World Bank Support for Domestic Revenue Mobilization © 2023 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org ATTRIBUTION Please cite the report as: World Bank. 2023. World Bank Support for Domestic Revenue Mobilization. Independent Evaluation Group. Washington, DC: World Bank. COVER PHOTO Adobe Stock/gudinny EDITING AND PRODUCTION Amanda O’Brien GRAPHIC DESIGN Luísa Ulhoa This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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World Bank Support for Domestic Revenue Mobilization An Independent Evaluation May 24, 2023 Contents Abbreviations v Acknowledgments vi Overview vii Background and Context������������������������������������������������������������������������������������������ 1 1  Evaluation Scope 6 2 World Bank Interventions in Support of Domestic Revenue Mobilization������������ 8 Portfolio of Domestic Revenue Mobilization–Related Interventions 10 Investment Project Financing 11 Development Policy Lending 13 Nonlending Portfolio 20 Domestic Revenue Mobilization and Equity 25 Collaboration with Development Partners 27 How Effective Was World Bank Support for Domestic 3  Revenue Mobilization?��������������������������������������������������������������������������������������������31 Performance of Domestic Revenue Mobilization–Related Investment Projects 33 Development Policy Operations with Domestic Revenue Mobilization–Related Prior Actions 35 4 Insights from Country Case Studies ��������������������������������������������������������������������� 40 Chad 44 Colombia 45 Guatemala 46 Kenya 48 Madagascar 49 Pakistan 50 Rwanda 52 Findings and Recommendations���������������������������������������������������������������������������54 5  Recommendations 59 Bibliography��������������������������������������������������������������������������������������������������������������� 62 ii Boxes The Tax Administration Diagnostic Assessment Tool Box 2.1.  23 Global Tax Program Box 2.2.  24 Figures Tax as a Share of Gross Domestic Product in Low- and Figure 1.1.  Middle-Income Countries  3 Investment Project Portfolio by Income Level, FY12–15 and FY16–19  Figure 2.1.  11 Development Policy Operations with Domestic Revenue Figure 2.2.  Mobilization–Related Prior Actions 13 DRM-Related Prior Actions in DPOs with at Least One DRM-Related Figure 2.3.  Prior Action, by Borrowing Group, FY12–15 and FY16–19 14 Figure 2.4. Domestic Revenue Mobilization–Related Prior Actions by Area 15 Domestic Revenue Mobilization–Related Prior Actions by Domestic Figure 2.5.  Revenue Mobilization Subcategory, FY12–19  17 Figure 2.6. Advisory Services and Analytics 21 Figure 2.7. Advisory Services and Analytics Activities by Theme, FY12–19 22 Expected Impact on Equity of Tax-Related Prior Actions by Income Figure 2.8.  Group, in FY12–15 and FY16–19 Periods  27 Outcome Ratings for Domestic Revenue Mobilization–Related Figure 3.1.  Investment Projects in IDA-Eligible and Non-IDA-Eligible Countries, FY16–19 34 Achievement of Targets for Domestic Revenue Mobilization–Related Figure 3.2.  Results Indicators 35 Achievement of Domestic Revenue Mobilization–Related Targets Figure 3.3.  by Theme 36 Efficacy Rating of Domestic Revenue Mobilization–Related Figure 3.4.  Objectives in Development Policy Operations 37 Bank Performance Ratings for Domestic Revenue Figure 3.5.  Mobilization–Related Investment Projects, FY16–19 38 iii Tables Source and Volume of World Bank Support to Domestic Revenue Table 2.1.  Mobilization 10 Regional Breakdown of Domestic Revenue Mobilization–Related Table 2.2.  Investment Projects Approved, FY16–19 12 Domestic Revenue Mobilization–Related Indicators for Green Table 2.3.  and Health Taxation 19 Independent Evaluation Group Outcome Ratings of Domestic Table 3.1.  Revenue Mobilization–Related Investment Projects, FY16–19 33 Analytical Underpinnings of Domestic Revenue Mobilization Table 4.1.  Engagement at Country Level 43 Appendixes Appendix A. Evaluation Design and Methodology 69 Appendix B. Lessons on Tax Reform from Previous Independent Evaluation Group Evaluations 80  ross-Country Analysis of Domestic Revenue Appendix C. C Mobilization Efficiency 82 iv Abbreviations ASA advisory services and analytics CPF Country Partnership Framework DPF development policy financing DPO development policy operation DRM domestic revenue mobilization FY fiscal year GDP gross domestic product IDA International Development Association IEG Independent Evaluation Group IMF International Monetary Fund OECD Organisation for Economic Co-operation and Development PCT Platform for Collaboration on Tax SDG Sustainable Development Goal TADAT Tax Administration Diagnostic Assessment Tool VAT value-added tax All dollar amounts are US dollars unless otherwise indicated. Independent Evaluation Group World Bank Group    v Acknowledgments This evaluation was prepared by an Independent Evaluation Group team led by Željko Bogetić (lead economist), Raghavan Narayanan (senior evaluator), and Jeffrey Allen Chelsky (manager). Core team members included Amshika Amar (consultant), Dung Thi Kim Chu (program assistant), Patrick Hettinger (senior economist), Soren Jensen (consultant), Sengphet Lattanavong (consultant), Johan Manuel Lopez (consultant), Dominik Naeher (consul- tant), Daniel Nogueira-Budny (public sector specialist), Felix Oppong (econ- omist), Saniwattan Nikki Tan (consultant), and Aline Weng (consultant). The evaluation benefited from advice on methodology from Qihui Chen, Marie-Noelle Lantin Roquiz, and Jozef Vaessen. The evaluation was prepared under the guidance and supervision of Jeffrey Allen Chelsky, manager, Economic Management and Country Programs Unit. Oversight in the final stages was provided by Carmen Nonay, acting director, Human Devel- opment and Economic Management, under the overall direction of Oscar World Bank Support for Domestic Revenue Mobilization  Acknowledgments Calvo-Gonzalez, Acting Director-General, Evaluation. External peer reviewers were Ruud De Mooij (head of the Tax Policy Division, Fiscal Affairs Department, International Monetary Fund); Ben Dickinson (head of the Global Relations and Development Division in the Organisation for Economic Co-operation and Development’s Centre for Tax Policy and Administration); and Nora Lustig (director of the Commitment to Equity Institute and professor, Tulane University). The team is grateful for useful discussions with staff across the World Bank and their feedback provided throughout the evaluation. Finally, the evalu- ation team thanks the World Bank Group country offices and staff, govern- ment officials, development partners, academics, and civil society who gave generously of their time for interviews and support during remotely executed country visits to Chad, Colombia, Guatemala, Kenya, Madagascar, Pakistan, and Rwanda. vi Overview Domestic revenue mobilization (DRM) has become an increasingly important part of international and country-level development policy agendas. Since the 2015 International Conference on Financing for Development in Addis Ababa, DRM has risen in importance in the international policy agenda, figuring prominently in successive International Development Association (IDA) replenishments and the International Bank for Reconstruction and Development capital package commitment. In the years leading up to the COVID-19 pandemic, high fiscal deficits and already high and rising debt levels made enhancing DRM a significant priority for developing economies, particularly lower-income countries. Since the onset of the pandemic, tax revenues have dropped by 12 percent in real terms and, in many countries, ratios of tax to GDP have fallen below 15 percent (considered the minimum necessary to finance a state’s basic functions). This evaluation assessed the relevance and effectiveness of World Bank– supported strategies and interventions between fiscal year (FY)16 and FY19 to help client countries enhance DRM. The period of analysis, though rela- tively short, covers a major elevation in the importance assigned to DRM by the international community. The period of analysis also allows for a com- parison of performance with the previous period of FY12–15. After the 2015 Independent Evaluation Group World Bank Group    vii deadline for attainment of the Millennium Development Goals, the World Bank and the development community recognized that official development assistance was unlikely to be adequate to achieve the newly articulated and more ambitious Sustainable Development Goals, and resources from other sources would be needed, including domestic revenue. Main Findings The World Bank has intensified its DRM work, particularly since 2018 and es- pecially to IDA-eligible countries and to Sub-Saharan Africa. The increase in support was greatest in countries with lower ratios of revenue to GDP. This has been especially pronounced in development policy operations (DPOs), in which prior actions frequently supported changes in tax rates (value-added taxes, corporate income tax, and personal income tax) or reductions in tax expenditures. Much of the increase in DRM analytical support was due to the Global Tax Program, established in June 2018 with funding from devel- opment partners. The program enabled a significant increase in World Bank engagement in DRM, with about 81 percent of its resources supporting ex- pansion and improvement in the quality of DRM country-level work and the remaining resources supporting development of tax diagnostic tools, assess- ment frameworks, and research. The availability of Global Tax Program funding has allowed the World Bank to increase its analytical support for DRM, and that has intensified pressure on limited staff and an increasing large cadre of short-term consultants. Significant turnover in staff and management working on tax issues has exacerbated these pressures, along with several shifts in responsibility for tax between units within the World Bank Group. On the positive side, collab- oration with development partners improved markedly over the evaluation period, aided by the establishment of the Platform for Collaboration on Tax. Green and corrective health taxes on harmful products became more prominent in the evaluation period, though from a low level. The work of the Global Tobacco Control Program has had particular impact, making World Bank Support for Domestic Revenue Mobilization  Overview extensive and effective use of collaboration across Global Practices and with external partners (for example, the World Health Organization) to provide leadership on the role of tobacco taxation in offsetting the costs of tobacco use to health systems. This work informed country-level policy advice and operations in an integrated way and in a growing number of countries. World Bank interventions and