Institutions for Performance Oriented Tax Administration

This paper attempts to identify important hypotheses that underlie Milka Casanegra's well known saying "in developing countries, tax policy is tax administration". Emphasising that there is insufficient rigorous empirical research on tax administration to confirm these hypothesis examples from both developed and developing countries are given, to demonstrate that the hypotheses are, nevertheless, not groundless. The hypotheses are that (a) Improved tax administration or administration friendly tax reforms can significantly and speedily enhance revenue collection - often by more than "text book" tax reforms, (b) Inefficient administration imposes significant distortionary and compliance costs on society. Furthermore these costs are very unevenly distributed across different groups in society, (c) To permanently improve tax administration it is not sufficient to increase manpower and institute new controls, nor to merely introduce IT enabled procedures, nor yet to outsource some activities to the private sector, (d) Good institutions are the key to improving tax administration and the most important institution is the structure of incentives. An institutional blueprint to improve tax administration performance is then outlined, while cautioning readers that more research is needed to fill in the details.