Assessing domestic revenue mobilization : analytical tools and techniques

The main objective of this paper is to provide support for the World Bank’s task team leaders of PERs that would include a chapter on taxation. It seeks to provide broad guidance for the TTLs to: (a) Lead dialogues with client countries on the scope of the tax chapter in view of Government’s on-going and planned reforms of tax policy and/or tax administration; (b) Evaluate the magnitude of data requirements and limitations in the country-specific context; and (c) Establish an appropriate team, particularly consider selection of technical staff or consultant and discuss with the team on scope of the chapter on taxation and suitable analytical tools and techniques to be applied. The paper may also serve as a helpful input on tax components in the preparation of lending operations, in this way supplementing other diagnostic tools. To serve these objectives, the paper aims to presents an overview of major taxes and respective list of data requirements as well as possible sources; tool and techniques in assessing the efficiency, effectiveness and equity in tax policy design (at both national and sub-national levels) and tax administration. In doing so, the authors acknowledge that this is not a straightforward task. No one-size-fits-all approach would exist to covering the revenue chapter, and this is driven by the complexities on the ground in terms of (1) the existing literature, and the mismatch between rigorous application of appropriate tools and techniques on the one hand and data available on the other; (2) existence of or immediate plan for parallel studies on tax revenues (including the IMF TA on tax policy and administration being provided); (3) the country’s economic structure, including the factors such as country’s abundance of extractive resources or aid dependence; and (4) the government’s requests for further support in revenue mobilization (tax policy or administration or both). This paper consists of four parts. The first part discusses major taxes at the national or central level of government with a reference to generally accepted notion or principles of a ‘good’ tax system. Part two is focused on the major tools and techniques for analysis of the performance of a tax system and of tax expenditures. The discussion of revenue modeling covers different methods, such as GDP based, micro-simulation, national accounts/inputs-outputs tables based and regression analyses. Part three sheds light on subnational government taxation. It covers the revenue issues at both at the regional and local levels. In addition, it introduces a framework on measuring taxing powers at subnational level, with a view to ensure appropriate ground for the fiscal dialog across levels of government. Finally, part four points to potential questions to assist in assessing the strengths and weaknesses in tax administration, drawing on Jit Gill (2000) and the newly developed tax administration diagnostic tool TADAT (2016).