priorities in support of DRM at the country level were generally well grounded in analytical and diagnostic work, which identified major country-specific constraints to DRM. The number of tax tools and diagnostics has increased significantly in recent years both from within and outside the World Bank. Each focuses on a distinct dimension of DRM and has potentially important value added in informing policy dialogue, operational design, and priority setting, but their proliferation presents chal- lenges for task team leaders (many of whom are not tax experts) to effectively identify and prioritize the reforms and constraints with the greatest impact at the country level. Medium-term revenue strategies prepared under the viii Platform for Collaboration on Tax provide a potentially valuable framework for improving DRM over the medium term through a whole-of-government approach, although they have been completed for only a few countries. Therefore, they fall short of providing a regular and practical framework to set priorities across tax objectives and promote progressivity of fiscal systems to directly inform Country Partnership Frameworks, Country Partnership Framework updates, and the identification of prior actions in DPOs. Attention to the expected distributional implications of DRM interventions has increased, particularly in low-income countries, but less so in middle-income countries, and ex post impact is rarely discussed in comple- tion reports. This increase in attention was partly a result of greater focus on the progressivity of tax systems in the 20th Replenishment of IDA and the Bank Group’s more recent Green, Resilient, and Inclusive Development initiative. However, a clear framework and consensus for assessing the most effective channel for achieving progressive distributional impact in individ- ual countries are lacking, and so is significant analytical work at the country level on the incidence of proposed tax reforms (that is, which groups are most likely to shoulder the effective burden of proposed tax reforms). In addition, it is important to ensure that the incidence of taxes supported by World Bank advice and operations is understood and that distributional im- pact is assessed at the level of the fiscal system rather than on taxes alone. Results from investment projects supporting DRM were generally favorable. Independent Evaluation Group World Bank Group    ix The share of projects rated satisfactory was 41 percent, and 35 percent of projects were rated moderately satisfactory. Performance of tax admin- istration projects was generally better in IDA-eligible countries than in non-IDA-eligible countries. (Too few projects were completed and evaluated in countries facing fragility, conflict, and violence to draw clear conclusions.) There was a marked improvement in achievement of DRM-related objec- tives in DPOs, although the indicators used to measure impact were of- ten inadequate. Targets for DRM-related results indicators were largely achieved, and the achievement of DRM-related objectives increased mark- edly. However, the results indicators measuring impact were often too high level or did not adequately capture either the impact of prior actions or progress toward objectives. Case study evidence suggests that tax policy reforms supported by DPOs were often reversed after disbursement, even for operations that recorded significant achievements shortly after closing. Project documents identified related risks (with varying degrees of specificity); risks often materialized, even though project preparation regularly involved political economy analyses. Although informed risk taking should not be discouraged, this suggests the need to articulate and put in place more concrete mitigating measures. For example, sequencing and complementarity of instruments supporting DRM need to be considered more strategically, and prior actions should be designed with an eye to making their reversal more difficult. Policy reversals were particularly notable for prior actions supporting re- ductions in tax expenditures or tax exemptions (which account for about one-quarter of DRM-related prior actions). Of these, 30 percent required the publication of the inventory of tax exemptions and expenditures or a tax expenditure statement (ostensibly to strengthen accountability in granting tax exemptions), and 40 percent required a specific reduction or elimination of tax exemptions and expenditures. Most of the rest required changes to the governance framework for granting new exemptions. Case studies sug- gest that the formulation of a prior action can have implications for how World Bank Support for Domestic Revenue Mobilization  Overview easily the associated reforms can be reversed. For tax exemptions, changes in governance frameworks that made it more difficult to grant exemptions tended to be the most resilient, whereas eliminating specific exemptions was frequently overridden over time under pressure from vested interests. The ease with which some World Bank–supported tax policy reforms can be reversed points to a possible tension between countries that fail to make concrete and sustained progress on DRM and the successive provision of budget support to those countries. Specifically, the provision of budget financing can reduce how urgently and ambitiously clients approach DRM and the importance they assign to avoiding backsliding. This suggests that a failure to make and sustain progress on DRM should be considered more explicitly in deciding on the size and frequency of subsequent DPOs, at least outside the context of countercyclical support during a crisis. Staff self-evaluations of operations and projects yielded few DRM-related lessons: only 3 of 60 closed operations and projects that focused on DRM had x DRM-specific lessons. Moreover, when reported, the lessons were relatively generic, suggesting minimal value added in informing future interventions supporting DRM. This suggests scope for greater attention on learning from experience with DRM-focused projects and operations. Recommendations Given the central role of DRM in achieving national and global development objectives, reducing debt stress, and recovering from the COVID-19 pandem- ic, the Independent Evaluation Group makes the following recommendations to improve and enhance the impact of World Bank support to client countries. These recommendations are consistent with and build on the “IBRD/IDA Board Briefing on Domestic Resource Mobilization (DRM): Supporting Green, Resilient and Inclusive Development (GRID),” as presented to the World Bank Board of Executive Directors in June 2021. World Bank management pointed to the need to increase human and financial resources dedicated to DRM. More resources may be warranted, but there is scope for the World Bank to make better use of the resources it currently has for supporting DRM. In this spirit, the following recommendations are made: 1. On a country-by-country basis, regularly take stock of the findings of the broad range of tax diagnostics tools and instruments to (i) identify knowledge gaps and (ii) more systematically inform priority setting for country-level policy dialogue, capacity building, and operations to Independent Evaluation Group World Bank Group    xi improve DRM. Rigorous analysis and diagnostics are needed to inform country-specific DRM strategy and operational priorities, particularly in IDA-eligible countries. The range of specialized DRM tools and diagnostics from within and outside the World Bank is wide and increasing. Each may serve a useful purpose, but their proliferation risks complicating the ability of task team leaders (many of whom are not tax experts) to distill and set DRM reform priorities for inclusion in country strategies and budget support operations. Therefore, there is a need for a periodic country-specific stocktaking of diagnostic findings to identify information gaps and set priorities for analytical and operational World Bank support to improve DRM. The outcome of this exercise should be timed and used to inform Country Partnership Frameworks, Country Partnership Framework updates, and the articulation of prior actions in DPOs. 2. Given the potentially large and regressive fiscal impact of tax exemptions, the World Bank should regularly assess the effectiveness and efficiency of tax exemptions in achieving country-specific policy objectives, with an eye to more actively supporting the sustainable reduction of regressive tax exemptions through policy advice and prior actions in DPOs. World Bank staff should be equipped with and regularly make use of tools to assess the merits of the existing stock of tax exemptions and tax expenditures in individual countries—particularly those with low ratios of tax to GDP— and the results should inform policy priorities in Country Partnership Frameworks, policy analysis, and prior actions in DPOs. 3. The frequency with which tax policy reforms are reversed calls for strengthening incentives for sustaining reforms and making reversal more challenging. As part of this effort, the World Bank should seek to support not only the publication of tax exemptions and expenditures but also ways to control the future proliferation of new tax expenditures and exemp- tions that undermine longer-term growth, equity, and accountability objectives. In efforts to reduce tax exemptions, and where feasible, prior actions should prioritize measures that improve the governance frame- work for granting exemptions. These efforts would also help alleviate the World Bank Support for Domestic Revenue Mobilization  Overview potential tension between the incentives for a country with a low ratio of tax to GDP to improve DRM performance and the repeated provision of significant budget support by the World Bank. 4. Provide clearer guidance to staff on the choice of results indicators to measure the impact of DRM support, facilitate learning from experience, improve monitoring of progress toward DRM-related objectives, and pro- mote an outcome orientation in the World Bank’s support for DRM. Given how often shortcomings were identified in results indicators intended to capture progress on DRM, the World Bank staff needs more concrete and targeted guidance on good practice in defining results indicators for tracking the impact of World Bank DRM interventions at the country level. Improving the quality of DRM results indicators will facilitate learning from experience and strengthen the outcome orientation of World Bank support in this area. xii 1 | Background and Context Domestic revenue mobilization has become increasingly important to the development policy agenda. In many developing economies, revenue mobilization is below the minimum required to finance basic government functions. As such, it is an explicit part of two Sustainable Development Goals and had become a priority for World Bank client countries facing rising fiscal deficits and debt burdens even before the COVID-19 pandemic. Domestic revenue mobilization has received increased attention from the international community. But despite this attention, the ratio of tax to GDP for low- and middle-income countries has been on a declining trend over the past decade, falling by almost 1 percent of GDP between 2010 and 2019 to reach its lowest level since 2005. The COVID-19 pandemic had a negative impact on economic activity in many countries, and thus on tax revenues, at the same time as needs have increased. This has heightened the importance of strengthening domestic revenue mobilization to contribute to building fiscal space and resilience. 