Transcript I Definition of tax transition

Tax transition in the
context of EPAs
Jean-François Brun
Gérard Chambas
CERDI
Module 4
Outline
I - ACP: impact of agreements with the EU
II - Tax transition: ACP, focus on Morocco and
Senegal
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Impact of EPA agreements:
assessing the difficulties
• Partial equilibrium approaches: fail to take the
complexity of interrelations into account
• Approaches based on Computable General Equilibrium
models (CGE):
• Make it possible to understand interactions
• However, they produce results that are highly dependent
on the assumptions made and the quality of the statistics
• Results not clear: the case of the EPA assessment of
Senegal
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Impact of EPA agreements:
excessive focus on tax revenue
• Reduction in tariff revenue - first and immediate
adjustment at the beginning of liberalisation process
• Reduction of overall tax revenue often avoided despite
the significant initial losses of tariff revenue
• Reduction in tax revenue in the poorest, most
vulnerable, and mining countries
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Tariff, instrument of economic
protection
Tariff: base limited to tradable commodities
the domestic price of tradable commodities is increased
• The consequences of tariffs:
• Increase in the price of tradable commodities
• Loss of consumer purchasing power
• “Artificial” increase in the added value of the protected
(domestic) activities
• Loss of competitiveness
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130 = 100 (1 + 0,3)
)
Vad = 37
VA : + 85%
100
Va in t = 20
33 = 30 (1 + 0,1)
Autres CI : + 10%
30
Intrants : + 20%
60 = 50 (1 + 0,2)
50
Valeu r ajoutée
Autres cons ommation s intermédiaires
Intrants
Avan t protection
Après pro tection
Effective protection: effect of a differentiated tariff on
pipe production.
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Impact often in the background of
EPAs on economic activities
• Significant effect on manufacturing activities that are
frequently non competitive (Sénégal)
• But under-estimation of capacity of existing activities to
adapt, or new activities to develop, especially in MICs
(Tunisia, Morocco and also Senegal)
• Social cost of economic reforms in developing countries:
little compensation
• Additional factor of instability (Tunisia, Egypt)?
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II Definition of tax transition
Narrow acceptance
Reduction of the relative contribution of tariffs (causing
distortion) and increase in domestic taxation (VAT +
excise duties) that is believed to be more neutral
Increase or stabilization of government revenue (fuzzy
criteria)
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Evolution of the rate of government levies in Senegal
since 1970
(Unit expressed as a percentage of the GDP)
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Tax transition in Senegal
Unit: %GDP
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I Definition of tax transition
Broad acceptance
Reduction of all tax distortions and therefore of the social cost
of the government levies
Attenuation of the instability of revenue to avoid Dutch desease
(the case of mining revenue). Future generation funds
Convergence of the level of tax revenue towards an optimum:
the structural tax potential (Attila, Chambas, Combes, 2008)
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Instruments of tax transition. What
legislation?
• Modern single-rate VAT with the effective refund of VAT
credits and control of fraud
• Modernized excise duties
• Direct taxation system with specific treatment of natural
resource extraction activities (telecommunications, mining
activities) and dual tax
• Reduction of tax exemptions
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Tax administration: essential
mechanisms
Ultimate objective: to promote tax compliance
Modernization of customs
•DG: steering structures
•Automated processing of information (SYDONIA)
• Customs facilitation
• Risk analysis for controls
•Reduction of time frames and costs related to customs intervention
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Tax administration: essential
mechanisms
Modernization of tax administrations
•Steering structures
•Operational services organized in accordance with taxpayer
segmentation (LTU, MTU, …)
•Selection of collectors on the basis of (high) VAT thresholds
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Tax administration: essential
mechanisms
• Integrated computerization
• Systematic registration (Tax Identification Number)
• Renewal of tax administration-taxpayer relations: online procedures (facilitation)
• Audit procedures: risk analysis for scheduling; ad hoc
versus exhaustive audit
• Modern cross-checks (with custom, budget, central
bank)
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Tax administration: essential
mechanisms
Revenue authorities and tax transition
•Objective of autonomy versus performance contract
•Ambiguity relating to the development of legislation
•Mixed conclusion of scientific work
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Assessment of constraints on government
revenue during tax transition
• Provided the environment is not too hostile, the major
difficulty is not the level of public revenue
• The main challenge for the taxation system is economic
neutrality and the management of shocks
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Thank you for your
attention
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