Government’s weak domestic revenue position, widen the tax base, promote transparency and trust in the revenue administration system and improve efficiency in tax administration.

The project aims to contribute to increasing the number of registered taxpayers from 2.2 million to 4 million. It will provide support to the large taxpayer unit (LTU) to i ncrease efficiency, professionalism and effectiveness , leading to increased tax revenue . This includes provision of training on selected business sectors (e.g. banking, telecoms and insurance) as well as complex functions such as transfer pricing. There will also be mechanism s put in place to reduce LTU income tax arrear s outstanding ( e.g. revision of appeal process, strengthened appeal resolution process, strengthened income tax return audits ) . A Central Intelligence Cell will be strengthened to support investigation of non-compliance and tax evasion. Internal audit and legal competencies within the National Board of Revenue (NBR) will also be strengthened.

Burundi

DFID supports taxation and customs through Trademark East Africa (TMEA), a programme funded with other donors. In Burundi, this programme seeks to promote greater regional integration and trade competitiveness through a reduction in transport and related costs along the key corridors in Burundi. A study for a One-Stop Border Post at Kobero, the main border with Tanzania, has taken place and further preparatory work on a One-Stop Border Post with Rwanda is underway. TMEA also supports the Burundi Revenue Authority’s (OBR’s [1] ) operational departments (domestic taxes, customs and investigation) and support departments (human resources, finance, information technology [2] , planning and research, communications and taxpayer services, legal affairs and risk management). Support will also seek to strengthen large taxpayer collection. In 2010, TMEA assisted OBR with the recruitment of its senior management team and heads of divisions; the first Commissioner General for the OBR has been in post since June 2010.

About £500,000 to support "fast track" activities to establish OBR was also provided from DFID’s Regional Integration in East Africa Project (REAP).

The OBR has successfully increased revenue collection. The Burundi Revenue Authority was set up in July 2010, at a time when the country's tax and customs services topped the list of East Africa's most corrupt organisations in Transparency International's East African Bribery Index. The programme set out to transform the culture of tax collection. From January to June 2011, revenue collection was 37.4% above the level for the same period the previous year. From July to September 2011 the outturn revenue exceeded the forecast by 14 percent (or £7 million).

Democratic Republic of the Congo (DRC)

In DRC, DFID is contributing £27.5 million to a World Bank project (WB PROMINES) working on transparency in the mining sector - which could have a significant impact on revenue collection. A target is to increase the overall tax to GDP ratio and increase the proportion of tax directly attributable to the mining sector from 24 per cent to 30 per cent. The increased revenue is also expected to impact positively on growth and peace. Implementation of the Extractive Industries Transparency Initiative (EITI) in DRC is also supported through PROMINES.

Work on tax is also included in a new Public Financial Management and Accountability programme which is planned to start in 2012.

Ethiopia

In Ethiopia, DFID (alongside other donors) supports the Public Sector Capacity Building Programme which includes capacity building support to the tax system. An objective is to increase tax revenue by 87% from 43.3 billion birr in 2010 to 81.1 billion birr in 2013 [1] .

The UK also provides technical assistance bilaterally to the Ethiopian Revenue and Customs Authority (ERCA) by providing targeted, demand-led technical assistance for civil service reform. This has supported, among other things, significant improvements in average customs clearance times based on a 2007 benchmark (low risk imports from 7 days to 10 minutes, and exports from 8 hours to 15 minutes).

Her Majesty’s Revenue and Customs (HMRC) is twinned with the ERCA and provides technical assistance aligned to the strategic needs of the Ethiopian government on both customs and tax. Areas covered include IT, customer services, enforcement and audit.

Ghana

DFID is funding technical support to Ghana to help with implementation of the Global Forum international standards of transparency and exchange of information for tax purposes.

DFID has also disbursed a total of £6.5 million in sector budget support by 2011 on a Government - led project, Natural Resource and Environmental Governance (NREG). One of the intentions of t he NREG programme is to improve mining sector revenue collectio n, management, and transparency , although the scope of the project is much broader . It also includes policy dialogue on EITI.

Technical assistance support continues and is intended to contribute to the design of a planned further phase of support for NREG. A project on oil & gas, mainly around governance and revenue management, is also planned.

India

DFID has a number of programmes with state governments which include within their scope assistance in improving revenues. These include:

· The Support Programme for Urban Reforms (SPUR) in Bihar, which aims to enhance the ability of selected Urban Local Bodies to provide urban services and attract private investment. This includes increasing local resource mobilisation improving the management of resources. The project is among the first in India to assist municipal revenue reforms, through taxpayer and property mapping, systems reform, use of IT and staff training.