1 Financing to reach global development goals, such as the Sustainable Development Goals (SDGs), derives from several sources: public sector borrowing, private capital and investment, official development assistance, and domestic revenue mobilization (DRM). The Independent Evaluation Group (IEG) has recently undertaken evaluations of the World Bank Group’s support for the first two sources: public sector borrowing (the 2021 evaluations World Bank Support for Public Financial and Debt Management in IDA-Eligible Countries and The International Development Association’s Sustainable Development Finance Policy: An Early-Stage Evaluation and the 2023 evaluation The World Bank’s Role in and Use of the Low-Income Country Debt Sustainability Framework) and private capital and investment (the 2020 evaluation World Bank Group Approaches to Mobilize Private Capital for Development and the 2019 evaluation "Creating Markets" to Leverage the Private Sector for Sustainable Development and Growth: An Evaluation of the World Bank Group’s Experience through 16 Case Studies). This evaluation assesses the World Bank’s support for DRM. DRM has become an increasingly important part of international and country-level policy agendas. Since the 2015 International Conference on Financing for Development in Addis Ababa, DRM has risen in importance in World Bank Support for Domestic Revenue Mobilization  Chapter 1 the international development policy agenda, forming part of 2 out of the 17 SDGs and figuring prominently in successive International Development Association (IDA) replenishments. In the years leading up to the COVID-19 pandemic, high fiscal deficits and already high and rising debt levels made enhancing DRM a significant priority for developing economies. The chal- lenge has been particularly pressing for lower-income countries, given their weak capacity in tax administration. Since the onset of the pandemic, tax revenues have dropped by 12 percent in real terms, and the ratios of tax to GDP in many countries have fallen below 15 percent (considered the minimum necessary to finance a state’s basic functions). DRM has also become increasingly important in the context of successive IDA replenishments. The evaluation period includes the 18th Replenish- ment of IDA (July 2017 to June 2020), which committed to a shift to more ambitious and broader policy, institutional, and financing initiatives to help low-income countries achieve their development goals. Subsequently, the 19th Replenishment of IDA placed greater emphasis on DRM, with the IDA 2 Results Measurement System tracking the number of countries that have raised their revenue-to-GDP ratios above 15 percent and the number of IDA countries that have had substantial World Bank tax engagements and have achieved an increase in the number of registered taxpayers. The 20th Re- plenishment of IDA, which falls outside of this evaluation period, maintained and refocused attention on DRM, introducing a more explicit mandate to promote progressivity in tax systems. Despite the increasing attention on DRM, tax yields have been on a declining trend over the past decade. This trend began to reverse in 2016, but the im- provement was short lived, peaking in 2018 at 11.4 percent of GDP, declining sharply to 10.9 percent in 2019, and falling further to 10.7 percent in 2020 with the onset of COVID-19 (figure 1.1).  ax as a Share of Gross Domestic Product in Low- and Figure 1.1. T Middle-Income Countries 12.5 Tax as a share of GDP (%) 12.0 11.5 11.0 10.5 10.0 Independent Evaluation Group World Bank Group    3 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year Source: World Development Indicators database. Note: GDP = gross domestic product. In 2016, World Bank management produced Strengthening Domestic Resource Mobilization: Moving from Theory to Practice in Low- and Middle-Income Coun- tries (Junquera-Varela et al. 2017). This report, prepared by the Governance Global Practice, was intended to support the role of the World Bank in the context of the Addis Tax Initiative and the SDGs. Additionally, it intended to help the Bank Group find new entry points and reinforce its commitment to tax reform to enhance and expand its tax agenda. The importance of acknowledging the multidimensional nature of tax issues (and, by implication, the importance of collaboration within the Bank Group) was recognized in an internal 2016 position paper that called for a holistic approach to support to DRM, with clear links between tax and expenditure. The paper indicated that revenue and expenditure reforms should be embed- ded in broader public financial management reforms. This would ensure that DRM becomes a development tool to generate revenues for sustained and inclusive development. This evaluation assesses the relevance and effectiveness of World Bank strategies and interventions between fiscal year (FY)16 and FY19 to help client countries enhance DRM.1 The period of analysis, though relatively short, covers a major elevation in the importance the international com- munity assigned to DRM. After the 2015 deadline for attainment of the Millennium Development Goals, the Bank Group and the development community recognized that official development assistance was unlikely to be adequate to achieve the newly articulated and more ambitious SDGs. The realization that achieving the SDGs would require a more concert- ed effort on DRM was reflected in several major reports and documents. These include the World Bank’s Financing for Development Post-2015; the World Bank Support for Domestic Revenue Mobilization  Chapter 1 United Nations’ Transforming Our World: The 2030 Agenda for Sustainable Development; a joint publication, “From Billions to Trillions: Transforming Development Finance Post-2015 Financing for Development: Multilateral Development Finance,” by the African Development Bank, the Asian De- velopment Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the International Monetary Fund (IMF), and the Bank Group; and the United Nations’ “Addis Ababa Action Agenda of the Third International Confer- ence on Financing for Development.” The COVID-19 pandemic has had a negative impact on economic activity in many countries, and thus on tax revenues, at the same time as needs have increased, both from the standpoint of demands on health systems and in the need to undertake countercyclical spending to preserve jobs and save lives. Together, this has heightened the importance of strengthening DRM to contribute to building fiscal space and resilience. The challenge for most 4 developing economies is to strengthen DRM without creating regressive or growth-impeding distortions to tax systems. This will require action on both the tax policy and administration fronts, improving the efficiency of tax ad- ministration, reducing inefficient and regressive tax expenditures, adapting tax policies to reinforce climate change and health objectives, and expanding the generation of revenue from fast-growing digital activities. Governments will also need to recognize the close link between taxpayer compliance and the quality of government spending (and especially the provision of ade- quate and good-quality public services). Without the latter, the public will have little incentive to pay taxes. Reflecting the importance that the Board of Executive Directors assigns to improving DRM, in June 2021 World Bank management presented to the Board “IBRD/IDA Board Briefing on Domestic Resource Mobilization (DRM): Supporting Green, Resilient and Inclusive Development (GRID).” This pre- sentation recognized that, with the pandemic exacerbating preexisting DRM challenges, the World Bank needed to take a leading role in representing de- veloping economy views on international tax issues at the global level and to increase human and financial resources dedicated to DRM. The presentation expressed World Bank management’s intention to 1. Scale up country support to reshape fairer, equitable, and greener tax sys- tems based on country priorities and demands[;] 2. More actively advocate for developing countries at the global level to ensure that their interests and challenges are addressed, including at the Independent Evaluation Group World Bank Group    5 G20 and G7 [Group of Twenty and Group of Seven] level; and 3. Continue fostering international cooperation to address current and new challenges to support inclusive and greener growth, help reduce inequality and eradicate poverty. (World Bank 2021b) To achieve this, management’s presentation identified potential interven- tions to improve the scope of success, which included the following: 1. Introducing DRM-related activities into [World] Bank operations, from the CPFs [Country Partnership Frameworks] and SCDs [Systematic Country Diagnostics] to lending operations and TA [technical assistance], and 2. Increasing [World] Bank’s human and financial resources to timely re- spond to greater demands from countries for support to address current revenue challenges, as well as to help them prepare ahead for future challenges. This could involve mainstreaming DRM experts in regional EFI [Equitable Growth, Finance, and Institutions] units. (World Bank 2021b) Evaluation Scope This evaluation addresses three evaluation questions: » How relevant were World Bank strategies, activities, and interventions to enhance DRM in World Bank client countries? » To what extent has the World Bank been effective in supporting client coun- try efforts to broaden tax bases, improve tax structures and equity, and strengthen tax administration? In achieving results at the country and inter- vention levels, what worked, what did not work, and why? » Were World Bank interventions to support client DRM complementary? Was complementarity with development partners pursued and achieved? Appendix A contains a detailed description of the methodology and data World Bank Support for Domestic Revenue Mobilization  Chapter 1 sources underpinning this evaluation. 