Evaluation of taxation reform in the Pacific

By Kieran Murray, Robin Oliver, Sally Wyatt – Prepared by Sapere Research Group for the New Zealand Ministry of Foreign Affairs and Trade

Executive summary

Purpose and scope of evaluation

The New Zealand Ministry of Foreign Affairs and Trade (MFAT) commissioned us to evaluate the efforts of donors to assist reform of government taxation collection in the Pacific over the period 2002 to 2012. The purpose of the evaluation is to seek insights into the process of reform to inform improvements to how donors support the design and delivery of tax reform programmes in the Pacific. We did not evaluate what would be the best form of taxation to meet the revenue raising, fairness, economic efficiency and other objectives of host countries.

In summary form, the main themes of this evaluation are as follows:

• Findings – donor support for tax reform has followed good processes in terms of dialogue and has produced improved tax systems in the Pacific. However, numerous weaknesses in terms of sustainability are evident.
• Conclusions – Pacific tax systems are fragile with a focus on changing rules and administration infrastructure rather than behaviour. This fragility is partly attributable to a donor focus on episodic rather than systematic tax reform.
• Lessons – donor support would be strengthened by moving to a more systematic engagement and dialogue with host countries focusing on incremental strategic improvements to the whole tax system involving overall behavioural change rather than changes to rules and systems.
• Implications – donors should consider whether to move to a more systematic support for Pacific tax systems.

Sixteen countries were within the scope of this evaluation. These countries share the common feature of being members of the Pacific Financial Technical Assistance Centre (PFTAC) and most of them have attempted some form of improvement to their tax policies or administration since the early 2000s.

Tax reform is systematic and complex

A good and well-functioning tax system is critical to all countries. It provides the means by which governments can fund the services expected of it and, in the case of less developed countries, achieve greater self-sufficiency by way of lower reliance on overseas provided budgetary support. Equally importantly, the tax system is critical for sound state-building – establishing a functioning relationship between governments and tax paying citizens.

Important as it is, tax reform is nevertheless extremely difficult to bring into effect. A good tax system is difficult to implement and sustain because taxation is inherently intrusive affecting all aspects of a society and its economy. It impacts on income and wealth distribution and inter-reacts with all aspects of the economy. The tax system must of necessity, therefore, reflect the complexity of that intrusive inter-reaction and must change with changes in the country within which it operates. In addition, especially given the necessary focus on administering taxation systems through voluntary compliance, the tax system operates by altering modes of individual behaviour. It is not therefore just a set of legislated rules.

Given this context, tax reform should, as emphasised repeatedly by the 2011 Mirrlees Report on the UK tax system, focus on the tax system as a whole. That review concluded with respect to the UK:

“To improve things, we need to see the system as a whole, we need to design the system with a clear understanding of the population and the economy on which it operates, and we need to apply economic insights and evidence to the design. We also need a much more informed public debate and a much better set of political processes than the on es we currently have.”

While written in the context of tax reform in the sophisticated economy of the UK, these comments have general application to tax reform everywhere. To create sustainable taxation reform it is therefore necessary to manage the tax system as a whole. To quote again from the Mirrlees Review, when considering tax reform:

“there is a need to think about the tax system as just that – a system. The way that different taxes fit together matters, as does being clear about the role of each tax in the system.”

Approach and method

We define reform success as taxation reform that brings about sustainable improvements in institutional capacity and in tax policies and administration, consistent with international good practice. The premise underlying this evaluation is that successful taxation reform is a matter of successful process and not just achieving technical results such as specified legislative changes.

As a process, successful taxation reform interventions might entail a sustained interchange of ideas, perspectives and analysis between donor-funded agents and their counterparts in the host country. The term “policy dialogue” is commonly applied to government to government processes in the source literature but the principles and indicators of good process apply equally to engagement between donors and host country agents. The literature suggests that a ‘policy dialogue’ approach is more likely to provide a systematic approach to taxation reform that builds-up the political, administrative and private sector infrastructure in a coherent and sustainable way.

This premise was articulated in the central evaluation question: “has donor funded intervention provided for effective policy dialogue at each stage of reform and what were the sustained consequences for the objectives of reform.”

Drawing from the literature on taxation reform and on policy dialogue, we anticipated that the indicators of procedural success would be:

• there is clarity as to objectives of reform
• informed and reasonable expectations as to what can be achieved
• shared and credible evidence base
• taxation advice is consistent with good tax design principles and accounts for local conditions and context
• donor and host country negotiate reform programme on relatively equal terms and maintain formal and informal dialogue.

