Presentation is loading. Please wait.

Presentation is loading. Please wait.

FERDI – CIFD – CERDI – Université d’Auvergne 12 juin 2014 – Clermont-Ferrand Integrating the pro-poor agenda into fiscal performance measurement in LICs.

Similar presentations


Presentation on theme: "FERDI – CIFD – CERDI – Université d’Auvergne 12 juin 2014 – Clermont-Ferrand Integrating the pro-poor agenda into fiscal performance measurement in LICs."— Presentation transcript:

1 FERDI – CIFD – CERDI – Université d’Auvergne 12 juin 2014 – Clermont-Ferrand Integrating the pro-poor agenda into fiscal performance measurement in LICs A case study of Burundi Jérôme Sansonetti ODI Fellow, Office Burundais des Recettes

2 Introduction Linking revenue and poverty reduction Introduction Linking revenue and poverty reduction 2

3 Introduction Linkages between tax and poverty 3 o In a country like Burundi, the pro-poor agenda is rarely included in fiscal monitoring schemes o Poverty reduction remains a central policy objective Fiscal performance should be measured and designed in a way that monitors pro- poor impact o Surprising, as it is a challenge to mobilize revenues in LICs

4 Introduction Linkages between tax and poverty 4 o The linkages between revenue reforms and poverty reduction are not appreciated at every echelon on the ground o There is no direct link between revenue increase and poverty reduction Increased revenues Poverty reduction Progressive taxes Pro-poor spending tax sidespending side Pro-poor impact Worst-case scenario?

5 Introduction Increased risk of regressivity in LICs 5 o LICs feature of higher risk of regressivity, all other things equal Narrow income tax bases Large returns to capital (classical growth theory) o Tax progressivity: A tax is progressive if the tax payments of richer households accounts for a larger proportion of their incomes than those of poorer households o Consumption taxes with a flat rate can be regressive Poorer households consume a larger fraction of their incomes

6 Introduction Research questions 6 1. Do revenue reforms in LICs incur regressivity? o The nature of the linkages is not fully appreciated o Raising revenues does incur a risk of regressivity 2. Are fiscal performance indicators fitted to monitor pro-poor impact? o Indicators used in LICs fall short

7 Introduction – the linkages between revenue mobilization and poverty reduction 1.Literature review 2.Case of Burundi: tax side 3.Case of Burundi: spending side 4.Suggested indicators Outline 7

8 Section 1 Literature review Section 1 Literature review 8

9 2. Burundi: tax side3. Burundi: spending4. Suggested indicators 1. Literature review 9 Overall fiscal structure in LICs Strengthen VAT revenues Reduce trade taxes Reduce corporate rate IFI consensus

10 2. Burundi: tax side3. Burundi: spending4. Suggested indicators 1. Literature review 10 o IFI consensus (IMF FAD, 2011) Broad-based: few exemptions Single rate High registration threshold VAT Regressivity o In South Africa, poorest deciles feature higher VAT burden (Go et al., 2005) o Average number of VAT rates (IMF FAD, 2011) LICs: 1,28 Rich countries: 2,52 Progressivity o VAT less regressive than former sales taxes (Zolt & Bird, 2005) o More efficient to treat progressivity on spending side than by relaxing VAT Case of Chile (Engel et al. 1999)

11 2. Burundi: tax side3. Burundi: spending4. Suggested indicators 1. Literature review 11 o IFI consensus: reduce import duties and trade taxes (Marshall, 2009) 1980s: 4% - 5% of GDP Late 2000s: 3% of GDP Trade taxes Regressivity o Export taxes are arguably progressive, so removal is regressive o Replacement with VAT creates aforementioned issues Progressivity o Removing import taxes is progressive if poor households consume a larger fraction of imports o In South Africa, trade liberalization was found to be progressive (Daniels & Edwards, 2006)

12 2. Burundi: tax side3. Burundi: spending4. Suggested indicators 1. Literature review 12 o IFI consensus (Marshall, 2009) Decrease statutory rates to attract investors Effect of Doing Business Indicators for “paying taxes” Corporate income tax Regressivity o Decrease in statutory rates in SSA (Keen & Mansour, 2009) 1990: 44% 2005: 33% o Increase in exemptions in SSA (Keen & Mansour, 2009) 1980: 40% 2005: 80% Progressivity o General equilibrium effect after tax shifting can be progressive (Harberger, 1962)

13 Section 2 Burundi – tax side Section 2 Burundi – tax side 13

14 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 14 Burundi’s tax reforms since 2009 Tax administration o Creation of a Revenue Authority in 2010 (OBR) Compliance Taxpayer services IT systems Tax policy o VAT created (2009) o VAT reform (2013) More exemptions Intermediary rate at 10% o Corporate income tax (2013) Statutory rate reduced from 35% to 30% o Personal income tax (2013) Threshold increased Statutory rates decreased

