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Designing a Technical Assistance Project: Some Lessons from World Bank Experience

Michael Engelschalk

Tuan Minh Le

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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).

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Regions

Tax (1990s)/1

Customs (1982-2002)

# projects Share # projects Share

AFR 33 40% 40 34%

ECA 20 24% 28 24%

EAP 5 6% 8 7%

LAC 19 23% 22 19%

MNA 4 5% 14 12%

SAR 2 2% 5 4%

Total 83 100% 117 100%

1/ Of total 120 loan operations, 83 with substantial tax components.

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Suggested Rating of Outcomes of Customs Activities (%) 

  Closed Projects On-going Projects

Projects with rated Customs outcomes 77 50

- Moderately satisfactory (SAT) or better rating/1 50 38

- Moderately unsatisfactory (UNSAT) or lower ranting/2 27 12

Projects with un-rated Customs outcomes 23 50

Total 100 100

* 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.

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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

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Need sound diagnosis.

Need project implementation plan.

Comprehensive approach.

High supervision quality.

Therefore

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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).

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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).

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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).

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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.        

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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 mandatesHence not incorporated into project objectives.

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Projects with tax reform components (1990s)

TALs with Customs reform components (1982-2002)

Major objectives Share (%)

Major objectives Share (%)

Revenue enhancement 40 Revenue enhancement 26 Strengthen tax administration

37 Strengthen Customs agency 71

Improve compliance 14 Improve compliance 32 Integrity/accountability 7 Integrity 11 Improve taxpayer services

5 Improve trader services 34

Voice and participation of stakeholders

0 Voice and participation of stakeholders 0

Others 21 Trade facilitation 53 Security 0

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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).

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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.

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PIs for TALs with Tax ComponentEfficiency-intended Results (% of projects)

Technology deployment 86

Activity-wise efficiency 67

Taxpayer compliance cost/time 43

Tax processing time 43

Wage cost 24

Budgetary cost of tax administration 14

Overall tax collection cost 5

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Number of taxpayers 52

Taxpayer service 38

Tax gap: specific taxes 20

International comparison 25

Corruption 23

PIs for TALs with Tax ComponentEffectiveness-intended Results (% of projects)

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PIs for TALs with Customs ComponentEfficiency-intended Results (% of projects)

Revenue collected/Customs staff 47

Total Customs agency costs/revenue collected

41

Salaries/revenues collected 41

Trade volume/number of staff 47

Annual number of declarations/ Customs staff 59

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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 information 24

Irregularities/number of examination

47

Surveyed occurrence of corruption/ integrity 12

More effective physical inspections 24

Rejection of incomplete or inaccurate declarations

6

Timely and accurate production of trade statistics

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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.

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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.

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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.

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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.

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III. Lessons Learned

1.   General lessons for designing a TA for revenue administration reformsPre-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.

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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.

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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

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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.

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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.