6 1 The Independent Evaluation Group has assessed World Bank support for tax reform on sev- eral occasions. Appendix B summarizes some of the past findings and lessons.  Independent Evaluation Group World Bank Group    7 2 | World Bank Interventions in Support of Domestic Revenue Mobilization The World Bank increased its support for domestic revenue mobilization (DRM) between 2016 and 2019, especially since 2018 and to International Development Association–eligible countries and to countries in Sub-Saharan Africa. The increase was great- est in countries with lower ratios of revenue to GDP. DRM-related investment projects in middle-income countries were scaled up significantly in the evaluation period. The World Bank made greater use of development policy operations to support DRM during the evaluation period compared with the previous three-year period, placing increased emphasis on tax policy reforms while improving its collaboration with development partners through the Platform for Collaboration on Tax. World Bank interventions and priorities in support of DRM at the country level were generally well grounded in analytical and di- agnostic work that identified major country-specific constraints to DRM. The number of diagnostic tools on DRM has increased recent- ly. Each has potentially important value added in informing policy dialogue, operational design, and priority setting, but their prolifer- ation may present challenges for task team leaders (many of whom are not tax experts) in identifying and prioritizing reforms at the country level and within operations systematically and efficiently. Green and health taxes received greater attention in the evaluation period, though from a low level. Much of this attention was due to the work of the Global Tobacco Control Program, which drew ex- perts together from across Global Practices and external develop- ment partners to influence operations design and prepare assess- ments on many countries, including with respect to tobacco taxes. 8   Analytical work on the distributional implications of tax policy in- creased compared with the previous three-year period. Attention on the expected distributional implications of DRM interventions increased in low-income countries. Less attention has been giv- en to the distributional impact of DRM support to middle-income countries. However, reporting on the ex post impact of tax reform in Implementation Completion and Results Reports was infrequent, particularly in development policy operations. 9 Portfolio of Domestic Revenue Mobilization– Related Interventions During the evaluation period, FY16–19, the World Bank supported 116 coun- tries to improve DRM through lending operations and projects and through advisory services and analytics (ASA; table 2.1). Half of the countries were IDA eligible, one-third were borrowers from the International Bank for Re- construction and Development only, and the remainder were blend borrow- ers. Countries with revenue-to-GDP ratios below 15 percent tended to receive higher levels of World Bank support for DRM than those above this threshold.  ource and Volume of World Bank Support to Domestic Table 2.1. S Revenue Mobilization Commitments Active Portfolio Commitments Approved during at the Start of the Approved during FY12–15 Evaluation Period FY16–19 (US$, (US$, (US$, Instrument (no.) (no.) (no.) millions) millions) millions) Investment projects 20 1,020 15 616.4 31 1,488 World Bank Support for Domestic Revenue Mobilization  Chapter 2 focused on DRM Development 65 n.a. 17 n.a. 84 n.a. policy operations with at least one prior action focused on DRM Trust-funded 8 128 5 47.7 9 68.5 projects Advisory services 425 47 425 47 322 88 and analytics Source: World Bank Business Intelligence database, May 2021. Note: Trust-funded projects presented do not include those under the Global Tax Program. DRM = do- mestic revenue mobilization; FY = fiscal year; n.a. = not applicable. 10 Investment Project Financing DRM-related investment projects in middle-income countries and in Africa and South Asia were scaled up significantly in the evaluation period (fig- ure 2.1).1 The World Bank approved $1.5 billion to support 40 DRM-related investment projects in FY16–19, covering 28 countries, an increase from $1.1 billion in FY12–15 for 28 projects in 25 countries (with the average project size about the same between periods). The typical project was a tax administration project with objectives focused on improving or increasing efficiency and effectiveness of revenue management, taxpayer compliance, and modernization of the tax system. South Asian countries received the largest share of commitments for DRM-related investment projects during the evaluation period (table 2.2). This was concentrated in large projects in India (5) and Pakistan (5). nvestment Project Portfolio by Income Level, FY12–15 Figure 2.1. I and FY16–19 1,400 Investment project portfolio 1,200 1,000 (US$, millions) 800 600 Independent Evaluation Group World Bank Group    11 400 200 0 HIC MIC LIC Income group FY12–15 FY16–19 Source: World Bank Business Intelligence database, May 2021. Note: FY = fiscal year; HIC = high-income country; LIC = low-income country; MIC = middle-income country. 12 World Bank Support for Domestic Revenue Mobilization  Chapter 2  egional Breakdown of Domestic Revenue Mobilization–Related Investment Projects Approved, FY16–19 Table 2.2. R Value of DRM-Related Average Value of DRM-Related DRM-Related Investment Investment Projects per Country Investment Projects Projects (no.) (US$, millions) Region (US$, millions) AFR 17 652 38 SAR 12 727 61 ECA 4 88 22 EAP 4 20 5 LAC 1 55 55 MENA 1 15 15 Total 39 1,557 196 Source: Independent Evaluation Group. Note: Total value includes trust-funded projects. AFR = Africa; DRM = domestic revenue mobilization; EAP = East Asia and Pacific; ECA = Europe and Central Asia; FY = fiscal year; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa; SAR = South Asia. Development Policy Financing DRM played a larger role in development policy financing (DPF) in the eval- uation period than in the previous three-year period. The number of devel- opment policy operations (DPOs) approved with at least one DRM-related prior action increased from 65 to 84 between FY12–15 and FY16–19, and the number also increased as a share of DPOs from 27 percent to 42 percent. This pattern was more pronounced in IDA-eligible countries (figures 2.2 and 2.3). In total, there were 133 DRM-related budget support operations across 54 countries. In the previous period, there were 112 DRM-related budget support operations across 36 countries.  evelopment Policy Operations with Domestic Revenue Figure 2.2. D Mobilization–Related Prior Actions 300 250 200 DPOs (no.) 150 100 50 0 Independent Evaluation Group World Bank Group    13 FY12–15 FY16–19 Approval period DPOs without DRM-related prior actions DPOs with DRM-related prior actions Sources: World Bank Business Intelligence database; Operations Policy and Country Services Prior Actions database, World Bank, Washington, DC, April 2021. Note: DPO = development policy operation; DRM = domestic revenue mobilization; FY = fiscal year.  RM-Related Prior Actions in DPOs with at Least One Figure 2.3. D DRM-Related Prior Action, by Borrowing Group, FY12–15 and FY16–19 800 700 600 Prior actions (no.) 500 400 300 200 100 0 FY12–15 (n = 583) FY16–19 (n = 739) Approval period Non-DRM-related prior actions in DRM-related DPOs DRM-related prior actions in IDA-eligible countries World Bank Support for Domestic Revenue Mobilization  Chapter 2 DRM-related prior actions in non-IDA countries Source: Independent Evaluation Group. Note: DPO = development policy operation; DRM = domestic revenue mobilization; FY = fiscal year; IDA = International Development Association. Domestic Revenue Mobilization–Related Prior Actions DRM-related prior actions have been shifting toward greater focus on tax policy (figure 2.4). In FY12–15, prior actions were focused on tax adminis- tration, particularly to improve operational efficiency. In FY16–19, the focus of DPOs shifted to tax policy, particularly reforms related to changes in tax rates (for example, value-added taxes [VATs], corporate income tax, and personal income tax). Given the increased use of DPOs relative to the earlier period, this implies an increase in attention to tax policy in World Bank operations. 14  omestic Revenue Mobilization–Related Prior Actions Figure 2.4. D by Area 70 60 Share of total DRM-related 50 prior actions (%) 40 30 20 10 0 Tax administration Tax policy DRM area FY12–15 FY16–19 Source: World Bank Operations Policy and Country Services Prior Actions database, April 2021. Note: DRM = domestic revenue mobilization; FY = fiscal year. Most DRM-related prior actions were one of three types: changes in tax rates, reductions in tax expenditures, and improvements in the ease of paying taxes.2 The share of these three types rose from a little more than half in the FY12–15 period to two-thirds in the evaluation period. Prior actions support- ed green and health taxes more frequently in the evaluation period, though from a negligible base, and digitalization of taxes rose significantly as a share Independent Evaluation Group World Bank Group    15 of the total. Prior actions intended to improve operational efficiency of tax administration became less important between the two periods (figure 2.5). A little less than one-quarter of DRM-related prior actions in the evaluation period sought to address tax expenditures or tax exemptions.3 Of these, 30 percent required the publication of the inventory of tax exemptions and ex- penditures (ostensibly to strengthen accountability in granting tax exemp- tions) or a tax expenditure statement, and 40 percent required an outright reduction or elimination of tax exemptions and expenditures. Most of the rest required changes to the governance framework for granting new exemp- tions. Program documents rarely explained the motivation for the approach chosen to reduce inefficient and regressive tax exemptions. However, case studies and other evidence show frequent reintroduction of significant new exemptions. This suggests a benefit in giving greater at- tention to measures to strengthen the governance framework for granting exemptions. In Pakistan, after initially declining starting in 2014, tax ex- emptions were reintroduced in advance of 2018 elections, increasing from 1.6 to 2.5 percent of GDP between 2017 and 2019. As a result, tax collection deteriorated from 12.9 to 11.6 percent of GDP. In Panama, elimination of tax exemptions proved more difficult than envisioned amid strong political headwinds in domestic tax reform outside the executive branch of govern- ment. In Madagascar, the World Bank supported disclosure of a summary of