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Financial Sector

Chasing shadows: Tax strategies to tackle the shadow economy

Rajul Awasthi's picture
Digital work by Steve Johnson

Tax administrations in developing countries are increasingly concerned about the persistent problem of loss of tax revenues to the shadow economy, and they often deploy a range of strategies to plug tax leaks and augment revenues. The erosion of the tax base prevents governments from collecting the revenue it needs to provide essential services, such as healthcare, road construction, and education. Nonetheless, it’s a sticky problem: how do you convince business owners to pay taxes?
Some possible answers, bolstered by evidence, include: simplify tax payment and provide incentives to formalize businesses. The World Bank’s Governance Global Practice will hold a conference between June 27-29 in St Petersburg, Russia, to bring together participants from almost 25 countries of the Europe and Central Asia region to discuss these issues under the aegis of the Tax Administrators eXchange of Global Innovative Practices, a peer-learning network of tax administrators. The event will be hosted by experts from the Public Sector Performance division of the practice.

It’s time to boost public financial management in the Caribbean

Samia Msadek's picture
School children in Kingston, Jamaica. Strong public financial management affects all facets of government spending, including education. Photo credit: UN Photo/Milton Grant 

Finance ministers, auditors-general, and leaders of professional accounting organizations are meeting Tuesday in Nassau to discuss a topic that is often hidden from view, but is critical to quality of life in the Caribbean: Capacity and standards in public financial management.

How governments manage taxes, borrowing and spending is essential to economic growth, to poverty-reduction, and to ensuring that the region’s poorest can improve their lives. It is a core function of accountability in government. Improvements in this area could increase the health of small and medium-sized enterprises, create jobs, and bring in additional government revenues to spend on essential public services. Residents of Caribbean nations: this strategic dialogue will be about how the government manages your money.

Building alliances, gaining public trust: Chile’s financial management reforms

Dmitri Gourfinkel's picture

Also available in: Español

Santiago de Chile. Photo: alobos Life via Flickr (under CC license) 

Note from the editors: The following is an interview with Patricia Arriagada, former acting Comptroller General of Chile, and Patricio Barra Aeloiza, Head of Accounting Analysis Division of the Comptroller General Office, who have been instrumental in recent reforms of public financial management systems in Chile.

Starting in 2010, Chile embarked on a journey to improve public sector accounting by converging to an international standard of financial reporting by 2016. The country expects to produce its first fully compliant financial statements in 2019. One main objective of this reform is to ensure that financial information generated by the government accounting system is comprehensive, reliable, and useful for decision-making. Another is to increase the levels of fiscal and financial transparency and accountability in the public sector.

Patricia Arriagada,
former acting Comptroller General
of Chile

These reforms were driven by the Comptroller General office, is what is known as a “Supreme Audit Institution,” and is responsible for monitoring revenues and expenditures in all parts of the government – in particular, ensuring the quality and credibility of financial management and financial reporting.

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.

A call for action and the way forward for reform in Francophone Africa

Nestor Coffi's picture
Also available in: French
​Number of accredited chartered accountants serving in public practice/million inhabitants in country.

With the call for action issued last month in Dakar, the commitment was clear: Francophone countries in Africa will seek to improve the well-being of their citizens by accelerating the transformation of public financial management systems. They will take this initiative through strong partnership between governments and the accountancy profession with the support of the development partners.
The call was made by 200 high-level delegates from 20 countries: decision-makers and practitioners from both the public sector and professional accounting organizations, and representatives from multilateral development organizations and civil society.
“The effective implementation of these reforms will improve the use of public resources to enhance delivery of services, transparency, accountability, and citizens’ trust in our governments,” said the Honorable Ansoumane Condé, Minister for Budget of the Republic of Guinea, after reading the call on October 29.

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.

A tool at the right time for tax reform

Jim Brumby's picture

In today’s world, international aid is fickle, financial flows unstable, and many donor countries are facing domestic economic crises themselves, driving them to apply resources inward. In this environment, developing countries need inner strength. They need inner stability. And they deserve the right to chart their own futures.

This is within their grasp, and last week the launch of an unassuming-but-powerful tool marked an important step forward in this quiet independence movement. It’s called the TADAT, or Tax Administration Diagnostic Assessment Tool. At first glance, this tool may look inscrutable, technical, and disconnected from development. But listen. 

Driving change in challenging contexts: four issues to address

Verena Fritz's picture
During war, markets help people survive. Salad traders in Garoule market, Mali.
© Irina Mosel / ODI

Recently, I participated in an ODI-organized conference on ‘Driving change in challenging contexts’. The ongoing refugee crisis in Europe as well as the adoption of the SDGs is bringing efforts to revive and accelerate development in challenging contexts to the forefront of political attention.

​Progress in such contexts is inevitably difficult. But actual practices are also still far from the possibility frontier of what could be done. Four issues stand out:

4 key challenges for reforming state-owned enterprises: Lessons from Latin America

Fanny Weiner's picture
Man fixing railroad tracks. Mexico. Photo - Curt Carnemark / World Bank

Efficiency. Competitiveness. Innovation. Integrity.

Do these words come to mind when you think of State-Owned Enterprises (SOEs)?

From June 2-3, 2015 in Santiago, Chile, over 100 representatives of governments, SOEs, and academia from 13 countries came together to discuss how to advance these ideals, at the fourth Annual Meeting of the Latin American Network on Corporate Governance of State-Owned Enterprises, co-organized by the World Bank, the Organisation for Economic Co-operation and Development (OECD), and the Latin American Development Bank (CAF). 

SOEs are commercial enterprises owned by governments, in full or in part. Across Latin America, SOEs still represent a significant portion of GDPs, national expenditures, employment, and government revenues. Many SOEs provide essential public goods and services like water, electricity, and transportation.