· The Orissa Modernising Economy, Government and Administration (OMEGA) project, costing £19.3m and operating from 2010 to 2015, which aims to enhance private sector investments in industries and infrastructure, to improve Government of Orissa’s capacity to mobilise revenue and manage expenditure and to improve delivery of selected poverty alleviation programmes.

· The Bihar Governance and Administrative Reforms Programme (BGARP) which aims to improve the capability of the State Government of Bihar to deliver better quality services to all its citizens, through a number of measures, including technical analysis and capacity building of the Transport, Registration and Commercial Tax departments in the State Government.

Kenya

DFID is funding technical support to Kenya to help with implementation of the Global Forum international standards of transparency and exchange of information for tax purposes.

Kenya’s National Taxpayers Association (NTA) is funded through DFID’s Governance and Transparency Fund. The NTA works to ensure use of taxpayer’s money to deliver quality public services and transparent and citizen-responsive management of taxpayers’ money in devolved funds. It also raises awareness of taxpayers of their rights and responsibilities. This is achieved through establishing Citizen Action Groups. One particular success has been the use of the media to strengthen advocacy for the use of taxpayers’ money. NTA report that the use of media effectively ‘raises the stakes’, making it more difficult for public institutions to ignore issues and thus prompting quick and better responses from them.

Malawi

DFID is planning (not yet approved) to contribute £7.5 million over 5 years to support the Government of Malawi’s PFM reform plan, which will include support on revenue.

Mozambique

In Mozambique, DFID supports the recently created Central Revenue Authority through a multi-donor common fund within the national state budget, having provided £2.3m to this fund between March 2007 and December 2011. This support helped establish the Mozambican Revenue Authority. It is now supporting the introduction of modern management practices and the achievement of the strategic objectives of the revenue authority in terms of improving the effectiveness and efficiency of tax collection. Aims include increasing revenue, strengthening the link between the taxpayer and the state, and improving public information and transparency to ensure resources are used well.

The Common Fund has contributed to a continuous increase in tax collection since 2007. Each year since the establishment of the Common Fund, actual tax revenues have exceeded the targets – in 2010, by 11% and in the first semester of 2011, by 3%.

One important factor in this success is that Mozambique now has over 1.5 million registered tax payers compared with 391,000 in 2006. There has also been significant investment in civic education and sensitisation around tax payments.

Part of DFID’s funding supports capacity building of the large tax payers unit to improve tax collection from large taxpayers. This includes training staff responsible for supporting large tax payers, and those auditing large taxpayers.

 

Nigeria

DFID Nigeria has a "State Partnership for Accountability, Responsiveness and Capacity" programme, to improve financial management systems and enhance government use of public resources at state level. In some states, this programme supports tax collecting agencies, for example, with systems, procedures and controls in collecting land and employment taxes. 

DFID Nigeria is providing £90 million in support to the ‘Growth and Employment in States’ (GEMS) programme which includes work on tax. The programme supports the value chain and business environment, as well as land reform and investment policy. An estimated £9 million is expected to be tax related, focused at state level.

This project follows the Nigerian sub-national government Investment Climate Project (ICP) from 2007 – 2011, which identified taxation as one of the key, feasible areas of reform. Support provided under the ICP included assistance with the development of state-level 5-year tax board modernisation plans, training for 600 tax officials (the first training on tax many of them had ever been exposed to) and substantial support to the introduction of unique taxpayer identification numbers (UTIN) which has now reached the stage of formal testing.

The latest programme (GEMS) will use an innovative 'market' approach to understand and address tax as it affects and is affected by market systems and political incentives, with a special focus on impact on the poor. It will have a strong focus on sustainability, looking at facilitating (rather than providing) pilot reforms, which it will seek to have replicated across the country through demand and demonstration effects.

The project will introduce a range of varied interventions in different states, including; mapping and documentation of existing tax processes, business processing re-engineering of tax processes, tax harmonisation and the removal of multiple and 'nuisance' taxes, and support to target states' existing, broader, reform plans.

DFID is also funding £11 million for the Enhancing Nigerian Advocacy for a Better Business Environment (ENABLE) programme. This programme, running until 2013, is to improve the environment for business advocacy in Nigeria. A small part of this programme worked to improve public-private dialogue in Lagos State on the issue of Multiple Taxation.

In 2011, DFID provided £89,000 to the International Monetary Fund to rewrite tax legislation in Nigeria.

