On 17 February 2022 the World Bank issued a publication entitled Innovations in Tax Compliance: Building Trust, Navigating Politics and Tailoring Reform, by Roel Dom, Anna Custers, Stephen Davenport and Wilson Prichard.
The analysis looks at challenges faced by countries designing reforms to strengthen revenue mobilisation. The authors consider that strategies must be identified to increase compliance by improving taxpayer trust, securing political support for tax reforms and strengthening social contacts.
The analysis presented in the study differs from customary attitudes to tax reform by directing more attention to taxpayer morale and empowerment; the need to adjust reforms to take into account the local situation; and the importance of political support for reforms. These approaches have not always been consistently applied in practical situations or included in a vision for sustainable reform.
The study develops a proposed strategy for building greater tax compliance, in particular for low-income countries. This is based on a consistent framework to guide the approach to tax reform, involving enforcement, facilitation and trust. Although the design of tax technical solutions is essential for tax reform and has achieved success in many countries, the continuing challenges and obstacles encountered in the process of tax reforms illustrate the need for a wider view of reform.
The approach to tax reform must consider the political requirements for effective changes; the different types of technical solutions that may apply in different contexts; and the need to gain taxpayer trust to ensure greater compliance. Attention to these factors in planning the reforms can ensure political sustainability and a stronger social contract.
The focus should therefore be not just on raising more tax revenue by designing appropriate technical solutions but also on broader aspects of the reform and on how to tax and spend better. The revenue increases achieved by reform must be sustainable, taking into account fairness and the needs of the population. Although these factors are already well known they are not always reflected in the design of tax reforms.
The study emphasises the need to tax better and suggests ways to ensure that the wider goals are given priority. The design of tax reforms must take into account the technical capacity in the local tax administration and the constraints imposed by local conditions. A reason why the introduction of new tax technologies has often met challenges is because the approach to reforms has not been suitably adapted to achieve the required objectives.
The study notes that the need for sustained political support for reforms should be considered from the start of the design process. Reforms must be designed in a way that can be supported by administrators, political leaders and the taxpayers themselves. This requires consideration of how to build trust with these stakeholders.
Sustainability over time requires durable support from administrators, political leaders, and taxpayers—support that is likely to rely on designing reform in politically viable and sustainable ways and investing in building trust and broader pro-reform coalitions. Taxpayer trust and a stronger social contract are also strengthened by the use of additional revenue for improved public services and more equality.
