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Milka Ca~uncgmdt Jantschrr and Riclurrd hi. Binl 9

tasks: facilitatingoonrplhnce, inonitotingcompliance. find Jdiny with

Facilitating ampfiance involves suchelementsas improving-ices
to taxpayers by providing them clear instructions, undmtandilble
forms, and assistan- and information as nuoesswy (LEBaube and
Vehom (Chapter 9 in this volume)). Monitoring c o m requires
tstablishing and maintainingcurrent m n t s oftaxpaymaad manage
meat information systems -yering both ultimate laxpayers and thirdpatty agents, such as h k s , invofvcd in the tax system W@ucz-Cm,
Reid, and Bird (I%U)), as well as appropriate and prompl pro&tr*s
to detect and f o b w up on nonfilers and delayed paymentre. Deterring
noncompliancerequires both cshblisbinga msanablerisk d detection
and applying -tie9
tffectiwIy (Sjlviwi (Chapter 8 k this vdumt)).''
The ideal qpmach is to combine these m e m m so as to maximize
their tfbt on complit w m , to move a country from a "lowcmnphm" to a " h ~ c o m p l i i *eavironmeltt.
For example, whsn
introducing a VAT or other new tax, e m p h i s shodd &st be giva to
misting taxpaycm to compEy with the new ta-see, for m p l e , the

Triaidad and Tobago cage discussed by Due and G m y (Chapter 5 in

&is v o l u m e ~ e to
n detecting m c o m p h , and M y to applying
@ties. As a d , sucmdd reform strate& requirean ap-te
c of all these appmda,
The taxpayer's decision to comply, or not to coslp!y, with bir fiscal
obligations i s d m m c the subject of the large f o n d tbsomthl literature on the ecmomiw of tstx evasion (Cowell (1990)). While some
of the evasion decision in a w
c fbmwd and in mod*
it in pdmcipd-agent terms, much remains to be done befom the msub
OlsucBsrnalysisqcUely w,havemucbtosayabouttbereal world
"gsune" in devdopiqcountries.'' Kprexample, apar~from a pioneering
paper by V i d (fW),
virt ky d h t entire economic Iiitermrturc MI tax
e m h i assumes h
t tax
arc wmplctdj hmrc. lf nn dl
oflkkls are h e s t (ad in&Be:expcted utility framework u d in moat
of the theoretical limu~e
it h not clear why they should k c x p l d
to bt), the game is rwy d i f f m t than t b t usually mtdeled, ''I&;kqw
costs," as Shaw (t981) dl?
that portion of &x avenues tltitl flows
into the pockets of officids tather than into the coffers of yc~vcrnrilcd,
m y simply be transfen in qunomic terms but they may ~wr~albcks*

' cmcourst. it is also lmponsnt to emurn thar judidal p r d u h l c 4inatillltkrrn ihrr
such p.g fQ M i t a l e tbt pmper r p p b h d tacx kws and ponallicn.
Gwlz, kinganurn. a d Wilde 11W) a d Udngmwj and Wikle I I W I .

msuit in si~ificantdistortions as new taxes are inrrpduced and tax

mtei are increased in attempting to make up for the revenue loss.
In addition to this serious gap in thc existing f d analysis, tbe
litemture has not as yet managed to d e l very weH either the longterm, repetitive nature oC the tax game or the roIe of "mms" in
determining how people ptay thc game. &&-tion
of the t e m w
dimension of tm administration sttesses tlPe importance both of tk.
intoraction afdliciah and taxpayers and of changes in "tax techpd,
w"and tapayer attito g ~ v m m e a tThis
. ~ dimension is c s p
M y i m g o m n ~in the context of tbe p s e n t b d s dnce the p d l e m
of Lax administration refom is e s s d d y bow to dtw tho outoomcar
d administrative effort by w
e investment in developing new
lqd and o ~ z a t i o n aframeworks,
adopting mew mhflofogy (such
as computerization), and changing the allocation of administrative