The evaluation also looked at a range of intermediate and longer-term outcomes from taxation reform as a means of inferring lessons about the process to support taxation reform.

The research for this evaluation involved desk-based review of Programme documentation provided by PFTAC, MFAT and the Australian Department of Foreign Affairs and Trade (DFAT), including previous evaluations, literature, collection and analysis of data (both desk-based and in-country), and semi-structured interviews.

We conducted four in-depth case studies in Kiribati, Samoa, Solomon Islands and Tonga. These case studies were chosen as providing a variety of taxation reform experiences and geographic distribution. The case studies supplemented more general desktop research and interviews to generate the core research findings. The case studies were built on a combination of data generated from literature, targeted structured interviews carried out in each country and primary quantitative data. In total, we interviewed 49 people, mostly in Fiji, Kiribati, New Zealand, Samoa, Solomon Islands, and Tonga.

In addition, we presented a preliminary view of our evaluation to the Pacific Island Tax Administrators Association (PITAA) Heads Meeting held in Honiara 10th to 12th September 2013. This is the annual meeting of Tax Commissioners from throughout the Pacific and provided an opportunity to test our insights with those who have direct experience in implementing taxation reforms.

Findings

Significant achievements from donor support

Over the period covered by this study considerable donor resources have been allocated to taxation reform. Between 2002 – 20126 donors invested an estimated NZ$55 million on tax reform projects in the Pacific.

This expenditure has produced some significant achievements. Across the region tax administration capacity has improved as demonstrated by the PFTAC baseline reviews.

Where tax policy reform has been initiated, the reform has generally followed the guidance provided by PFTAC in terms of the “standard package”. The ‘package’ comprises five aspects:

• introduction of a broad-based, low rate income tax, with few exemptions and discretions
• introduction of a broad-based value-added tax with few exemptions and discretions
• a reduction in reliance on trade tariffs and sales taxes
• introduction of comprehensive revenue administration legislation establishing and standardizing the rights and obligations of the revenue administration office, taxpayers, importers, and exporters.
• development of systems and processes for tax administration that make proper and efficient use of withholding and third-party information and encourage maximum voluntary compliance with the tax regime.

Based on the extensive literature on taxation reform we accepted, for the purpose of this evaluation, that the “standard package” promoted by PFTAC will produce a tax system that is in line with international good practice and that will raise revenue relatively fairly and efficiently. Depending on the circumstances of individual countries, there may be alternative reform packages that arguably could produce better outcomes, but reaching any such view was beyond the scope of our evaluation.

In our core case studies, Samoa and Tonga have implemented tax reforms along the lines of the standard package together with administration capacity building. Solomon Islands has had limited tax policy reform but has undertaken extensive administrative capacity building. Kiribati‘s recent reforms are generally consistent with the ‘package’.

Donor support has led to broad reform and convergence in the features of Pacific country tax systems. The picture that emerges from reform efforts in the Pacific is that they have yielded significant formal changes in tax regimes, but more modest changes in tax practices. This picture is consistent with outcomes of taxation reforms in other developing countries.

Successful reforms have depended on effective policy dialogue at every stage of reform

Consistent with theory, this evaluation has found that reforms that can be considered to have been successful in the Pacific have featured effective policy dialogue, at each stage of reform. Successful reforms have been more likely to have exhibited a more ‘systematic’ approach than others, in which the political, administrative and private sector infrastructure in a country are built-up side by side. The case studies have thrown up patterns of strengths and weakness in the process of reform. A desktop review of the reform experiences of the other Pacific countries within the scope of this study and interviews with advisers who have worked across a number of countries suggest that these patterns are not unique to our case study countries.

On the positive side, there is clear evidence that host countries and donors are increasingly making a strategic commitment to long-term tax reform as a process. Long-term advisors are now present in Samoa, Nauru, Kiribati, FSM, RMI, Tuvalu, Timor Leste, Solomon Islands, PNG and Vanuatu. This contrasts to earlier in the decade, when reforms to policy and administration were commonly staffed by intermittent technical advisors (TAs). Similarly, funding commitments for reform programmes are lengthening in duration. The need for building core relationships by developing a dialogue across and between sectors in the host country also seems to be widely recognized although the extent to which this is put into practice seems more mixed.

