An IMF working paper of 17 January 2025 written by L. Sofrona, C. Waerzeggers and B. Crowley with the title Strengthening Tax Governance Through Legal Design looks at tax governance in tax administration and how this can be strengthened.

The authors note that the specificities of each country must be taken into account in designing laws and procedures. These include broader policy considerations, socioeconomic circumstances, the level of administrative efficiency and the differences between national legal systems. The authors analyse core legal principles for sound governance in tax administration and procedure, with a view to designing tax law frameworks. The general principles for the structure and operations of a tax administration can be summarised as transparency and accountability; sound decision-making structures; fairness; and efficiency.

The key institutional design considerations for enhancing governance in tax administrations are based on the core governance principles. There will also be particular design considerations for semi-autonomous revenue authorities (SARAs). Tax administrations are complex organizations with a broad range of functions and powers, including a role in macroeconomic issues and development.

Tax administrations closely interact with other fiscal and state institutions and their effectiveness is critical to the stability and growth of the country. They employ large and specialized workforces which interact with taxpayers and other stakeholders. Tax administration operations involve numerous core business processes, including digital systems that hold and analyse large amounts of confidential or sensitive information.

Tax administration performance is increasingly monitored by reference to performance targets, that can include targets in revenue collection. Tax administrations generally also have a policy advisory role as a result of their expertise in the subject. They are normally directly accountable not only to the government and parliament but also to taxpayers.

The authors conclude that some core governance principles form the basis of strong tax administrations carrying out fair and effective tax procedures. The guiding principles for designing the structure and operations of the tax administration will be reflected in the tax procedure legal framework. Legal frameworks alone are important but not sufficient. A law is only effective if it is implemented; and effective implementation may require further mechanisms such as audit institutions, law enforcement and the courts.

The tax policy function should ensure transparency and effectiveness of laws, working closely with the tax administration to ensure a balanced implementation. The tax administration also has an important role in promoting better tax governance. Tax policies based on principles of equity and neutrality should provide adequate safeguards to taxpayers, ensuring that their fundamental rights are respected, which will promote trust and greater compliance.