Finally, in recent years virhrally dl attempts to reformtax administmtion havq centered arolvnd some form aC cornpaterimion. CCIWII~,
it is dficult to conceive
of a tax administration that can perfom its
tasks efficiently wi thou using some f m at computer techndogy. la
too many instames, however, the expectation ofgreater effectiveness
fmm computerization has not mkrkii. Evidence indicates that the
mwc successful reforms did not merely involve computerizing antiquated processes but also the redesign and streamlining of systems
and procedure-uch
as consolidating return and payment forms and
eliminating unmcmsary and unused information required from taxpayers, As Corfmat ( 1985) emphasizes and the study of Spin by Moya and
SsartEago (Chapter 6 in li~irrvoiume) abws, mcudd camputerhtiion
must be accornpnied by a fondmental morgaahtion of bolh systems
and pmcdures and -1
be used by itM to side-step such needed

Ill. m n d a for F w t h Research

AH mcntiuncd above, in recent years there has k n considerable
rewciwch on 1hc theory and, to a limited extent, the fads with respect
lo tirx cuasion and tax compliance. Because of such work, much has
bccn icarncd about taxpayers: why and when they comply and do not
comply. whi~tcfl'ects variws penalties and inducements have on their

10 The Worm of Tax Administration

hhavior, ands o n (Elffm(19911). S U o g i s t s , psychdogitils,ccitncb

mists, and admhbWors have all mtributtdto this lileralurc and wc
iiMy to contio6k to do sa given the theotetical uttmcrivcmsn i~nd
pmdcal impdance of the suuect. Unfortuaatdy,intensting and lu
m e extent useful as this work has bcen. much of it bas pmvcll to he
ofonly l i i M diroct relevanceto theon-goingtwkdtax admir~isinrlion
in developing cwntrk.
Oue ~ e m for
n this lack drelevance is the very dicmnt cnvimnrncnt
of tax adminis4ration in &v&ging countries than in LCdcvclrqd
countries inwhich this research has beencarried wl. Anol b r irnpumnt
m,however, is that there have been almoQl no sludics in any
country of tax ofkia1s. of why and how they do what thcy du. Tux
administration can k thwght oC as encompassing b t h muss (roucinc)
and individua?(discretionary)tasks. The f o m indudes functions carried wt across a wide range d transactions such as withhotding, the
maintenance d i q m y e r cumnt a ' m n t s , and odlaction; h e latter
iwludes audit, investigationd suspectql fraud, and so on, As S l e m d
( 1989) has pointedout, even io developed couatrks the most neglected
aspea ~f tax aaalysis i s how tax offroiahact: What are the decision
rules they use? What is the cvidenoe on which such rules are based?
What is the reiiability and validity of such rules? Almost nothing is
krlown abut such matters ia m y owntry." Govenunents in some
dcvetopi~gcountries have little daydoday control over tax dlicialr,
little knowledge of what they do, and, furthermore, rso easy way to
For centuries, pvmments in the now devel. obtain such
oped mutries had to s p n d almost wi much t
hsnd effort trying to
wnisd the padatio~sand extortions d m v m - a s trying
to s g u e ~ emoro revenue wt of an unuawi[Iiag
W e b k and
o o u n ~
Wildavsky (I$&)).
The c i r c u m ~
in some
today are
that diffmnt; the n d to keep tight oontrol over
the hdliag M cash a d to monitor & d y the gatherim# and use of
information by tax &is
is thus a higlqwiority task.

