1 Collection of Social Contributions: Current Practice and Critical Issues Stanford G. Ross International Monetary Fund Consultant Formerly U.S. Commissioner of Social Security and U.S. Tax Policy Official

2 Collection Models Vary n Full service social security institutions u Collection as one function of benefit payment agency u Examples: France, Germany n Tax Administration u Integrated collection of contributions with taxes u Separate benefit payment agency u Examples: U.S., Canada n Fund managers collect contributions u Directly or through centralized agency u Private sector or public sector u Examples: Chile, Australia

3 In Practice, Every Country Has Distinctive Arrangements n Influence of historical developments n Hybrid character of many systems u US example: Tax administration; public benefit agency; private fund managers u France example: Social insurance organizations; private fund managers n Importance of evaluation by objective criteria (e.g., evasion rates) n Administrative costs and efficiency ratios u Private collection arrangements tend to be more costly, e.g., 20% cost to collection ratios u Well-run public systems like U.S. operate at ratios of less than 1%

4 Stakes in Collection Performance and Strategies n Coverage of persons by system n Adequacy of benefits paid to participants n Financial solvency of system n Fiscal sustainability of system

5 Commonalties and Differences in Tax and Social Security Administrations n Common processes u Registration and identification numbers u Collection by employer withholding u Compliance/enforcement mechanisms n Differences in administrative arrangements u Record maintenance u Management of funds u Use of data and payment of funds

6 Priority World-Wide to Increase Coordination of Tax and Social Contribution Collection n Government wide effort needed in all circumstances u Response to fiscal pressures u Way to surmount revenue collection difficulties n Common numbering systems and registries n Information exchange and data matching n Joint audits and enforcement

7 Trend to Integrate Tax and Social Contribution Collections Within a Unified Revenue Administration n EU: Sweden; Norway; UK; Ireland; Italy n Central/Eastern Europe: Albania; Bulgaria; Croatia; Estonia; Hungary; Latvia; Montenegro; Romania; Russia; Serbia; Uzbekistan

8 Rationale for Unification of Collections n Commonality of core processes n Efficient use of resources: lowering government administrative costs n Core competencies of tax and social organizations enhanced n Lowering taxpayer (contributor) compliance costs n Improved inter-governmental coordination ensured

9 Key Implementation Issues and Risks n Establishing the appropriate environment: timing and commitments n Policy and legislation development: harmonization of rates; definition of income; coverage of persons; appeals and judicial proceedings n Modern design of administrative arrangements: scope; numbering systems; accountability; reporting

10 Critical Success Factors n Strong project management and change management systems n Performance standards set and adhered to n Adequate funding sustained n Modernization projects for tax administration and social organization carried out efficiently n Appropriate personnel recruited and trained n Building culture of fair administration by government and compliance by public