Many paths to successful reform

There also seems to be a general recognition that taxation is a complex area affecting most aspects of society in the host country. Considerable flexibility has been shown by host countries and donors in their approach to taxation reform and to overcoming reform obstacles. Tonga advanced its tax reform using a top-down approach driven by the Minister whereas Samoa adopted a more bottom-up approach; both countries have achieved a widely recognized degree of success in terms of reform outcomes. PFTAC has taken the lead in assisting countries with diagnostic surveys and the agenda setting stage and, together with individual donors and Pacific Technical Assistance Mission (PACTAM), assists in making a diverse range of technical skills available in most countries.

The location-specific nature of taxation reform also seems to have been taken into account. We found no evidence that donors have imposed a pre-determined reform agenda on reluctant Ministers of host countries. Taxation reform, when it has been initiated, has been the result of a commitment by the host country. In the case of Tonga, the reform programme seems to have been initiated at the instigation of the host country Ministers contrary to the precautionary advice from PFTAC that administrative capacity may be lacking. In Samoa, the more recent administrative reforms of the revenue ministry are a central component of the public sector management reforms being undertaken in that country, and follow from significant structural change to the tax system a decade or so earlier. In Kiribati, policy reform remained off the agenda until it was adopted politically. In Solomon Islands significant policy reform has not been undertaken because, it seems, of perceived political constraints which may indeed be the right approach.

We accept that taxation reform may have been undertaken partly at least in response to external pressures, such as the need to meet WTO requirements for a reduction in import tariffs and to move toward a more sustainable fiscal position. But the general picture that emerges from our review is that the taxation reform process in the Pacific has been owned by the host country, not imposed upon it.

Little evidence of long-term, systematic engagement from donors

Donors have not imposed pre-determined reforms on Pacific Island countries, and out of necessity they have provided ongoing funding for the programmes initiated. However, there is little evidence that donors have entered into a strategic engagement with host countries as to how to manage the long, complex, location-specific journey involved with successful and sustainable taxation reform. The current transition of support for the Solomon Islands Inland Revenue Department from a component of the Regional Assistance Mission to Solomon Islands (RAMSI), to a bi-lateral arrangement with New Zealand provides immediacy to this strategic consideration of managing long, complex, reforms.

It may be that donors have to date seen the management of the long, complex, journey of tax reform as a task for PFTAC. PFTAC has certainly established itself as a centre of regional technical expertise, and is valued by Pacific countries for being flexible and responsive. A series of evaluations have concluded that PFTAC has delivered high quality, effective and efficient services. However, PFTAC is not resourced or skilled to manage all aspects of taxation reform across all countries in the region. PFTAC’s core competency is at the policy agenda setting stage and in assisting with technical aspects of the implementation stage of reform.

Mixed results when viewed against the DAC criteria

When viewed against the Organisation for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC) criteria for evaluating development assistance the results of the reforms are mixed:

• When viewed as an aggregate of discrete projects, then donor support has achieved worthwhile outcomes in terms of impact and effectiveness.
• The reforms have mostly been relevant, in that the reforms have been consistent with orthodox or best practice, the need for reform was clear and recognised by the host country.
• When assessed against the objectives for the interventions, the programme documentation and interviews support a conclusion that the programmes are, typically, carried out efficiently.
• However, we found that the reforms and administrative improvements are fragile, and may not be sustainable into the future.

Conclusion – reform achievements are fragile

The above factors seem to explain to a considerable degree the success that taxation reform has had in the Pacific region over the period covered by this report. The limitations to that success are mainly its apparent fragility; that is, whether the reforms and administrative improvements put in place over the past few years have sufficient depth to be sustainable into the future. A critical aspect of sustainability is establishing the environment in which incremental improvements in tax policy and administration become business as usual.

The sustainability of the reforms is at least questionable. While the experience of taxation reform in the Pacific overall is positive, substantial deficiencies remain in many Pacific countries in terms of:

• realization of revenue potential
• sustained improvement in the administrative capacity
• tax paying culture and understanding of the tax system in civil society.

To a considerable extent, the fragility of the reforms is a product of the severe capacity limitations in the region. A range of factors contribute to these deficiencies including:

• a legacy of inefficient tax systems
• weak capacity for tax compliance
• inconsistent patterns of business taxation
• limited local expertise to respond to changes in the tax environment (such as growth in extractive industries).