all tax expenditures in the annual budget law, but this did not contribute to a significant increase in revenue. Far from a targeted reduction of about $24.8 million in tax exemptions, tax expenditures eliminated during the Public Finance Sustainability and Investment DPO series (2016–18) were less than $0.4 million, and in 2017, the government approved additional tax benefits for special economic, industrial, and agriculture zones. Attention to the establishment and functioning of large taxpayer units in DPOs was modest, and outcomes were weak. Although large taxpayer units are often seen as potentially effective in improving taxpayer compliance World Bank Support for Domestic Revenue Mobilization  Chapter 2 and raising revenue, their establishment received little attention in World Bank–supported operations.4 In each period, nine DPOs with at least one DRM-related prior action sought to establish or strengthen large taxpayer units. However, only about half of the targets for results indicators related to them were achieved for DPOs approved between FY16 and FY19. Only about half of the DPOs approved during the evaluation period with prior ac- tions related to these units have closed. For those that have, three-quarters of targets for the associated results indicators have been achieved. Program documents often discussed the expected progressive distribution- al impact of DRM measures, but Implementation Completion and Results Reports rarely reported ex post impact. The time frame of a stand-alone DPO may not allow for such reporting because of data availability, but it is un- clear if and at what point the World Bank intends to assess the distributional impact at the country level of the tax reform it supports. 16  omestic Revenue Mobilization–Related Prior Actions by Figure 2.5. D Domestic Revenue Mobilization Subcategory, FY12–19 Tax policy Tax administration 60 50 Share of DRM-related prior actions (%) 40 30 20 10 0 Tax rates Tax expenditures; exemptions; incentives; holidays Green taxation Tobacco taxation Ease of paying taxes Customs Tax operational efficiency Tax audits Large taxpayers Digitalization of taxes Tax registries; registration Capacity building and training DRM subarea FY12–15 (n = 112) FY16–19 (n = 133) Source: World Bank Operations Policy and Country Services Prior Actions database, April 2021. Note: Tax operational efficiency refers to prior actions supporting activities that aim to improve tax ad- ministration processes and effectiveness. Percentages add up to more than 100 percent because some prior actions fit into more than one category. DRM = domestic revenue mobilization; FY = fiscal year. An assessment of the relevance of results indicators in DPOs to measure progress in improving DRM suggests room for improvement.5 Results frame- works tracking progress with DRM have often proved problematic, under- Independent Evaluation Group World Bank Group    17 mining opportunities for course correction and learning from experience. Close to half of all DRM-related results indicators in DPOs were overall and tax-specific revenue-to-GDP indicators, and more than 40 percent were tax inspection–related indicators. The DRM-related indicators were often too high level or too weakly related to prior actions (for example, use of the revenue-to-GDP ratio to capture the impact of an increase in corporate tax rates), and the tax inspection–related indicators were often too output ori- ented to measure impact. These findings are consistent with those of IEG’s Evaluation Insight Note on domestic revenue mobilization, which observed that the quality of DRM-related indicators was often an issue, limiting the ability to monitor the impact of a project or operation (World Bank 2023). Some results indicators had little or no link to the operation’s specific DRM components (such as in Liberia and Pakistan or in Croatia, which also had no baselines or targets). Green and Health Taxation Prior actions to encourage green and health taxation emerged in the FY16– 19 period as the third largest group of tax policy actions supported by bud- get support operations (table 2.3). For green taxes,6 prior actions included measures to increase VAT collection for land, sea, and air vehicles and ser- vices and for mining. For health taxation, prior actions focused on increasing general sales and excise taxes for alcohol, sugary drinks, and tobacco. » Green taxes. Compared with the previous period, the evaluation documented a slight increase in the share of prior actions supporting green taxation. The total number of relevant prior actions increased from 4 out of 112 in FY12–15 to 9 out of 133 in FY16–19. Despite this increase, there was only one asso- ciated results indicator (which measured an improvement in revenue from petroleum taxes during the later period; table 2.3). Its target was achieved. » Health taxes. Health taxes gained attention in the evaluation period with World Bank Support for Domestic Revenue Mobilization  Chapter 2 the help of initiatives such as the Global Tobacco Control Program: nine DRM-related prior actions (7 percent) supported increases in health taxes.7 Results indicators measuring the impact from health tax prior actions were more prominent in FY16–19, including measures of excise tax collection from alcohol and tobacco. Four of five targets for these results indicators in closed operations were achieved. During the earlier period, only 1 out of 107 indicators measured an increase in excises from tobacco (Philippines Third DPF, approved in FY15). 18  omestic Revenue Mobilization–Related Indicators for Green and Health Taxation Table 2.3. D DRM- DRM- Green Tax Health Taxes Related Related Green tax Green Results Health Results Health tax Period Prior Results prior tax–related indicator tax–related indicator prior Actions Indicators actions results achievement results achievement actions (no.) (no.) (no.) (no.) indicators (no.) rating indicators (no.) rating FY12–15 112 107 4 0 0 1 1 Achieved FY16–19 133 124 9 1 Achieved 9 5 1 = not achieved 4 = ongoing operations, thus not yet rated Source: World Bank Business Intelligence database, April 2021. Note: DRM = domestic revenue mobilization; FY = fiscal year. Independent Evaluation Group World Bank Group    19 Nonlending Portfolio The total number of DRM-related nonlending activities declined over FY16– 19, from 425 to 322, but the average size increased significantly. Total spend- ing doubled from $47 million in FY12–15 to $88 million for 117 countries, including multicountry activities (figures 2.6 and 2.7). This was part of an effort to increase selectivity, strategic use, and resourcing of ASA. During both periods, 60 percent of activities were delivered to middle-income countries. By thematic area, DRM-related ASA was focused on tax admin- istration, particularly improving tax operations and services (figure 2.7). About 8 percent of ASA in the evaluation period included some discussion of green taxation, compared with 25 percent in the previous period. Relatively few ASA were undertaken on tax expenditures and exemptions or the use of large taxpayer units. Medium-term revenue strategies were introduced in 2016 and are intended to be a government-led comprehensive approach to tax system reform over the medium term through a whole-of-government approach. Although not a World Bank product, the World Bank—along with the IMF, the Organisation for Economic Co-operation and Development (OECD), and other development partners—is a contributor to this promising initiative. However, as of the end of February 2023, only five countries had World Bank Support for Domestic Revenue Mobilization  Chapter 2 completed a medium-term revenue strategy and were implementing it.8 Over the evaluation period, there was increasing analytical work on green and tobacco taxation (although from a low base). The Global Tobacco Con- trol Program supported analytical work at both the global and country levels on tobacco taxation and provided technical assistance and analytical inputs into tobacco tax policy reforms that were adopted in at least 13 countries.9 20  dvisory Services and Analytics Figure 2.6. A a. By income group FY12–15 FY16–19 50 250 Commitment (US$, millions) 40 200 30 150 ASA (no.) 20 100 10 50 0 0 IC C IC er IC C IC er LI LI th th H M H M O O Income group Commitment ASA b. By Region 120 100 80 Independent Evaluation Group World Bank Group    21 ASA (no.) 60 40 20 0 AFR EAP ECA LAC MENA SAR Other Region FY12–15 FY16–19 Source: World Bank Business Intelligence database, April 2021. Note: Other refers to regional or multicountry ASA. AFR = Africa; ASA = advisory services and analytics; EAP = East Asia and Pacific; ECA = Europe and Central Asia; FY = fiscal year; HIC = high-income country; LAC = Latin America and the Caribbean; LIC = low-income country; MENA = Middle East and North Africa; MIC = middle-income country; SAR = South Asia.  dvisory Services and Analytics Activities by Theme, FY12–19 Figure 2.7. A Tax policy Tax administration 70 60 50 Share of ASA (%) 40 30 20 10 0 VAT Tax exemptions Tobacco (health tax) Green tax Customs Tax administration (operational efficiency) Tax audits Large taxpayer unit International tax E-platform (ICT) for tax DRM thematic areas FY12–15 FY16–19 World Bank Support for Domestic Revenue Mobilization  Chapter 2 Sources: World Bank Business Intelligence database, April 2021; Independent Evaluation Group calcula- tions. Note: Shares add up to more than 100 percent because some ASA activities addressed more than one theme. ASA = advisory services and analytics; DRM = domestic revenue mobilization; FY = fiscal year; ICT = information and communication technology; VAT = value-added tax. A considerable range of DRM-related tools, diagnostics, and analytical work has been developed since 2015, both from within and outside the World Bank. These include the Tax Administration Diagnostic Assessment Tool (TADAT), the Tax Policy Assessment Framework, three new tool kits on internation- al tax, tax treaty explorers, the Innovations in Tax Compliance Conceptual Framework, Commitment to Equity Assessment Diagnostic Framework tools, Tax DIAMOND, microsimulation models, tax gap models, and tax incentive analyses. Each one focuses on a distinct dimension of DRM and has poten- tially important value added in informing policy dialogue, operational design, and priority setting, but their proliferation presents challenges for task team leaders (many of whom are not tax experts) to identify and prioritize reforms effectively at the country level. To date, there is no consolidated assessment 22 that provides a framework to prioritize tax reforms and capacity-building efforts across tax objectives that can be updated and easily drawn on to inform priorities in CPFs, CPF updates, and the identification of prior actions in DPOs. The World Bank is a partner for TADAT, which evaluates a country’s tax ad- ministration systems in nine performance outcome areas based on 26 indica- tors (box 2.1).  