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 Image courtesy: IMF
 
Tax administrations (TAs) in all the countries especially in the developing ones are under eternal pressure to generate more revenue without hampering investment and growth. Their performance is also subject to periodic criticism, some justified and some reflecting lack of understanding of the nature of operations of TAs. 
The enormity of criticism depends on the yardsticks, parameters and targets against which the performance is measured. If the performance evaluation is deficient, the ensuing tax reforms might also turn out to be sub-optimal. Hence the need for a multi-facet benchmarking of TA’s operations. 
TAs’ performance comes under regular scrutiny of the country’s supreme auditor.  Such audits are policy/target/issue specific. 
They are certainly not holistic. Country-centric and subject-specific audits by respective supreme auditors thus make it difficult for analysts to compare TAs performance to identify factors that either drive or constrain the working of TAs. 
Objective comparison of performance is also impeded by divergence of organizational structure and functional autonomy given to TAs across the globe. In certain countries, the revenue governance is looked after by a single entity. In others, this job is assigned to two or more entities. The autonomy given to TAs by political executive also varies from country to country. 
Notwithstanding such limitations that make comparisons challenging, different entities have tried to benchmark TAs performance on the basis of specific parameters to underscore factors that help certain TAs to excel. Those factors can thus serve as package for tax reforms by other entities that score modest or low rankings. 
As put by Benchmarking of Tax Administrations Report of the EUROSAI Study Group in March 2008, "Although it may be difficult to compare all aspects of a tax administration’s performance, benchmarking provides SAIs with an opportunity to highlight performance measurement good practice. Measuring performance should be based on systematic collecting of information."
McKinsey & Company thus found that TAs in 13 countries can collect an additional $ 86 billion by improving their efficiency across all the four functions that it focused on in its benchmarking study of tax administrations conducted in 2008-2009.
The four functions covered in the benchmarking study of tax administrations conducted in 2008-2009 are: processing of tax payers’ submissions, examinations, collections and tax-payers service.  The study titled ‘The Road to Improved Compliance’ identified four major drivers of performance out of the 100 investigated. These are: proactive demand management, sophisticated taxpayer segmentation, streamlined operations and rigorous performance tracking. 
Learning from such benchmarking initiatives launched by different entities over the years, International Monetary Fund (IMF) has now developed a comprehensive, standardized approach for assessing TAs performance.
It has developed Tax Administration Diagnostic Assessment Tool (TADAT) to provide an objective, evidence-based assessment and baseline of a TA’s performance.
TADAT, which is currently tested at pilot scale, would be finalized and launched as a standard tool sometime in 2015. 
The TADAT framework has so far been tested in two pilot assessments - one in Zambia in November 2013 and the other in Norway in December 2013. These pilot projects have been implemented with the support and input from the Zambian and Norwegian authorities.
According to IMF, "The pilot assessments showed the framework to work well overall, but also highlighted the need for adjustments in some areas. Several more pilot assessments will be undertaken in 2014 to further refine the tool by testing it in other countries."
TADAT’s standardized approach to diagnosing a tax administration will pinpoint the relative strengths and weaknesses of a country’s tax administration, providing a clear and objective assessment to all stakeholders. A TADAT assessment will focus on tax administration outcomes rather than inputs or processes. 
TADAT comprises nine performance areas that can be assessed with 27 indicators that have 60 dimensions. (See IMF illustration). 
Scores would be assigned to dimensions. As put by IMF, “The intended scoring system will follow the PEFA (Public Expenditure and Financial Accountability) model with simple A through D grades.”
The nine performance outcome areas are: efficiency of tax administration, tax dispute resolution, accuracy of reporting, filing of returns, payment of obligations, accountability and transparency, integrity of taxpayer base, assessment of risk and supporting voluntary compliance.
For each area, the tool has laid down clear-cut indicators. Thus, the four indicators for efficiency of tax administration are: tax revenue outcomes, use of efficient collection & reporting systems, efficiency of processing & accounting systems and core tax administration focus. 
And the eight dimensions related to these indicators are: extent to which tax revenue targets are met; extent of withholding & 3rd party; efficiency of filing and payment design; extent of electronic filing; extent of electronic payment; accuracy & timeliness of taxpayer ledger postings; efficiency of VAT refund claim processing; efficiency of income tax return processing and proportion of staff used in non-core functions. 
The clarity about the implementation and efficiency of complex TADAT would emerge only after IMF releases the results of pilot studies. More important would be the willingness of the Government to pick cues for tax reforms from the outcome of TADAT studies.
The TADAT Secretariat will be located in the IMF. By mid-2015, the Secretariat will launch the final version of the assessment tool. 
Once the TADAT framework is fully released, the Secretariat, together with the Steering Committee and the Technical Advisory Group, will ensure that TADAT assessments are carried out to the highest quality standards, promote the worldwide acceptance and application of the assessment framework, and revise the assessment framework periodically as needed.
TADAT is by far the most comprehensive mechanism to assess a tax administrator’s performance. Prior to this, other entities have developed performance measurement tests on the basis of limited indicators.
According to an undated presentation 'Assessing Tax Performance and Tax Administration Effectiveness' delivered by an IMF official David Kloeden, “The few existing tools vary widely – databases, frameworks…. Some focused more on tax policy than tax administration. No existing tax admin tool meets All desirable characteristics: – comprehensiveness, based on performance 
indicators and agreed benchmarks, evidence--‐based, and able to be applied commonly.”
The feasibility study on ‘Developing A Tool To Assess Tax Administration Performance’ prepared with the support of IMF and certain other entities in May 2011 agrees:  “None of the existing approaches fully satisfies the requirements of a diagnostic tool that is comprehensive, based on performance indicators and agreed benchmarks, evidence-based, and able to be commonly applied (the characteristics of the PEFA PFM diagnostic tool; however, some of the existing approaches meet many of these characteristics.” 
TADAT has its origin in G-20 Seoul Summit that was held in November 2010. The Summit mandated IMF, OECD, UN and World Bank to identify constraints faced by TAs and suggest measures for their capacity building. 
This led G20 Development Working Group comprising these multilateral institutions into preparing a report captioned ‘Supporting the Development of More Effective Tax Systems’ in 2011
The Group recommended: “Encourage all interested multilateral and regional organisations operating in the tax field to work together in the development of a core set of indicators that would support meaningful monitoring and assessment of capacity improvement in tax administrations and other revenue related areas.”
It remains to be seen whether TADAT overshadow existing benchmarking projects such as the one that comes under the aegis of Forum for Tax Administration (FTA). It undertakes comprehensive international comparisons of revenue bodies that is collated into a publication dubbed “Tax Administration in OECD and Selected non-OECD Countries: Comparative Information Series”. 
The 2013 edition of this FTA reports has surveyed TAs and their practices across 52 advanced and emerging economies. Its starting point is the premise that revenue bodies can be better informed and work more effectively together given a broad understanding of the administrative context in which each operates.
Put simply, IMF TADAT initiative would enhance the pressure on TAs to improve their performance year after year.
 Published by taxindiainternational.com on 21 March 2014
weblink: http://www.taxindiainternational.com/columnDesc.php?qwer43fcxzt=MTc2

 

 
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