HMRC has also provided assistance to Nigeria - two compliance caseworkers spent time in Nigeria helping the Federal Inland Revenue Service develop a compliance strategy, and senior level HMRC management sit on the board of the Nigerian tax administration in an advisory capacity.

Occupied Palestinian Territories

DFID supports a £5.5 million programme entitled "Palestinian Governance Facility". The project started the inception phase in November 2011 and is due to finish in March 2015. The aim of the project is to improve the capacity of the Palestinian Authority to raise revenues from a strengthened tax base and reduce reliance on donor support. There is also an objective to plan, prioritise and manage expenditure, including donor funds.

Overseas Territories

DFID provided £1.4 million of PFM and tax reform-related technical assistance in 2011/12 to the Turks and Caicos Islands (TCI). This support has built an expenditure management system, reduced the backlog of accounts and submitted the end-of-year accounts for the first time in four years, helped to increase revenue collection by around one-third in a single year, and strengthened the revenue audit function to prepare for the switch to VAT in 2013. DFID technical assistance also produced a paper which is now being used as the basis to draft tax and PFM legislation.   

In Anguilla, DFID funded £100,000 on PFM and tax-reform-related technical assistance between 2010 and 2011. This funded a PFM assessment followed by a revenue and expenditure analysis. Some of the report’s recommendations were incorporated into the Government of Anguilla’s 2011 Budget. DFID has subsequently provided specialists to help establish a Tax Reform Working Group, and to help the group deliver tax reform recommendations to the Anguillan Government. Some revenue-raising measures put forward by this group have been incorporated into the Government of Anguilla’s 2012 Budget.

In Montserrat, DFID recently provided £109,000 to support the Government of Montserrat's customs and revenues services.

 

A tax adviser and tax auditor have also been funded for St Helena.

Pakistan

A Tax Administration Reform Project, costing £13m over 6 years came to an end in December 2011. The objectives of the programme included improving organisational efficiency and effectiveness of revenue administration, promoting compliance through strengthened audit and enforcement capacity, improving trade facilitation through modern and internationally acceptable customs procedures, and improving the integrity and fairness of the revenue system.

Rwanda

The last phase of a 10 year programme of support for the Rwanda Revenue Authority (RRA) ended in June 2010. DFID support helped to provide the laws and regulations under which the authority was established, the office building and the management systems. The 10 year period of support saw a six-fold increase in the taxes collected and in 2010, the management procedures of the authority were awarded ISO 9001 2008 accreditation – the first Rwandan institution to attain this standard. The Authority reached a point where it was collecting the full £24 million value of DFID’s 10 year support programme every three weeks. Its effectiveness has been a major factor in Rwanda’s impressive development performance in recent years.

DFID Rwanda continues to support RRA indirectly through the Multi-Donor Basket Fund for Public Financial Management Reforms managed by the Rwanda Ministry of Finance, to which DFID is contributing £ 4.5 million for 3 years. This project includes a component to maximise revenue mobilisation. This will be achieved through improving risk-based audit, reducing cost of tax administration, improving service delivery, enhancing support to sub-national governments, broadening the tax base through enhanced voluntary tax compliance and strengthening organisational capacity.

UK support to the RRA has also continued through DFID’s regional integration support programme managed by Trademark East Africa (TMEA). £4.9m of this programme is earmarked for the RRA to strengthen regional market integration– notably through the construction of ‘one-stop border posts’ with Rwanda’s neighbours (Tanzania, Uganda, Burundi and the DRC).

Furthermore, there is an ongoing mentoring arrangement between the Commissioner General of the RRA and HMRC’s Permanent Secretary for Tax.

Sierra Leone

DFID has committed £16 million to support tax administration reform in Sierra Leone since 2004, with the current project due to end in 2012. The aim is to improve the National Revenue Authority (NRA)'s ability to administer taxes with an overall aim of boosting revenue collection as a percentage of GDP.

Post-war reconstruction and DFID support have helped to increase tax as a percentage of GDP from as low as 5% during the war to 11.6% in 2009 and 13.2% in 2010.

DFID is providing technical advisory support focused on improving governance of the NRA and compliance of taxpayers, including supporting the establishment of a Large Taxpayer Office (LTO), formed in January 2011. DFID is also managing a budget to procure essential items supporting the set up of the Large Taxpayer Office and upgrading the Customs and Excise Department with a modern risk-based computerised processing system.

So far, the programme has improved tax administration through the introduction of a General Sales Tax, introduction of Taxpayer Identification Numbers for all taxpayers, and implementation of a computerised risk-based customs control system at the country’s main port and airport.

