1. 1 Designing a Technical Assistance Project: Some Lessons from World Bank Experience Michael Engelschalk Tuan Minh Le

2. 2 I. Overview of Bank Assistance in Tax and Customs Administration Reforms Substantial World Bank ’ s commitments to reforming revenue administrations. During 1990s, 120 loan operations with tax reform components. During 1982-2002, 117 loan operations with Customs modernization activities. Two major categories of loan operations: (1) specific investment (TALs) and (2) structural adjustment loans and credits (SALs).

3. 3 Regions Tax (1990s)/1 Customs (1982-2002) # projectsShare# projectsShare AFR3340%4034% ECA2024%2824% EAP56%87% LAC1923%2219% MNA45%1412% SAR22%54% Total83100%117100% 1/ Of total 120 loan operations, 83 with substantial tax components.

4. 4 Suggested Rating of Outcomes of Customs Activities (%) Closed ProjectsOn-going Projects Projects with rated Customs outcomes7750 - Moderately satisfactory (SAT) or better rating/15038 - Moderately unsatisfactory (UNSAT) or lower ranting/22712 Projects with un-rated Customs outcomes2350 Total100 * The rating applied to 38 TALs with Customs components. 1/ Including High SAT, SAT, and Moderately SAT. 2/ Including Moderately UNSAT, UNSAT, and Highly UNSAT.

5. 5 One of the largest public sector institutions in the country. High expectations regarding immediate results. High risk of corruption. Establish change management challenges. Vested interests. High level of investment. Tax projects particularly risky

6. 6 Need sound diagnosis. Need project implementation plan. Comprehensive approach. High supervision quality. Therefore

7. 7 Key Issues in Pre-project Diagnostics, Project Design, Implementation and Supervision 1. Pre-project Diagnostics TA operations lacked substantive diagnosis. E.g, Less than 40% of diagnostic categories covered (tax). Only 53% designed with institutional diagnosis (customs). Diagnosis ad-hoc and lacked common methodological framework. Inadequate attention to analysis of tax policy institutions (only 23%) and tax structure (just 18% with quantitative and formal TS analysis).

8. 8 Effectiveness: Relatively limited and mostly qualitative. Efficiency: Focused mostly on automation. Collection cost indicators only in less than 10% of TALs (tax). Only one indicator for efficiency (administration costs/transaction) specified in 5% of TALs (Customs).

9. 9 Institution, capacity, and integrity: Emphasized organization structure Technology manpower quality tax administration procedures but lacked analysis of integrity human resource management. (Few explicitly analyzed availability and quality of code of conduct, merit based promotion, pay and benefit packages, internal control and audit systems).

10. 10 2. Setting Scope of Reform or Defining Project Objectives Similarities in setting objectives for tax and Customs reform projects More focus on strengthening administration institutions and revenue enhancement. Lacked attention to governance framework and integrity. No efforts to promote voice and participation of stakeholders.

11. 11 Differences Revenue enhancement most frequently cited objective for projects with tax component, whereas trade liberalization ranked top for Customs reforms components. Also NOTE: National security important function of Customs but not of Bank ’ s mandates Hence not incorporated into project objectives.

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13. 13 3. Measuring performance: Design of Performance Indicators Integrated approach critically important: PIs for a project covering just part of overall tax reforms matched with those designed for gauging whole tax system. Issues: Many projects lacked PIs. Lacked uniformity across projects (widely varied quality and comprehensiveness).

14. 14 Significant use of qualitative information while bypassing quantitative indicators. Less focal attention to critical indicators, spec.: effectiveness: integrity, trader/taxpayer service, tax evasion. efficiency: Revenue collection per tax or Customs staff; budget cost and wage cost of collection. Customs: none established for monitoring revenue enhancement. Measuring performance weak for projects designed before Mid 1990s. Significant improvements after Mid 1990s.

15. 15 PIs for TALs with Tax Component Efficiency-intended Results (% of projects) Technology deployment86 Activity-wise efficiency67 Taxpayer compliance cost/time43 Tax processing time43 Wage cost24 Budgetary cost of tax administration14 Overall tax collection cost5

16. 16 Number of taxpayers52 Taxpayer service38 Tax gap: specific taxes20 International comparison25 Corruption23 PIs for TALs with Tax Component Effectiveness-intended Results (% of projects)

17. 17 PIs for TALs with Customs Component Efficiency-intended Results (% of projects) Revenue collected/Customs staff47 Total Customs agency costs/revenue collected 41 Salaries/revenues collected41 Trade volume/number of staff47 Annual number of declarations/ Customs staff59

18. 18 PIs for TALs with Customs Component: Effectiveness-intended Results (% of projects) Release time (import clearance time) 76 Physical inspection and introduction of risk management 82 Trade community information24 Irregularities/number of examination 47 Surveyed occurrence of corruption/ integrity12 More effective physical inspections24 Rejection of incomplete or inaccurate declarations 6 Timely and accurate production of trade statistics 12

19. 19 3. Key features of project design General problems: Incomprehensive or isolated reform activities. Mismatch between proposed reform activities and level of funding. Insufficient coordination with other donors. Mismatch between project design and government interest. Hurried preparation without proper analysis. Unrealistic timeframe.

20. 20 Typical issues for projects with Customs component: Certain core reform issues often neglected: legislative framework for Customs operations. change management. coordination between Customs and other import clearance agencies. Integrity. sequencing in project implementation. No reference to original WCO or Revised Kyoto Convention. The proposed reform procedures focused primarily on process simplification, automation, and training.

21. 21 Despite high emphasis on automation, just slightly more than half of all projects targeted introduction of risk management. Just half projects linked Customs component with planned or on-going Customs reform strategy. Projects designed from the Mid 1990s: More comprehensive approach; and more emphasis on: process simplification. Automation. risk management. improved coordination with other import clearance agencies, trader services, and cooperation with other donors.

22. 22 4. Key issues in project Implementation and Supervision Weak project management (by Bank and client government) and supervision. Lack of ownership, commitment, and accountability. Inadequate coordination with other donors. Lack of change management strategy.

23. 23 III. Lessons Learned 1. General lessons for designing a TA for revenue administration reforms Pre-project diagnosis to be guided by a framework covering both institutional and other traditional concerns of revenue administrations. Project design should fit into strategic vision of administration. be guided by good governance framework matched with Borrower ’ s implementation capacity.

24. 24 Standard set of performance indicators to be specified with tractable benchmarks. Appraisal and post-project evaluation to be based on same performance indicators. Project implementation period must be reasonable. Supervision quality to be improved: supervisions did not always have tax experts on missions. Too much IT focus is risky. Policy reform necessary. Pilot approach (e.g., LTU) could be appropriate.

25. 25 Standards of Revised Kyoto Convention to be used to the extent possible as benchmarks for expected project results. Diagnosis to draw on existing tools for Customs assessment. Promote participation of and cooperation with stakeholders. Don ’ t loose sight of long-term Customs reform strategy even if project covers only certain specific reform activities. 2. Specific Lessons for Customs Reform Activities

26. 26 Cooperation with donors and with other multilateral agencies with specific expertise in Customs reform (e.g., IMF and WCO). Government commitment to finance follow-up costs after project closure to be sought early on in project preparation stage. An anti-corruption strategy to be devised and integrated into overall Customs modernization.

27. 27 Change management strategy to be sufficiently budgeted. Borrower ’ s political commitment at the top and by Customs administration to be clearly sought and expressed. Well-defined exit strategy to ensure sustainability of the reform.