# REFORMING TAx SYSTEMS: Ti-E WORLD BANK RECORD IN THE 1990s

This review of Bank projects in the 1990s with tax or customs administration components aims to analyze the extent and nature of their institutional focus. A second objective is to identify and assess the performance indicators used. The purpose of the review is to draw lessons for future Bank work in the area of tax systems advice.

The paper discussed the rationale for involvement in tax reform; the nature of pre-project diagnostic work in projects; the composition of the 83 projects with tax systems components; key features of project design; the nature of performance indicators specified in projects; project appraisal; selected aspects of project implementation; and evaluation of project outcomes. Conclusions and suggestions for future Bank loans for administrative reform are then offered.

## 1. **The Why: Rationale for Bank Lending for Tax Systems Reform**

The corporate objective of the World Bank group is to reduce world poverty. Growth and macroeconomic stability are necessary pre-conditions to reduce poverty. The need to strengthen revenue generation has traditionally been a self-eviden **t** ask of development, which the Bank has chosen to pursue with a variety of means.

Whereas policy advice on revenue architecture has been and continues to be a prominent part of the Bank's analytical support to countries, there has been increasing realization that good policies alone are insufficient for sustained, reliable revenue generation, which in turn is a necessary condition for both macroeconomic stability and provision of adequate social services by the Government. In the medium to long term, evidence shows that strong institutions, particularly institutions of governance are as if not more importan **t** o achieve sustained growth and poverty reduction. There is also some evidence showing that this applies to revenue generation. Good institutions in government ensure effective policy making, accountability for their actions of the government and its functionaries to citizens, and effective and efficient service delivery. Key requirements for these outcomes are transparent procedures, mechanisms to involve citizens in decision making and evaluation, and enforcement of accountability especially to counter corruption and waste. Consequently **_institutional strengthening and governance capacity building_** have, of late, become integral to the Bank's development strategy and to its technical assistance (TA) operations.3 In the next few sections, we will examine the extent to which these concerns have been already incorporated in Bank work in the tax system reform area.

> 3 For example, the Operation Policy Department's _Handbook of Technical Assistance_ (1993) defines two kinds of TA, Institutional Development TA and Gap Filling TA and proceeds to devote the bulk of the Handbook to the former. Furthermore, it is critical of traditional approaches to gap filling TA. The list of core institutional functions listed in the Handbook include policy making; financial resource generation and allocation; managing personnel; communication; management; evaluation; and meeting citizen's needs.

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