The number of large taxpayers filing and paying on time has increased. The number of taxpayers audited during the year has also increased.

Operations within the NRA such as human resources, financial management and information and communications technology and data management systems are also being supported.

Finally, DFID is supporting the Government of Sierra Leone to improve revenue management in the mineral sector through support for setting up a new National Minerals Agency (NMA). The NMA will act as a regulator by managing and monitoring minerals licenses. DFID is also providing broader support on improving management of the sector – including transparency and accountability – through the World Bank’s Extractive Industries Technical Assistance Programme (EITAP).

South Sudan

DFID is contributing £4.8 million to "Capacity Building Trust Fund, Phase II" which started in February 2010 and is due to finish in February 2012. The aim is to improve the Government of South Sudan’s ability to allocate resources and deliver services. Important but under-resourced fiscal and PFM issues will be financed under Pillar 1 (Enhance fiscal responsibility) and Pillar 2 (Strengthen PFM systems) of the Juba Compact.

This fund also supported tax reform in Northern Bahr Ghazal State, including introduction of a new integrated tax management system (ITMS) in October 2011, which is expected to improve revenue collection by sealing revenue loopholes and easing the taxpayer registration exercise, as well as making improvements on the expenditure side. The project also included training for staff and supported tax awareness for the public.

DFID is also planning to help strengthen South Sudan’s customs systems.

 

Tanzania

DFID is contributing £8 million between 2009 and 2013 to the latest phase of a multi-donor funded Tax Modernisation Programme in Tanzania, which is helping to strengthen multiple departments within the Tanzanian Revenue Authority (TRA), including the Large Taxpayers Department. The project objective is to promote an effective and efficient tax administration which promotes voluntary tax compliance by providing high quality customer services with fairness and integrity through competent and motivated staff.

The programme has helped to fund new IT systems and related training to reduce the time taken by officials within the Customs and Excise Department to clear goods through customs. It has also funded investments by the TRA to improve taxpayer services and taxpayer education.  The programme is also financing work by the Research and Policy Department within TRA to analyse the likely tax gap (between tax collected and tax payable) in key sectors, such as mining and telecoms.

Total revenue collection in 2010/11 was 19.5% up on 2009/10. Revenue as a percentage of GDP shows modest improvement over the same period: from 14.6% to 15.3%. Time taken to clear goods at sea ports and airports has also reduced. The average arrival to removal times for the quarter ended June 2011 was 12 days at Port (compared to 15 days in 2009) and 5 days at Airport (compared to 7 days in 2009).

Uganda

The "Growth and Poverty Reduction Grant" (supported by £50 million of DFID funding) is a budget support programme which intended to help strengthen public institutions, including helping to increase tax revenue by improving tax collection, reducing the gap between approved budget allocations and the amount released to line ministries and reducing fiscal arrears.

DFID has had a longstanding programme of support to the Ugandan Revenue Authority (URA). Most recently this has helped URA management to plan and implement a modernisation plan. The plan identified a series of initiatives encompassing the improvement of business processes in customs, domestic taxation, corporate services, legal services; an increased application of information technology, expanded public and taxpayer education activities, higher standards of service quality and enhanced institutional integrity.

DFID is planning to provide £2 million of technical assistance and financial aid to the Uganda Revenue Authority (URA) to enable it to build its capacity for the taxation of oil. This funding will be used to purchase a new information technology system to manage oil taxation, and to pay for training for staff involved in oil taxation, to pay for technical advisers to provide mentoring and on-the-job training for cost recovery audits, and to help update the oil tax manuals. Together, URA staff and DFID advisers will revise business processes for oil taxation. Technical assistance will also be provided to help design and procure the new IT system.

HMRC hosted a short term secondment of officials from the Ugandan Revenue Authority earlier this year, focused on risk, intelligence and criminal investigation functions.

Zambia

DFID Zambia has extended its support to the multi-donor Public Expenditure Management and Financial Accountability programme, providing an additional £2.2 million from 2011 to 2013. This programme includes a component to strengthen tax administration at the Zambia Revenue Authority, with the objective of reversing the recent decline in the non-mining tax to GDP ratio.

DFID has also contributed £200,000 to a basket fund (with Norway and the EU) which is being used to strengthen the Mines Ministry.  The Ministry has a crucial role to play in increasing mining tax revenue (e.g. promoting investment, checking the quantities and grades of mineral exports claimed by mines). Specific activities being supported are strengthening the cadaster (crucial for issuing exploration licenses), review of mining legislation, piloting physical audits of export consignments and supplementary funding of EITI.

