Charting the Fragile Path of Progress
6. Tax administration I. Normative Benchmarks We focus on tax administration in this chapter as a proxy for the administrative apparatus more broadly, which, as a whole, we believe represents an important element in the institutional matrix. We do so for two reasons. First and foremost, tax administration is an example of a specialized law enforcement or regulatory function which all developing countries must perform (unlike less ubiquitous specialized law enforcement and regulatory agencies in, e.g., telecommunications and public utilities sectors, environmental protection, occupational health and safety, and competition policy). Second, for reasons we elaborate below, we believe that there is a particularly strong correlation between good tax administration and development. Although it is difficult to identify the specific institutional and legal characteristics of “good” tax administration, an evaluation of the development and tax literature suggests a tentative list of normative criteria. Effectiveness and efficiency can be promoted by focusing on: simplicity; costs; voluntary tax compliance; self-assessment; effective enforcement; independent or semi-autonomous tax authorities; automation; and large taxpayer units. These normative criteria, and their individual links to development through the fiscal and rule of law channels, are explored in this chapter. There is no universal definition of “tax administration” although several common understandings have been advanced. Tax administration includes activities relating to the ascertainment of tax liability, the collection of the tax, and the settlement of tax disputes and imposition of penalties for violation of tax laws. This encompasses a wide range of action on the part of tax authorities....
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