Milka Cusanegra de lantsckr and Richard M. Bird 11

agents, which facilitates checking and verification) and by instituting

systematic internal consistemy and security checks (for c m p l e , maintaining tight internal security on ~compuZerized data bases) to ensure
that no improper activities occur in these W i n e tasks, While much
remains to h done dong these lines in some countries, what needs to
be done is not a mystcry. The problem of ensuring accountability is
much mom dimcult, however, with respect to such inevitably selective
and discretionary tasks as audit. While there is much stilt to be learned
about this subject, there appars to be no substitute for establishing a
group of well-trained and adequately compensated oMciats, whose
work is subject to regular monitoring and review.
Tm often when the director of taxes in a developingcountry is ask d
for data, it transpires that the only number r e d l y a v a i l a e is the
amount of money collected yesterday, last week, or last month. Of
course, collection data are highly important, but they are not enough.
To run u g o d tax a d m i m i o n , one must know when the money
ulmc Iiom rmd what the costs aid k d t s of various possiblechanges
in lcgd rr~mcworkand institutional idmstmcture might be.
In thc nhscnce of such knowledge, it is dificult to develop an appropriate alniicgy for the reformof tax administration,The key information
missing in most countries includes 11) P dekiled breakdown of the uses
of udministrulivc rcsmrces; (2) information on the results of such uses
with respcci to Ihe various outputs-revenues, numbers of cases handlcrl, ;md MI on-of intmst; d (3) infunnation on tax bases, both
tlcttlul UMIptcntid. The first two ofthese items are needed for a
nraniqwrncnt i o h m a t h system in my case; the third i s needed both
for round tax wlicy and sound tax administration policy. As tax adrninistr;ltiona thmughout the world move into the twenty-ikst.aentury with
con)ptrtcriisoddi~tabases, mwe and more infomtioa will be generated.
l'u cnxttrc that this information is both usabk and is actually used,
hwcvcr. it ia critical that it be both timely and reliable a d that both
opn~tingudminisfrators and researchers be closely involved in the
.tlcvckbpmcnl of ittx magement infomation systems. Computerized
& s h o w a i n ~ o f ~ c ~ d i ~ ~ h ~ b o o k , t h e ~ i l -i~lriirnnulionis curt important to buth tax administration and tax policy
ity do@cids*cmbe improved bothby s s m v a h s functions (for
lo he Icn lo computer specialists done!
example, usiogoontroWe third p - t ksucb asW r and withholding
Allhou~gh.as thin book demonstrates, knowledge is p l u a l l y beimg
ecyaircd in many countries on many important matters related to the
wft~rnlid' 1i1x dministmtion and tax policy, much remains to k done
" P a P a ~ ~ ~ H ~ d ~ ( t 9 9 0 ) ~ m p w r t b a t r ) r r ~ h ~ o E r a l to
s aysten~utimand cvaluate this k ~ w ( c d g c Some
of the topics on
e x a m i x K a l l i a e a m e u ~ ~ s m d ~ ~ B # ~ i ~ ~ , b u t W t hwhich mrrc systcmatic research sccms needed are listed below.
rslalirPtingthe p u l h m m d ~~t
aUbi& emM kw
w judgmc~tofthorr
'I't~c 111cax~rcn1en1
of tan "gaps" (between potential and dmlared
~ S u e l l a r y l m e m m ~ y w o r l r ~ i a ~ ~ d h N a l h e d a n d s .
c l d taxes and taxes paid, and between taxes
W h t m q h k d to Idmush. [his 6yslem ltft mueh 10 be M,
as Gillirs (1990)
piid ilnd thosc that reach the treasury).

12 T k Rcfwm of Tax Administmtion


- -

The real resource costs (adminisirative, compliancrr, cmciw~cy.

evasion) of alternative tax sttuctum a d ladn~i~~istn~livc

Mllku Casanegra dc Jautsckrr and RichardM. BM


The relarive effects of ptnaltics, information syxlcm~{1vptwtinf!L1).
simplicity (of laws), and publicity on cwnpliancc,
The use ofprasumptive techniques to lax "hrd-to-t;~x" rrQotx.
The tikiency with which audP resourcesare ullmxicut. and p~icisiHe analytical b a a for the adminislrdive rules d lbsrnl~iud Jccisioa ruks used to sekt'Feturns far examirwlim.
The pros md cans of the "lwgc taxpayer" ap(xrutch di.wtrmd


The appropriate c o r n ~ n system

for third-party cullccIion
agents Ifor axampla, banks).
The costs and benefits d t a x ammsties (see. for cx;~nplc,Stdh
The administrative implidom of rak difforenliatiun und cxcmpt b s (for example, in a VAT; see Tait ( 19911).
Thc incidence and a l l ~ i v effects
ofjudicial appctli prrxd~mq.
Possible systems for linking administwive r c w d a lo dniristwtire e m ;
* T k costs d b e d t s of alternative refunding proccdurex.
7 % costs
~ and benefits of different degrees of wlministrutivc dcccntmfization,
The Pole of specialist tax p~eparers(fm exampk. accounlun(s) in
developing cwmlries.