he Tax Administration Diagnostic Assessment Tool Box 2.1. T The Tax Administration Diagnostic Assessment Tool (TADAT), introduced in 2015, is a diagnostic tool for country tax administrations. TADAT was introduced by development partners, including the International Monetary Fund; the World Bank; and bilateral development aid agencies of France, Germany, Japan, the Netherlands, Norway, Switzerland, and the United Kingdom, in response to the 2015 Addis Ababa commit- ments to improve domestic revenue mobilization in developing countries. The Europe- an Commission provided initial financial support to the TADAT trust fund in agreement with the International Monetary Fund and the World Bank. TADAT assessments are usually commissioned by international agencies, such as a multilateral development bank or the International Monetary Fund. The report is finalized after securing the country’s feedback. TADAT indicators are scored to identify a country’s strengths and weaknesses to help country tax administrations identify areas that need improvement. As of August 2022, 135 assessments have been prepared, including 33 subnational assessments, not all Independent Evaluation Group World Bank Group    23 of which have been made public. The World Bank has jointly led or participated in 31 TADAT assessments. TADAT assessments are carried out by teams of accredited assessors. Issues addressed include emerging issues, such as digital taxation, green taxes, and gender imbalances in tax administration. The field guide was updated in 2019, learning from stakeholders’ experience and feedback. Evidence from case studies for this evaluation indicates that TADAT assessments have been influential in shaping World Bank operations and government reforms in tax administration during the evaluation period in Chad, Madagascar, Rwanda, and, to a lesser extent, Guatemala (see chapter 4 and appendix C). Sources: BrightScreenProds 2021; World Bank 2021a; evidence from this evaluation’s case studies and semistructured interviews of stakeholders. Note: The World Customs Organization has developed a parallel diagnostic process for customs. For more information about TADAT, see https://www.tadat.org/home#overview. The Global Tax Program, launched in June 2018 with funding from devel- opment partners, supports advisory services and technical assistance to improve and strengthen tax institutions and revenue mobilization (box 2.2). The program represented a significant expansion of World Bank engagement in DRM, with about 81 percent of its resources supporting expansion of and improvement in the quality of DRM country-level work, with the remain- ing resources supporting development of diagnostic tax tools, assessment frameworks, and research. As of October 2022, the Global Tax Program has funded engagements in 69 countries, two-thirds of which were IDA eligible. The FY21 annual progress report of the Global Tax Umbrella Program pro- vides an update on the progress of the activities undertaken by the Global Tax Program between July 2020 and June 2021. An important outcome indi- cator is the number of reform recommendations endorsed by the respective governments. Of the 201 recommendations made since inception, 73 have already been endorsed, 28 of which were endorsed in FY21. Another outcome indicator—number of reform recommendations (to improve procedures, practices, and standards) endorsed—achieved 11 recommendations against a target of 17 (World Bank 2021a). World Bank Support for Domestic Revenue Mobilization  Chapter 2  lobal Tax Program Box 2.2. G The Global Tax Program, established in 2018, helps support, leverage, and coordi- nate domestic revenue mobilization–related World Bank work, including lending and advisory services and analytics, at the international and country levels. It is organized in relation to four pillars: » The global tax activities and global public goods pillar supports development and application of tax diagnostic tools, such as tax policy assessment frame- works and Tax DIAMOND, which identify weaknesses and recommendations for improvements. » The country-level work pillar supports countries in improving revenue collection through medium-term revenue strategies based on prior tax diagnostic work, mainly using the Tax Administration Diagnostic Assessment Tool, tax policy as- sessment frameworks, or Tax DIAMOND. (continued) 24  lobal Tax Program (cont.) Box 2.2. G » The third pillar (actionable research, data, knowledge, and learning) supports domestic revenue mobilization–focused research and data work with the potential to yield operational actions leading to domestic revenue mobilization improvements. » Pillar four (program implementation and supervision) administers the program and manages single and multidonor trust funds supporting Global Tax Program activities. The Global Tax Program secretariat is housed in the World Bank’s Global Tax Unit. The number of tax experts varies over time, and the program relies significantly on the use of consultants. It has contributed to high-profile, flagship, and other research of the World Bank, including the recent World Development Report on digital taxation and work on digital services taxation. Source: Independent Evaluation Group. Domestic Revenue Mobilization and Equity The World Bank has increased its attention to equity considerations in its DRM work. Building on the 20th Replenishment of IDA (IDA20) commitment Independent Evaluation Group World Bank Group    25 to support IDA-eligible countries “to bolster their domestic resource mobi- lization capacity through equitable (fair and progressive) revenue policies” (World Bank 2022a, x, para. xx.b), World Bank staff are in the process of articulating a set of progressivity metrics to encourage assessment of “equi- table (fair and progressive)” policies at the country level, which could poten- tially result in operations giving greater attention to promoting tax equity. This issue received considerable attention in the June 2021 Executive Board briefing on DRM (World Bank 2021b). During the evaluation period, the World Bank increased analytical work on the distributional impact of tax reform. This was spearheaded partly by the Commitment to Equity Institute in close collaboration with the World Bank. A finding that emerged from many of these studies is that poor people get taxed more and receive less in public services so that fiscal systems (overall) often show very limited or no progressivity. These findings are increasing- ly reflected in World Bank analytical and diagnostic work (particularly for low-income countries), which often advocate for more progressive tax poli- cies. However, the progressivity of tax systems is taken up to a lesser extent in middle-income countries and in World Bank DRM-related operations than the number of studies of distributional impact would suggest. Most DPO program documents discuss the expected distributional implica- tions of DRM-related reforms, but actual impact was discussed infrequently in Implementation Completion and Results Reports.10 Evidence was collected from poverty and social impact analyses in program documents and ex post poverty and social impacts identified in Implementation Completion and Results Reports and Implementation Completion and Results Report Reviews. The expected distributional impact of reform supported by DRM-related prior actions was discussed in more than 90 percent of cases. Most tax-related prior actions in DPOs over the evaluation period were expected to have either a neutral or a progressive distributional impact (figure 2.8). This result was similar to that of the previous three-year period. In both periods, about 1 in 10 DRM-related prior actions in International Bank for Reconstruction and Development countries was expected to have World Bank Support for Domestic Revenue Mobilization  Chapter 2 a regressive impact. Relatively few potentially regressive tax measures were supported through DPO prior actions in IDA-eligible countries in the evalu- ation period. Regressive tax measures supported through DPO prior actions included increased fuel excise tax and increased excise tax on tobacco and alcohol. From an equity standpoint, this finding is not particularly prob- lematic. In most cases where expected DRM-related impact was regressive, targeted actions were identified on the spending side to protect poor peo- ple, implying the need for caution in assessing the expected distributional impact of World Bank–supported tax reforms in isolation from the broader fiscal system. 26  xpected Impact on Equity of Tax-Related Prior Actions by Figure 2.8. E 2.8Group, in FY12–15 and FY16–19 Periods Income IDA IBRD and blend DRM-related prior actions (%) 100 80 84 71 59 50 60 40 39 29 20 24 16 12 11 0 5 FY12–15 FY16–19 FY12–15 FY16–19 Progressive Neutral Regressive Sources: World Bank Operations Policy and Country Services Development Policy Financing Prior Actions database, April 2021; Independent Evaluation Group Implementation Completion and Results Report Review database, August 2022. Note: DRM = domestic revenue mobilization; FY = fiscal year; IBRD = International Bank for Reconstruc- tion and Development; IDA = International Development Association. Collaboration with Development Partners Independent Evaluation Group World Bank Group    27 Collaboration with development partners over the evaluation period im- proved considerably, driven largely by the Platform for Collaboration on Tax (PCT),11 established in April 2016 at the start of the evaluation period. The PCT is a joint initiative of the IMF, the OECD, the United Nations, and the World Bank to strengthen collaboration on DRM.12 The quality of collaboration on DRM between the World Bank and the IMF was very good. Interviews and case studies pointed to strong collaboration on DRM issues at the country level (facilitated by the PCT and annual re- ports on interagency collaboration). There was cross-attendance in meetings of the governing bodies of the respective DRM trust funds (the World Bank’s Global Tax Program and the IMF’s Revenue Mobilization Trust Fund). In- formation sharing between staff working at the two institutions was good, benefiting from the preexisting agreement between the IMF and World Bank on information sharing that gives World Bank staff access to IMF technical assistance reports on request. The World Bank’s relationship with the OECD on tax issues is evolving. The OECD has been ramping up its engagement in the tax space over the past decade, and it has been particularly noticeable in terms of its work on global taxation. The World Bank has engaged actively with the OECD through the PCT and international forums, such as the Group of Twenty. Much of this en- gagement has been to bring the perspective of developing countries into dis- cussions with the OECD in its role as a global standard setter. More recently, the OECD has begun to move beyond that role to one of de facto provider of technical assistance to many World Bank clients. It will be important to ensure that this work benefits from existing arrangements on collaboration and coordination. World Bank Support for Domestic Revenue Mobilization  Chapter 2 28 1 “Investment projects” include investment project financing and trust-funded projects. Domestic revenue mobilization–related investment projects are those defined using standard World Bank theme codes and are tagged with at least one of two theme codes: tax policy or domestic revenue administration. Projects with significant domestic revenue mobilization content were defined as those with more than 6 percent tax content based on independently assigned World Bank theme codes. The objectives of the operations, pillars and components, and prior actions implemented (in development policy operations) were reviewed to ensure that enough material on taxation was available to be evaluated.  