However, the perceived fragility of the reforms also seems to be partly caused by the reform processes adopted. In particular, donors seem overly to focus on episodic reforms – discreet projects whether they are policy changes (such as introducing VAT) or administrative capacity building. Obviously tax reform involves a number of discreet reform projects but they need to fit together to bring about ongoing change to the tax system as a whole. In focusing on episodic reforms donors seem to be under-estimating the commitment required for the implementation stages of reform and the ongoing nature of capacity building. Donors have supported reform programmes through the provision of technical assistance, training, equipment or infrastructure support during the initial stages of reform programmes but in some cases may be withdrawing capacity support before changes have fully embedded. There is also a risk in failing to appreciate that institutional development must be ongoing.

Lessons

We provide comment on more specific lessons below. These more specific lessons would remain useful if donors decide that their priorities do not justify the commitment required to adopt a more systematic tax reform focus. However, the lessons are also indicative of what is required in adopting a more systematic reform focus.

Lesson – taxation reform requires long-term commitment

Too-short timeframes for tax reforms, particularly those that involve deep organisational, institutional, or behavioural changes, can have adverse effects. To use the words of one commentator, holding unrealistic timeframes for reforms is a ‘deadly sin’.

The long-term commitment required for successful taxation reform makes it desirable for donors to commit to long-term funding of reform programmes. Short-term funded activities that are not fully integrated into a longer-term reform programme are unlikely to produce positive outcomes. The funding of recent administrative reforms in Samoa provide one example of successful longer-term coordination. Donor countries, and the Samoan Government, established a fund for public sector management reform, and the revenue agency made its business case for funding a defined reform programme. There were several positive incentives from this approach, including:

• the reforms proposed by the revenue agency to be assessed against other priorities for public management reform
• once the reform programme was approved, the revenue managers had strong incentives to find the least cost mix of local and (more expensive) international resources to deliver the reforms
• as the revenue agency held the budget for reform, the reform programme avoided being stalled because donors (or their consultants) differed on the best path forward – although far from systemic, most reform programmes we reviewed revealed an example of where an aspect of reform stalled or was delay because a disagreement between donors held up funding or support for some aspect of the reform.

Taxation reform has common features and regional networking is important

Benefits of co-ordination by donors on their approach to tax reform in specific host countries go beyond funding. Sustainable taxation reform requires ongoing administrative capacity to implement reforms and to promote supporting policy changes as required. Donors should support administrative capacity building on an ongoing basis.

Although taxation reform is location specific, there are a number of common features to tax policy across the region. Networking across the region provides one mechanism to at least manage the capacity building constraints faced by all Pacific Island countries. PFTAC provides one forum for such networking especially in terms of assistance on administrative capacity building, agenda setting and identifying options for technical assistance with implementation. The PITAA also provides opportunities for exchanges between administrations. These should be supported as providing valuable additional capacity for countries in the region. We note that no representatives of either the Australian or New Zealand tax authorities attended recent PITAA meetings.

Although the Australian and New Zealand tax administrations are much larger and more sophisticated than those found in the Pacific Island countries, it is easy to overlook the similarity of issues faced in basic tax administration such as dealing with the underground economy. The Australian and New Zealand tax administrations are a potential source of technical skills in high demand in the Pacific. These technical skills are being utilized where networks are well-established as is the case, for example, with Samoa and Solomon Islands revenue agencies and the New Zealand IRD.

With the exception of the support by the New Zealand IRD for the Solomon Island IRD – which is the subject of an agreement between MFAT and the New Zealand IRD – the arrangements tend to be ad hoc and dependent on particular personnel. Tonga, for example, seems to struggle to obtain any significant level of support similar to that provided to Samoa. Useful consideration could be given to establishing a more structured approach to administrative assistance for income tax administration along similar lines to that already operating with respect to customs authorities. A more structured approach would also ensure that the ultimately limited resources of the New Zealand and Australian tax authorities are utilised in accord with the development priorities of the New Zealand and Australian governments.

Donors can inadvertently undermine reform efforts

Greater visibility of the efforts to reform taxation systems as part of the programme for economic development in the Pacific may help efforts to ensure different aid projects are mutually re-enforcing. Given the complex environment in which tax reform operates, donors can easily undermine reforms by themselves requiring tax exemptions or concessions for aid projects. Any requirement for tax concessions by donors should be handled carefully in line with United Nations guidelines and be subject to a dialogue with the host country so that clear rules and rationales for them are set out.

Integrity of overall tax system is critical to sustainability

The ongoing sustainability of taxation reform is dependent on maintaining the integrity of the overall tax system. For example, the growth or even the continuation of a significant underground economy evading taxes will undermine the integrity of the overall system and with it the most well-designed reform programme. A programme that successfully raises revenue in the short-term, by increasing the burden of poorly designed taxes on parties trying to comply with the tax laws while other sectors escape attention, may be self-defeating and reduce voluntary compliance in the medium-term. Donor support for audit activity and the basics of tax administration are essential to the long-term success of taxation reform.