With r e q ~to~these
t and many other possible topics, dificrent mult s
may be expected in differcat wuntries-knrbm m.
For example, difkrent mmwcmnoqnic environments enflation); diffwences in
market sttWu~es,risk 4.time preferences, wid wclfa* functiom,
informationcosts and wailrrbiliy,aad m c t hfunctions;and differeat
"eavirunmcnts" with r e s w to rehtions with gwemnaent, the WUN
of government expendim, ''motale," and soon. W l e many of these
t e r n are rather nebuIwti=@ s u m ta vwyhg interpretath, me
cannot form wkquatejudgmentson the many @icy issues explicit and
implicit in the prectding list without muck more caefbl and % y s t w t i c
analysis than is now available of the elation between such differeut.
contexts and the questions raised in the list,
IV. Conclusion

Thrrs, while much remains to be learned h u t tax administration

reform in developing countries. as this &ok shows, a great deal is


a l d y knownaboutthesubjat andmu& has beenachieved inpractice

in a number ofcountries to improve their tax admi0istration. As noted
earlier, more could t~ done to improve tax administration if more
people, in both the tax administration and researsh mmmunities, were
in~ercatcdin it. In effect,the task is to find ways in which to O o d i
thcprcwnl "expert diagnosis" systemofcopingwith tax administtation
refm by rrecing it as much as msiblr from the country-specific and
time-apcih biaseswe all Am.The task is not easy; but it is important,
and worthy of much mwe effort and nwurcas than have SQ far k e n
&voted to it. Moreover, since govcmmcnts and taxes seem more l i y
lo gmw in importam in most d d o p i w cauntries in Use Mum than
to shrink. Iht problemb not going to go away, The p r o b h s are thwe;
thc methods and the information needed to tackle them are in thek
formurive stages: whal w d a to be done is b seize the upportunity to
nu~kca inow rryststcmatic inmad into this important area.
'ihc exwrienccs discussed iq this h k provide usefullessons mgwding tax udminisfn;ion refom. White there is no consensus on a number
d issucn, il is Riir to conclude that m i authors aod ammentrttors
ilyrcc !hut thme main ingredients are nwssary for a su-sfuf
rdmin developing counuies. First,the tax mudure
IIS~IHIIYm d s to he simplitiedfor ease of cormplianceand adlninistratioo.
. k t r ~ u lil. rcfurm W e g y suitable to the specific chmstanccr of a c h
umnt ry must hc &vet@;
gimmicks or quick 6xcs are no substitute
lirr il cr~nrprchcnsivcstrategy. Finally, and above all, there must be a
st rung p~li
Iical ctlrnrnilment to lhe impmvemt d tax administratioh;
trthcrwisc. cvcn the best intentianadand best designad m
a will W.

Uird. Wichird M.."Irmome Tax Rcfbrmin DtvelopingCountries:Thc Admioist ~ W i v r Ilimenrion,

" B u l I r ! i n f . J ~ r e r n u f i dFiscal Docurnentation, VoI.
37, No. 1 (l983), pp, S14,
'7hAdministrative bimcmion of Tax Rcform in Dcvtloping Corntries," in Tax R&m in Developing Countrleg, ed. by Malcolm Willis


(Durham,North Orollha. Duke University Re=, 1W).

"Tax ad mi^^ ond Tax Rdwm: R d k t i m w Exparien~~,"

in Tax Polfey In Dm&ylng Caunlrics, 4. by Javad Kbaliltadeh-SW
and Anwar Shah WosbiWdn: World Bank, 199 I).
"Tax Rdorm io Latin America: A Review of Some Rtceat Ex@
ences," Latin AmerfeM ResearchR e ~ k wVol.
, 27. No. I (19921, pp. 7-36.
Boyd, Colin, 'TleEnfmumt o f k Compliance: Somc T h s c m ~ 1 ~ w r , "
Canadian Tat Journal, Vd. 34 CMayDunc 1986), pp. S8S-W.