2 “Payment of taxes” includes simplification of tax payments, tax compliance, amalgamation of taxes, tax returns, and tax payment schedules and procedures.  3 Tax expenditures are the revenue losses from exclusions, exemptions, deductions, tax cred- its, preferential tax rates, and deferrals. Although tax expenditures can have positive effects on inclusive growth when they are targeted appropriately, they are frequently used to benefit well-connected or politically influential individuals and entities. For this reason, it is import- ant that the granting of tax exemptions is accompanied by rigorous analysis of their costs, benefits, and distributional impact.  4 See Baer (2002) for a summary of the uses and benefits of large taxpayer units.  5 The “relevance” of results indicators in a development policy operation is defined as the extent to which an indicator tracks progress to the associated objective as a result of the prior action or prior actions.  Independent Evaluation Group World Bank Group    29 6  “Green taxes” as used in this evaluation is synonymous with “environmental taxes” and re- fers to taxes designed to tax behavior that is harmful to the environment. They include taxes on pollution, energy, carbon emissions, fuel consumption, waste production and disposal, use of natural resources, and motor vehicles and other transport. 7 Including tobacco taxation policy reforms as prior actions in development policy operations for Armenia, Colombia, Gabon, Moldova, Mongolia, and Montenegro. 8 A list of countries in the medium-term revenue strategy process can be found here: https:// www.tax-platform.org/medium-term-revenue-strategy/countries.  9 The 13 countries are Azerbaijan, Belarus, Ethiopia, Indonesia, Lesotho, Moldova, Nigeria, the Philippines, Senegal, Sierra Leone, Tonga, Ukraine, and Uzbekistan (World Bank 2019b), with technical assessments provided to an additional 9 countries plus the Organisation of Eastern Caribbean States.  10 Distributional impact is largely a policy issue and as such is infrequently relevant to invest- ment projects. This discussion therefore focuses on development policy financing.  11 For more information about the Platform for Collaboration on Tax, please see https://www.tax-platform.org.  12 The governments of France, Japan, the Netherlands, Norway, Switzerland, and the United Kingdom also support the Platform for Collaboration on Tax.  World Bank Support for Domestic Revenue Mobilization  Chapter 2 30 3 | How Effective Was World Bank Support for Domestic Revenue Mobilization? Results from investment projects supporting domestic revenue mobilization (DRM) were generally favorable. The share of projects rated satisfactory was 41 percent, with 35 percent of projects rated moderately satisfactory. Performance was generally better for tax administration projects in non–International Development Association–eligible countries than in International Development Association–eligible countries. Performance was rated poorly in one-quarter of cases, attributed to overambitious results indica- tor targets and challenging contexts, including in countries facing fragility, conflict, and violence. Development policy operations (DPOs) showed a marked improve- ment in achievement of DRM-related objectives, although the results indicators used to measure impact were often inadequate. Those indi- cators were often too high level and did not adequately capture either the impact of prior actions or progress toward objectives. Case study analysis suggests that tax policy reforms supported by DPOs were often reversed under pressure from vested interests. Project documents usually flagged risks from vested interests (with varying degrees of specificity), but without sufficiently concrete mitigating measures, risks often materialized. Although informed risk taking should not be discouraged, this suggests that prior actions should be designed with an aim of making their reversal more difficult. Bank performance was rated satisfactory for two-fifths of all DRM-related investment projects and one in five DPOs with at least one DRM-related prior action. Bank performance for three-quarters of investment projects and DPOs was rated moderately satisfactory or higher. 31 Staff self-evaluations of operations and projects yielded few DRM-related lessons, and those were insufficiently specific. Only 3 of 60 closed operations and projects that were focused on DRM had DRM-specific lessons. The relative absence of DRM-related lessons at the project or operation level (in Implementation Completion and Results Reports and their validations) suggests scope for greater attention to learning from DRM-focused projects and operations. 32   This chapter reviews the effectiveness of DRM interventions based on evidence from Implementation Completion and Results Report Reviews, semistructured interviews, seven in-depth country case studies (Chad, Colombia, Guatemala, Kenya, Madagascar, Pakistan, and Rwanda), and IEG evaluations and validations of projects and operations with significant DRM content.1 Performance of Domestic Revenue Mobilization– Related Investment Projects Results from investment projects supporting DRM were generally favorable. The share of investment projects rated satisfactory was 41 percent, with 35 percent rated moderately satisfactory. Twenty-two DRM-related investment projects closed during the evaluation period. IEG validated the ratings of three-quarters of those. DRM-related investment projects were more likely to have satisfactory outcome ratings than other World Bank investment projects (table 3.1). On average, performance was better for tax administration projects in IDA-eligible countries than in non-IDA-eligible countries (figure 3.1). Eighty-six percent of DRM investment projects in IDA-eligible countries were rated moderately satisfactory or higher versus 67 percent for projects in non-IDA-eligible countries, but a higher share of non-IDA projects was rated satisfactory (44 percent) compared with 29 Independent Evaluation Group World Bank Group    33 percent for projects in IDA-eligible countries.2 ndependent Evaluation Group Outcome Ratings of Domestic Table 3.1. I Revenue Mobilization–Related Investment Projects, FY16–19 Share of Share of IEG Outcome Ratings DRM-Related IPF (%) Non-DRM IPF (%) Highly satisfactory 0 3 Satisfactory 41 32 Moderately 35 42 satisfactory Moderately 76 78 satisfactory or above (continued) Share of Share of IEG Outcome Ratings DRM-Related IPF (%) Non-DRM IPF (%) Moderately 12 12 unsatisfactory Unsatisfactory 12 7 Highly unsatisfactory 0 2 Moderately 24 22 unsatisfactory or below Total 100 100 Source: Independent Evaluation Group DataMart, April 2021. Note: DRM = domestic revenue mobilization; FY = fiscal year; IEG = Independent Evaluation Group; IPF = investment project financing.  utcome Ratings for Domestic Revenue Mobilization–Related Figure 3.1. O Investment Projects in IDA-Eligible and Non-IDA-Eligible Countries, FY16–19 60 50 World Bank Support for Domestic Revenue Mobilization  Chapter 3 Projects with rating (%) 40 30 20 10 0 HS S MS MU U HU IEG outcome rating IDA Non-IDA Source: Independent Evaluation Group DataMart database, May 2021. Note: FY = fiscal year; HS = highly satisfactory; HU = highly unsatisfactory; IDA = International Develop- ment Association; IEG = Independent Evaluation Group; MS = moderately satisfactory; MU = moderately unsatisfactory; S = satisfactory; U = unsatisfactory. 34 Performance of Development Policy Operations with Domestic Revenue Mobilization–Related Prior Actions Achievement of Targets for Domestic Revenue Mobilization–Related Results Indicators Targets for a significant majority of DRM-related results indicators in DPOs approved during the evaluation period were at least mostly achieved. IEG rated four-fifths of DRM-related DPOs approved during the evaluation period. Targets for 70 percent of DRM-related results indicators were fully or mostly achieved, similar to the share in the previous three-year period, although the share of indicators that were not achieved in the evaluation period increased modestly (figure 3.2). Performance of results indicators related to tax policy reforms was better than for tax administration reforms both in the evaluation period and in the earlier three-year period (figure 3.3). However, case study evidence suggests that these results were often not sustained after operations were closed.3  chievement of Targets for Domestic Revenue Figure 3.2. A Mobilization–Related Results Indicators 80 70 69 70 Independent Evaluation Group World Bank Group    35 60 Share of indicators (%) 50 40 30 26 21 20 9 10 5 0 Fully and/or Partially Not mostly achieved achieved achieved Achievement of DRM-related results indicators FY12–15 FY16–19 Source: Independent Evaluation Group Implementation Completion and Results Report Review data- base, August 2022. Note: DRM = domestic revenue mobilization; FY = fiscal year.  chievement of Domestic Revenue Mobilization– Figure 3.3. A Related Targets by Theme (percent) a. Tax administration, FY12–15 b. Tax administration, FY16–19 23 31 8 4 69 65 c. Tax policy, FY12–15 d. Tax policy, FY16–19 18 18 10 6 73 76 World Bank Support for Domestic Revenue Mobilization  Chapter 3 Fully and/or Partially Not achieved mostly achieved achieved Source: Independent Evaluation Group Implementation Completion and Results Report Review data- base, August 2022. Note: FY = fiscal year. The achievement of DRM-related objectives in DPOs improved significantly in the evaluation period (compared with the previous period). Figure 3.4 shows significant increases in the shares of objectives rated satisfactory (from 2 percent over FY12–15 to 27 percent over the evaluation period). The share of objectives with achievement rated moderately unsatisfactory or lower was reduced by half between the two periods. 