Additional work relating to tax

African Tax Administrators Forum

The African Tax Administration Forum (ATAF) is a platform to promote and facilitate mutual co-operation among thirty three African Tax Administrations. It also enables these Administrations to contact tax experts in organisations like HMRC directly. DFID is providing funding of £500,000 and was amongst the first donors to support ATAF. The UK (HMRC) helped launch the Forum and has provided in depth outreach on transfer pricing to member countries.

Foreign Investment Advisory Service (FIAS) - World Bank Group

DFID is providing support to FIAS totalling £1.4 million over seven years (2008-2015).  FIAS works to strengthen the investment climate of developing countries through improved policy making and reform. FIAS work involves helping developing countries remove tax barriers to growth and investment, widen the tax base through greater inclusion and facilitate greater productivity of the tax base. 

FIAS has an objective to increase the number of enterprises complying with tax requirements by 10 percent within three years of FIAS supported tax reforms. 

FIAS is also supporting a new initiative to improve tax transparency and promote international cooperation against tax evasion, whilst improving developing countries’ ability to administer and enforce their tax laws. Technical assistance in Africa and East Asia focuses on helping countries to develop transfer pricing legislation, administrative procedures, audit capacity, and appropriate accounting rules and ensure their legal and administrative frameworks meet international tax transparency standards.

 

During 2008-2011, FIAS has made a contribution to 49 reforms of business taxation systems in countries around the world (of which 34 were in Sub-Saharan Africa).

International Centre for Tax and Development (ICTD)

DFID is funding £3.5 million until 2015 for a research programme, which will generate knowledge to help developing countries to mobilise domestic resources efficiently effectively and equitably, and develop tax systems that promote pro-poor economic growth and good governance.

International Tax Dialogue

As part of its Tax Reform for Poverty Reduction Programme, DFID provided funding to the International Tax Dialogue, including specific funding to produce a study with the African Tax Administrators Forum on Domestic Resource Mobilisation in Sub-Saharan Africa.

IMF Regional Technical Assistance Centres

Through the International Monetary Fund (IMF)'s Regional Technical Assistance Centers, DFID is funding technical assistance including on revenue administration, as well as other areas of financial and economic management. Work in East Africa has now been extended to Southern Africa. DFID also funds an IMF Regional Technical Assistance Centre in the Caribbean.

East AFRITAC

The countries eligible for assistance are: Eritrea, Ethiopia, Kenya, Malawi, Rwanda, Tanzania and Uganda. DFID will provide £11m over a five year period (2009/10 to 2013/14). The IMF reported that 'significant results' were achieved on revenue administration in these countries.

South AFRITAC

The countries eligible for assistance are: Angola, Botswana, Comoros, Lesotho, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Zambia and Zimbabwe. DFID will provide £7m over a five year period (2010/11 to 2014/15).

CARTAC

CARTAC member countries are: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and Suriname. The following UK Territories are also members: Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Montserrat, and the Turks and Caicos Islands. CARTAC focuses on revenue administration; public financial management; capital markets development; financial sector regulation and supervision; macroeconomic management; and macro-fiscal management and economic statistics . DFID . is providing funding of £4.5 million over five years (2011-2016).

Investment Climate Facility for Africa

DFID was instrumental in the establishment of the Investment Climate Facility (ICF) for Africa and was a founding member and supporter of the initiative. DFID has committed £17 million of support to the ICF for its work across Africa to remove the barriers to doing business and make the continent a more attractive place for companies to invest and locate their operations. The ICF is a partnership between the private sector, donors and national governments.  It is working in 29 countries in Africa and has 40 projects, several of which relate to tax.

There is further information at:

www.icfafrica.org/icf/69/taxation-and-customs/?cid=25#map-panel.

OECD Tax and Development Task Force 

The UK supports the OECD tax and development task force and has committed £250,000 until March 2015.

The OECD Informal Task Force on Tax and Development is examining how capacity building in the tax administrations of developing countries can bring the greatest benefit. HMRC is leading a specific outreach project on improving the efficiency of transfer pricing audits, involving Uganda, Nigeria and South Africa.

Global Forum on Exchange of Information for Tax Purposes

DFID supports the Global Forum on Exchange of Information for Tax Purposes to ensure developing countries can benefit from the more transparent international tax environment. DFID is funding technical support to Ghana and Kenya to help them implement the Global Forum international standards of transparency and exchange of information for tax purposes, and participate fully in government to government international tax information exchange.