Good tax administration is primarily a middle-range problem\u00a0of developing and implementing a process capable of achieving its policy\u00a0goals (such as revenue and equity) efficiently and effectively. Both a good\u00a0information base and the capacity to utilize that information effectively are\u00a0essential tools for this task.<\/p>\n
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Good data are also needed to formulate good revenue policy. As an example,\u00a0information on the revenue forgone as a result of different exemptions\u00a0and exclusions is essential in determining the revenue and distributive\u00a0effects of various policy options. A regular reporting system with respect to\u00a0such tax expenditures is needed to ensure that revenues forgone through\u00a0tax policy measures such as VAT exemptions intended to achieve distributional\u00a0or allocative goals are subject at least periodically to some form of\u00a0monitoring.<\/p>\n
In the absence of such estimates, once an interest group has\u00a0received a tax concession, it may enjoy the results forever after without\u00a0having to demonstrate to anyone that the benefits it receives warrant the\u00a0costs incurred. Better data (e.g., on a sectoral and commodity basis) are\u00a0also often necessary to address such critical issues as the substitutability and\u00a0complementarity of tariffs and VAT.<\/p>\n
Little attention is paid to such issues.<\/p>\n
Nonetheless, our experience is that with\u00a0relatively little effort some approximate information on many such matters\u00a0can be obtained. The reason little is done is not so much that it cannot be\u00a0done at reasonable cost with available resources but that no one tries to do it.<\/p>\n
At present it is seldom in anyone\u2019s interest to make much effort along these\u00a0lines. One reason is that the existence of information always has a public\u00a0good aspect so that not all the benefits can be captured by any one individual\u00a0or group.<\/p>\n
Another is that better information may have an adverse effect on\u00a0the interests of some powerful people. Such factors seem sufficiently strong\u00a0in most countries to ensure that most decisions about both tax policy and\u00a0tax administration continue to be made more on the basis of faith than of\u00a0evidence.<\/p>\n
Some facts important to understanding the way\u00a0VAT really works are surprisingly difficult to uncover in many countries.<\/p>\n
Consider the real nature of the VAT base.<\/p>\n
In Albania, in 2015\u00a0over 65% of all VAT collections were\u00a0from imports and the traditional excise sector (alcohol, tobacco, and fuel).\u00a0The implication is that the immediate result of introducing VAT in Albania, in 1996\u00a0was actually to reduce sales taxes collected on the non-import non- excise sector\u00a0from over 4% of GDP to less than 2% of \u00a0GDP. Such estimates do not imply\u00a0that introducing VAT was not a good idea. However, they do suggest that\u00a0anyone who thought the economic impact of Albania\u2019s new VAT was similar\u00a0to that in, for example, Germany just because it looked similar was not\u00a0looking at reality.<\/p>\n
Similar data gaps in most developing and transitional countries make it\u00a0difficult to estimate the likely revenue consequences of base and rate changes\u00a0in VAT. Such problems should not exist since almost all the needed information\u00a0is generated in the normal process of administering VAT. Seldom,\u00a0however, are such data made available in a usable form even to local tax\u00a0offices, let alone used either in allocating administrative resources or in\u00a0improving tax policy.<\/p>\n
VAT is the only tax that requires the government not only to collect substantial\u00a0money from the private sector but also to pay much of it back to the\u00a0same people in the form of input tax credits. Since any VAT invoice constitutes\u00a0a potential claim on public funds, and falsifying such claims is perhaps\u00a0the most common form of VAT fraud, it is critical from an administrative
perspective to have a detailed knowledge of the normal or expected pattern\u00a0of credits and liabilities for firms in all the different lines of business subject\u00a0to VAT.<\/p>\n
Again, however, although the normal operation of an invoice-credit\u00a0VAT generates such information, it is striking how seldom such\u00a0data are either collected in usable form or used for devising a risk management\u00a0strategy. Perhaps even more surprising is that this whole question\u00a0has not until very recently received much attention from the international\u00a0community of VAT experts.<\/p>\n
A final general observation is simply that, as with all taxes in all countries,\u00a0no VAT in any country, however well designed and well administered\u00a0it may be initially, will forever remain the same.<\/p>\n
Times change and so must\u00a0taxes.<\/p>\n
Keeping up in taxation requires an ability to read the winds to detect\u00a0important emerging tax issues, to work out in detail how best they may\u00a0be dealt with, and to devote time and energy to changing tax design and administration to cope with changing circumstances.<\/p>\n
Life is more difficult\u00a0in all aspects for those concerned with tax matters in developing and transitional\u00a0countries simply because, almost by definition, such countries are\u00a0not only more likely to change especially if they succeed in growing and\u00a0developing but also likely to be more vulnerable than most developed countries to winds from abroad, and they generally have much less capacity\u00a0to cope with all these problems.<\/p>\n
\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"
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