Managing dialogue between parties is a task in itself

Given that taxation reform affects many different aspects of a host country society the dialogue involved in the reform process involves many players and is complex. One aspect of this is managing the dialogue between the host country and donors. This dialogue needs to be managed with specific skills relevant to that task as it involves navigating the political web of both donor and recipient governments (and the politics of delivery and recipient institutions). Donors should consider the need to assist host countries with support in this area; if this assistance it is to be effective, it may involve funding advisers to represent the interests of the host country and those interests may not always align with those of the donor countries and hence require clear briefs for the advisers.

There is a weakness in dialogue at policy setting stage

It is apparent from this study of the experience of the Pacific Island countries that there is a gap or relative weakness of policy dialogue at the policy setting stage, in which advisors, host country officials, host country politicians and civil society set the framework for the reform based on a realistic and achievable view of the administrative and political constraints. These weaknesses tend to be more prevalent in reforms that flow from an administrative, rather than political, agenda. A strong Minister with a reform agenda will tend to seek out the skills he or she needs to progress the reforms at a policy or political level, at the risk of stepping ahead of administrative capability of the revenue agencies to implement. An administratively capable revenue agency, however, may not necessarily have the experience or skills to assist their Minister identify realistic and achievable reform pathways and may be reluctant to seek support in this area as it may intrude on their relationship with their Minister.

Taxation is about political trade-offs and political constraints to reform need to be recognized. This may mean that substantial policy reform may not be possible in a specific country for periods of time. The focus should then be on administrative capacity building which should produce benefits in its own right and provide better foundations for reform when the political constraints ease. However, even in the presence of severe political constraints it will often be possible to advance policy reforms of a technical or remedial nature that can provide substantial benefits to the tax administration and the overall integrity of the tax system. Donors should consider supporting such programmes even though they may be seen as outside the ambit of tax reform as normally understood (that is discreet tax- specific projects associated with episodic tax reform). The skill base required for advancing such reforms are a mix of technical tax knowledge and experience in dealing with the political interface that host countries will not easily be able to access without donor support.

The evaluation has raised questions about whether legislators and senior public officials really understand the tax policies being promoted and the implications for tax reforms for their constituents. Donors who are considering providing finance for reform projects should consider whether the reform project plan provides sufficient support for advice and communication with political decision-makers. This includes user-friendly communication about the role and function of tax, the impacts of the proposed policy changes, the reasons for reform and so on.

Engagement with civil society matters

Differences in the level of engagement with civil society can have impacts on the sustainability of the reforms. Recent reform efforts have recognized that civil society actors – specifically tax agents, accountants and business associations – are likely to be crucial intermediaries in fostering political support for reform. Countries that have successfully targeted communication with the ‘demand side’ are showing better results in terms of registration and compliance. Donors who are considering supporting reform programmes should therefore consider whether there is room to include technical assistance for building tax capacity/knowledge in the business communities, especially for small and medium sized enterprises. Some support by some donors is provided, for example, for business organisations or community groups to undertake research and engage in policy discussions. But this support appears ad hoc and outside the primary reform programmes.

Reform does not always follow a linear path

Given the technical complexity of taxation and its complex inter-reaction with the host country environment, donors should not expect the reform process to be a linear one or to follow some text book ideal. Donors should be flexible and supportive to differing approaches to taxation reform.

Tax reform requires diverse skills

The complexity of taxation reform means that it requires a diverse range of skills through its various stages. These will range from tax policy skills, to tax administration skills, to IT skills to communication skills and so forth. No one person is likely to possess the range of skills required for any broad tax reform programme. Instead it is likely that tax reform will require a team of people with a diverse skill base. A key skill may be in identifying the expertise needed as the reform progresses and having a sufficient involvement in the networks of potential advisers to contract individuals to fill specific gaps and build capacity as determined by the host revenue agency as it proceeds with its reform; the Samoan revenue agency has used this approach to build and supplement its internal capacity.

Be realistic about capacity

Taxation reform should be developed in light of the location specific capacity of the host country. A key feature of the Pacific region is significant limitation in the area of technical tax administration capacity. Any measures that can relieve those constraints will assist the reform programme. In that regard, donors should be cautious about supporting capacity building in areas requiring high levels of technical expertise such as transfer pricing.