15 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 15 Burundi’s tax reforms since 2009

16 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 16 Overall distributional impact

17 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 17 o QUIBB 2006: expenditure survey, household level o Construct a “total expenditure” variable 77 food and non-food expenses Only health and education missing o Quartiles of wealth based on syncretic wealth score Data available to assess regressivity

18 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review VAT – exemptions

19 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 19 VAT – intermediary rate o A 10% intermediary rate was implemented on 12 staple foods Cassava, maize, wheat, etc… o Direct effect is progressive o Indirect effect is unclear, as retailers may not have shifted the VAT decrease Inflation for 10%-taxed staples (Jul.-Dec. 2013): 1.75% Inflation for other food items (Jul.-Dec. 2013): -1.69%

20 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 20 Excise o A 10% intermediary rate was implemented on 12 staple foods

21 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 21 Personal income tax – general o The reform triggered a dip in the contribution of PIT to total revenues 2010 to 2013 : 11.7% to 7.7% of total revenues Higher taxable threshold Lower statutory rates

22 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 22 Personal income tax – scenarios o Distributional impact mostly regressive From to , impact is unclear From upwards, impact is clearly regressive

23 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 23 Corporate income tax o Two tax breaks for corporations, assumed to be regressive Statutory rate decreased from 35% to 30% Minimal 1% tax on sales in case of negative profits o Exemptions on corporate income tax are regressive loopholes

24 2. Burundi: tax side 3. Burundi: spending4. Suggested indicators 1. Literature review 24 Burundi’s tax reforms since 2009 Regressive (assumed) o Corporate income tax o Personal income tax o VAT exemptions Progressive (assumed) o VAT intermediary rate o Most excise fees

25 Section 3 Burundi – spending side Section 3 Burundi – spending side 25

26 2. Burundi: tax side 3. Burundi: spending 4. Suggested indicators 1. Literature review 26 Pro-poor spending o Pro-poor spending growing much slower than tax revenues o Pro-poor spending in Burundi: All expenditures by social ministries (i.e. education, health, etc.) “social projects” in other ministries

27 Section 4 Fiscal performance indicators Section 4 Fiscal performance indicators 27

28 2. Burundi: tax side 3. Burundi: spending 4. Suggested indicators 1. Literature review 28 Indicators currently used in Burundi o Very few fiscal indicators are fitted to capture the pro-poor impact Government: pro-poor aspect entirely absent IFIs: mostly capture the spending side

29 2. Burundi: tax side 3. Burundi: spending 4. Suggested indicators 1. Literature review 29 Suggested indicators o Suggested indicators with two views: Follow up on pro-poor impact of tax reforms (tax side and spending side) Be available subject to data scarcity in a country like Burundi

30 30 Conclusion

31 o In an LIC like Burundi, there is a partial disconnect between revenue reforms and poverty reduction o Tax side: the risk of regressivity is relatively higher Narrow income tax bases o Spending side: impractical to compensate for tax regressivity with increased pro-poor spending Revenue reforms are not precisely coupled with allocation reforms The case of Burundi illustrates this difficulty o Measurement indicators are not fitted to take into account the pro-poor impact of revenue reforms Neither tax side, nor spending side

32 Thank you! Thank you! 32

33 Bibliography o Bastagli, F., Coady, D., & Gupta, S. (2012). Income Inequality and Fiscal Policy. IMF. o Daniels, R., & Edwards, L. (2006). The Benefit-Incidence of Tariff Liberalisation in South Africa. o Engel, E., Galetovic, A., & Raddatz, C. (1999). Taxes and income distribution in Chile: some unpleasant redistributive arithmetic. Journal of Development Economics, o Go, D., Kearney, M., Robinson, S., & Thierfelder, K. (2005). An Analysis of South Africa’s Value Added Tax. World Bank. o Harberger, A. (1962). The Incidence of Corporation Income Tax. The Journal of Political Economy, o IMF. (2012). Article IV Consultation and First Review Under the Extended Credit Facility. o IMF. (2014). Fourth Review Under The Extended Credit Facility Arrangement. o IMF Fiscal Affairs Department. (2011). Revenue Mobilization in Developing Countries. o Keen, M., & Mansour, M. (2009). Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization. IMF Working Paper. o Marshall, J. (2009). One size fits all? IMF tax policy in Sub Saharan Africa. Christian Aid. o World Bank. (2011). CPIA 2011 Criteria. o Zolt, E., & Bird, R. (2005). Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries. UCLA Law Review, 1627–95.

34 Appendix 1 – Total expenditure


Download ppt "FERDI – CIFD – CERDI – Université d’Auvergne 12 juin 2014 – Clermont-Ferrand Integrating the pro-poor agenda into fiscal performance measurement in LICs."

Similar presentations


Ads by Google