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Europe and Central Asia

Higher revenue, easier filing for taxpayers in Armenia

Julia Oliver's picture


Photo credit: Dmitry Karyshev

Armenia was faced with a slowing economy, sinking remittances, and inefficient tax administration. At the same time, ordinary taxpayers had to navigate arduous processes when paying taxes. The Armenian government was eager to reform its tax administration. Below is a transcript of what we learned when we spoke to World Bank experts working with Armenian tax officials to make things better.
 
Julia: I’m Julia Oliver.
 
Maximilian: I’m Maximilian Mareis.
 
Julia: And we have been talking with tax experts around the World Bank to find out about what they do.
 
Maximilian: So, let’s start with this project in Armenia. Why did we get involved?

Julia: Well, the global financial crisis hit Armenia and its three million people pretty hard. In 2012, when the World Bank began working with policymakers to improve the country’s tax administration, the country faced a pretty bleak picture. Foreign remittances were low, and the domestic economy was slowing. In addition the country had high levels of informal employment.

Here are 3 surprising facts about doing business in fragile environments

Alua Kennedy's picture
It’s a secret to no one that getting things done in fragile and conflict-affected (FCS) situations is more difficult than in normal, peaceful environments.

A recent World Bank report “The Small Entrepreneur in Fragile and Conflict-Affected Situations” looked into the motives and challenges of small entrepreneurs in FCS countries and made a number of interesting discoveries. They found that compared to entrepreneurs elsewhere, entrepreneurs in FCS have different characteristics and face significantly different challenges. FCS enterprises tend to be small, informal and to be engaged in sectors that are trade and service oriented.

Three other things they found are illustrated in the charts below. These findings came as quite a surprise to us. 

1. The primary obstacle for entrepreneurs in FCS countries is poor access to finance 
 


 

The Prime Minister’s Delivery Unit in Romania is saving taxpayers their time

Andrea Sitarova's picture



What’s a major challenge for Romanian taxpayers? They spend hours waiting in line at tax offices.
 
In March 2014, with support of the World Bank, a Delivery Unit (DU) was set up in the Romanian Prime Minister’s Chancellery. Its mission: Get better results quicker for the PM in four priority areas.
 
Tax administration was one of them. The PM’s concern was the pain of paying taxes. Offering online services, for the first time, was one of the ways to decrease the cost of compliance. The DU estimated that they could save the taxpayer up to 12 days a year of waiting at the tax office.
 
The DU’s role was to plan for these improvements together with the Romanian Ministry of Public Finance and the Tax Administration Agency (NAFA). In a Delivery Agreement, the specific targets, metrics, activities, deadlines and responsibilities were spelled out. The DU was to then monitor the progress monthly against an agreed trajectory and help unblock problems in implementation.
 
In September 2014, the NAFA launched the online taxpayer platform called Private Virtual Space (PVS). It allows taxpayers to file their tax returns, get their tax bills and see their payments. The target was to enroll 30% of the eligible taxpayers by December 2015. Though the DU tracked progress monthly, the enrollment rate was still at 0.6% in June 2015. Clearly, the monitoring on its own did not help.

Making taxes easier to pay

Ismail Radwan's picture
A team of NAFA young professionals receives an award in recognition for their work to help Romanians register and pay taxes online


Nobody likes paying taxes. But taxes are fundamental to governing a country. Without tax revenues we cannot pay for schools, hospitals and other important government services. 

Without taxes there would be no law and order, no security, no pensions and no social safety net. 
 
Collecting a sufficient amount of tax revenue to finance public services without distorting the economy or discouraging people from working is a challenge everywhere.  In Romania, the challenge is especially difficult as the culture of voluntary compliance has yet to take hold: Romania ranks among the lowest countries in the EU in terms of the tax gap and the amount of revenue raised as a percentage of GDP.

The economy is growing quickly, which has an unfortunate side effect: more opportunities for tax evasion.

Lessons from the taxi industry to improve Romania’s governance

Ismail Radwan's picture
taxi in Romania
Photo: Daniel Kozak, World Bank


The first time I came to Bucharest in 2013 the Bank office offered to arrange a pick up from the airport. Being a seasoned traveler, I declined the offer. I reasoned that I had lived and worked in so many countries I could manage the transfer to the hotel without assistance. I was wrong.
 