Given that any tax reform programme needs to be tuned to the host country environment, donors should be careful about not advancing their own reform agendas as a condition for support except in the most justified objectives such as reducing the level of corruption.

Tax reform success cannot be measured by just revenue

Donors should be cautious about setting objectives for tax reform that are too short-term or too narrow. A common example is a short-term revenue raising target. This will often be inappropriate:

• Taxation reform should be focused on raising revenue in a fair and efficient way which will often be contrary to a short-term revenue raising objective.
• A revenue-raising target can be inconsistent with other potential projects that have a higher priority in terms of the overall reform programme (such as reducing compliance costs).

While revenue-raising is clearly a central objective of any tax system and the immediate concerns of host countries and donors to improve revenue raising capacity is understandable, short-term targets for the tax administration should be set in terms of their consistency with the longer-term reform programme.

Implications for donors

This evaluation has found that tax reform is a long journey that requires a sustained dialogue between different donors, host country politicians, host country officials, technical advisors and civil society. The reform journey is complex, may have no clear pathway, and is multi- faceted. Reform is also highly location specific; it is subject to local political and administrative constraints. As the UK Mirrlees Review noted, taxation is a complex system the reform of which should involve moulding an entire system not just changing aspects of it.

We have concluded that although donor support for tax reform projects seems to have followed good international practice, and although much has been achieved, it does not seem that the reforms and administrative improvements put in place over the past few years have sufficient depth to be sustainable into the future. A critical aspect of sustainability is establishing the environment in which incremental improvements in tax policy and administration become business as usual.

We have considered how the nature of donor funding may be impeding the establishment of a sustainable well-functioning tax system. Our conclusion is that donors have tended to support discreet taxation reform projects. We label this episodic support. Examples have been: the move from tariffs to VAT, the move to a self-assessment system for income tax, and the introduction of a computerisation to administration. However, as the UK Mirrlees Review has stressed, the tax system should be viewed and reformed as a whole system. This requires a more systematic support by donors to taxation reform to establish the environment required for sustainable reform.

We outline in the report, and summarise below, what this systematic approach is likely to entail for donors in the Pacific and how it differs from the current episodic approach.

The implication of this evaluation for donors is a choice between three broad options for future donor support of taxation reform:

• Given the mixed results from past donor support, move the focus of donor assistance to other priorities.
• Continue with the current episodic support for taxation reform with some improvements resulting from the lessons drawn in this evaluation.
• Consider moving to a more systematic approach to support for taxation reform.

The challenges to implementing systematic taxation reform are not to be under-estimated. The Mirrlees Report was highly critical of the UK in this regard. For Pacific economies that face significant economic and social obstacles and a less sophisticated public administration infrastructure than the UK, the impediments are large. Donors may therefore decide that attempting to move to a systematic approach to taxation reform assistance, given the resource and time commitment that would involve, cannot be justified given other aid priorities.

However, if donors decide that the resource implications of a move to more systematic approaches are not justified, the limitations of episodic taxation reform assistance should then be recognised. Episodic reform can be expected to continue to produce worthwhile improvements in Pacific tax systems, as it has done, but with the associated fragility.

A more systematic approach by donors would require:

• A long-term commitment to working with host countries, ideally co-ordinating efforts with other donors, to develop a strategy of building the tax system of host countries as a whole.
• Donors would need to engage directly with host countries and support this with ongoing engagement and monitoring of the success in building up systematic tax infrastructure. To engage in this dialogue effectively over a long-term reform programme, donors will need access to experienced advisers who can assist them understand the realistic and achievable reform options within the inevitable administrative and political constraints of the host countries.
• Senior advisers within donor countries revenue agencies may have the necessary skills and experience to assist in identifying the realistic and achievable reform options, as do a small pool of international advisers. These individuals are unlikely to be available for technical assistance work for any extended period of time. Some consideration by donors will be needed in terms of how they build a network of relationships which assist them to engage effectively in the ongoing dialogue between the donor and the host country.
• Greater focus on providing assistance in the areas of the political/administrative interface and in building up the capacity of civil society given the importance of the private sector in making any tax system work.
• There needs to be a true and ongoing dialogue between the donor and the host country. This dialogue requires the donor, in its partnership with the host country, to appreciate that tax reform is not only about the provision of core technical taxation skills. To be effective, the donor must also understand the complexities of the host country environment so as to identify and engage in a dialogue over where there may be gaps in capacity, the nature of the obstacles being encountered, and the opportunities to build a constituency for improvements to the tax system.

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