I picked up my luggage to find a local cab outside the airport. A taxi driver offered me a ride. I didn’t negotiate the price upfront seeing that he had a meter in the car.
 
Twenty minutes later we reached the hotel. The meter read Lei 200 - at the that time about $60. That was over twice the going rate but there was little else I could do. I felt cheated as so many tourists do.
 
I learned from the experience, accepted offers of help from colleagues and paid more attention to rates going forward.
 
About a year later I returned to Bucharest to find a new system in place.  An electronic kiosk had been installed at the airport.  Arriving visitors could now press a button to get an estimated wait time to hail a taxi. I took my ticket. It was a smooth ride.
  
What made the difference? 
 
The new taxi ordering system is now available on mobile phones mirroring, in many ways, the service provided by Uber. Passengers can rate drivers and increase accountability.  
 
Bucharest has gone from being a difficult place to find an honest cab driver to one of the most convenient. 
 
The change has been driven by incentives and improved technology. 

 What are the implications for governance reform? 

Public Financial Management reforms - signals or real change?

Renaud Seligmann's picture


Two decades ago, when I interned at the French Embassy’s economic mission in Moscow, I was asked to look into bankruptcy laws and their implementation. The Embassy wanted to advise French companies on how to get business done in the new Russia—we are talking mid-1990s—when there were no reliable guidebooks on how to navigate the transition to a market economy.

So I was asked to read recently approved, Western-inspired bankruptcy laws, given a phone book and asked to find two dozen companies around Moscow. I was to meet with their CEOs and find out how insolvency and bankruptcy procedures actually worked in practice.

I came away with one key finding: the rules on the books were not a very useful guide to how bankruptcy worked in practice. In fact, the distortions brought about by hyperinflation, bartering and the transition from Soviet to Western accounting meant the liquidity and solvency ratios that underpinned the institution of bankruptcy had essentially become meaningless.

The story behind Georgia's E-Procurement success

Sandro Nozadze's picture
 

Georgia e-procurement

Public procurement is at the core of how government conducts its business. As such, reforming procurement systems can prove transformational for development in any country.
 
In Georgia, the introduction of e-procurement (Ge-GP) is a good example of how strong political will and commitment can be critical in the context of reforming public procurement. Within a year, the State Procurement Agency of Georgia (SPA) designed, developed, and tested an e-procurement system, and eventually moved to the mandatory use of e-Procurement, fully replacing paper-based tenders.  

Apply for SAFE Trust Fund grants

Soukeyna Kane's picture



The SAFE Trust Fund application (Word document) is now open until 27 February 2015.
 
What is SAFE?
 
SAFE means Strengthening Accountability and the Fiduciary Environment. It is a Trust Fund group administered by the World Bank and established by the Swiss State Secretariat for Economic Affairs (SECO) and the European Commission with the aim of improving public financial management in the Europe and Central Asia region. This Trust Fund group provides support for activities to assess public financial management (PFM) performance, identify and implement actions to achieve improvements and share knowledge and good practices across countries in the region.

Engaging governments to increase their capacity: lessons from Tajikistan

Oleksii Balabushko's picture
Pomegranate farm. Tajikistan. Photo: Gennadiy Ratushenko / World Bank

 In 2010-14, we were facing a challenging task: develop a new approach to increase institutional and leadership capacity in Tajikistan’s public sector, including internal capability to initiate reforms. 

How do you build government capacity in a low income fragile state  in a way that would fit with the country context?

If you are familiar with the Western part of the former Soviet Union and have never been to Tajikistan, you are in for a surprise. The differences with countries such as Ukraine or Georgia are staggering.  To put things in the global perspective, Tajikistan has a GDP per capita lower than Cameroon, Djibouti and Papua New Guinea. The country suffered a civil war that lasted five years (1992-1997), resulted in massive internal displacement and decimated civil service. Despite establishing formal governing institutions after the war, institutional capacity remains weak.

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