36  fficacy Rating for Domestic Revenue Mobilization–Related Figure 3.4. E Objectives in Development Policy Operations 100 80 Share of objectives (%) 60 40 20 0 FY12–15 FY16–19 Approval period HU U MU MS S HS Source: Independent Evaluation Group Implementation Completion and Results Report Review data- base, August 2022. Note: FY = fiscal year; HS = highly satisfactory; HU = highly unsatisfactory; MS = moderately satisfactory; MU = moderately unsatisfactory; S = satisfactory; U = unsatisfactory. Bank Performance Ratings and Lessons from Projects and Operations Independent Evaluation Group World Bank Group    37 Bank performance was rated satisfactory for two-fifths of all DRM-related investment projects and moderately satisfactory or higher in three-quarters of investment projects. About one-quarter of investment projects were rated moderately unsatisfactory or lower (figure 3.5).  ank Performance Ratings for Domestic Revenue Figure 3.5. B Mobilization–Related Investment Projects, FY16–19 40 Projects with rating (%) 30 20 10 0 Highly Satisfactory Moderately Moderately Unsatisfactory Highly satisfactory (n = 6) satisfactory unsatisfactory (n = 1) unsatisfactory (n = 0) (n = 6) (n = 3) (n = 0) Rating Source: World Bank Business Intelligence database, April 2021. Note: FY = fiscal year. Only 3 of 60 Implementation Completion and Results Report Reviews of DRM-related projects and DPOs had lessons that addressed DRM explicit- ly. All were for operations in IDA-eligible countries. These lessons were as World Bank Support for Domestic Revenue Mobilization  Chapter 3 follows: » The need for sustained focus on tax administration improvements, which may lead to improved compliance in fragility, conflict, and violence setting (Burkina Faso) » The need for political economy analysis and political support to avoid reversal of difficult tax-related policy reforms; technical assistance can also help (Guinea) » The importance of collaboration with the IMF and coordination with IMF technical assistance on DRM issues (Madagascar) 38 1 The findings of in-depth evaluations of six DRM-related projects and operations are described in domestic revenue mobilization Evaluation Insight Note (World Bank 2023). This note contains a detailed review of six Independent Evaluation Group Project Performance Assessment Reports. The underlying interventions were selected from among closed operations with significant DRM content, covering a diverse group of countries. Performance ratings (which the Independent Evaluation Group assigns independently) were not considered in the selection process. The interventions assessed were from five countries—Croatia, Guatemala, Liberia, Pakistan, and Panama—and one state, Rio de Janeiro in Brazil. The International Bank for Reconstruction and Development financed four of the interventions, the International Development Association financed one, and one used a blend of concessional and nonconcessional World Bank financing.  2  The World Bank supported 12 DRM-related investment projects in 11 of 39 countries facing fragility, conflict, and violence over the evaluation period. Only 1 project had closed and had its rating validated by the Independent Evaluation Group (Liberia), too few to draw meaning- ful conclusions. 3  Achievement was gauged at the country level using results indicators in country strategies and interventions. Also, broader indicators (for example, ratio of revenue to GDP in low-income countries and other indicators of revenue performance) were used to gauge outcomes in groups of countries, compared with long-term averages before the evaluation period (before 2016). At the intervention levels, evaluative evidence from Implementation Completion and Results Report Reviews, Project Performance Assessment Reports, and Independent Evaluation Group World Bank Group    39 reviews of ongoing operations was used and combined with additional evidence from semistructured interviews of stakeholders at the corporate, development partner, and country client and staff levels. 4 | Insights from Country Case Studies This evaluation undertook in-depth case studies of World Bank–supported domestic revenue mobilization (DRM) interven- tions in seven countries (Chad, Colombia, Guatemala, Kenya, Madagascar, Pakistan, and Rwanda). This was augmented by a review of Project Performance Assessment Reports undertaken by the Independent Evaluation Group for six DRM-related interven- tions. The findings were used to help identify examples of good practice and areas where there may be scope for improvement. The World Bank mostly identified major constraints to improved DRM correctly in case study countries, drawing on a range of anal- yses, including the Tax Administration Diagnostic Assessment Tool (tax administration), Public Expenditure and Financial Accountabili- ty, and International Monetary Fund analysis. Challenges faced in the six World Bank projects and operations reviewed included addressing political economy constraints, learning from experience, matching the right intervention to the problem, leveraging donor support, and preparing an appropriate results framework. World Bank effectiveness was modest in strengthening tax admin- istration in the case study countries. Progress achieved, particularly from development policy operations, was often reversed over time, even for operations that recorded significant achievements shortly after closing. The World Bank was more effective in pursuing DRM objectives in the six operations and projects reviewed when (i) it worked in coordination with development partners (and especially the Inter- national Monetary Fund) in the context of clear division of labor; 40   (ii) complementary instruments were mobilized (for example, investment project financing and development policy financing); and (iii) tax reforms involved engagement with civil society. The World Bank was less successful in articulating relevant results indicators to track progress toward DRM objectives as a result of DRM-related prior actions. This was the case in some International Development Association–eligible countries, which had weakly relevant indicators and unrealistic targets. The Global Tobacco Control Program has proved a useful tool for identifying concrete opportunities to generate revenue and con- tribute to longer-term health outcomes. Guatemala and Pakistan benefited from assessments of tobacco taxation, including the formulation of recommendations for tobacco tax reform. Global Tobacco Control Program recommendations informed a prior action on tobacco taxation in a development policy operation for Colombia. 41 Country case studies and Project Performance Assessment Reports provided a more granular picture of World Bank strategies, activities, and interventions to help countries enhance DRM. Seven country cases were selected: Chad, Madagascar, and Rwanda (low-income countries); Colombia, Guatemala, Kenya, and Pakistan (middle-income countries; see appendix A for details on the selection criteria used). These studies sought to assess the extent to which World Bank interventions were appropriate to country conditions and priorities and their impact. Evidence is supplemented with insights from several Project Performance Assessment Reports on tax-centered projects and operations.1 This chapter reviews the use of diagnostics and analytical underpinnings to inform DRM priorities, the choice of results indicators, World Bank coordination with development partners, and the impact of World Bank support on DRM. The World Bank drew on analysis in Systematic Country Diagnostics, TADATs, Public Expenditure and Financial Accountability assessments, and other ASA to identify DRM constraints. To varying degrees, diagnostics informed World Bank strategy, lending, and nonlending engagements in case study countries (table 4.1). World Bank Support for Domestic Revenue Mobilization  Chapter 4 42  nalytical Underpinnings of Domestic Revenue Mobilization Engagement at Country Level Table 4.1. A Other World PEFA Available Strategy in DRM CEM PER Bank Analytical IMF Inputs during Country Place during Assessment TADAT Discusses Discusses Inputs into CPF into CPF Evaluation Evaluation Period in SCD DRM DRM (such as CEQ) Period Chad CPF (2016–20) Yes No No Yes No Yes 2018 (2019–06) Colombia CPF (2016–21) Yes No No No Yes No 2016 Guatemala CPF (2017–20) Yes Yes No Yes Yes Yes 2018 (2017–10) (2013–05) Kenya CPS (2014–18) Yes Yes Yes Yes Yes, No 2019 (2017–01) (2016–03) (2014–12) incl. CEQ Madagascar CPF (2017–21) Yes Yes No No Yes Yes 2014; 2018 (2015–06) Pakistan CPS (2015–20) Yes No No Yes Yes Yes 2012; Punjab (2013–02) Province, 2019; Balochistan Province, 2017; Khyber Pakhtunkhwa Province, 2017 Rwanda CPS (2014–18) Yes Yes No No Yes Yes 2017 (2015–08) Source: Independent Evaluation Group. Note: CEM = Country Economic Memorandum; CEQ = Commitment to Equity; CPF = Country Partnership Framework; CPS = Country Partnership Strategy; DRM = domes- tic revenue mobilization; IMF = International Monetary Fund; PEFA = Public Expenditure and Financial Accountability; PER = Public Expenditure Review; SCD = Systematic Country Diagnostic; TADAT = Tax Administration Diagnostic Assessment Tool. Independent Evaluation Group World Bank Group    43 Chad The World Bank identified major DRM challenges in Chad, drawing on analy- sis produced by development partners (particularly the IMF). These included overreliance on the oil sector, a lack of capacity to manage petroleum sector revenue in a transparent manner, and broader weaknesses in the capacity of tax administration. The World Bank approved two DPOs for Chad with DRM content (FY16 and FY17). The objectives were to (i) broaden the tax base by assisting the gov- ernment with registering taxpayers, (ii) build the capacity of staff to man- age oil revenues, (iii) provide tools and information technology systems to increase the effectiveness of revenue collection, and (iv) reduce massive tax exemptions. The FY16 Fiscal Consolidation DPO supported the creation of the taxpayer database to increase the number of taxpaying firms. The prior action supporting this reform required the Ministry of Finance to adopt the results of the nationwide enterprise census for taxpayer identification and registration. The second prior action required Chad’s Council of Ministers to adopt and submit a tax code to the national assembly consolidating all tax-related fiscal regulations, leading to a more comprehensive and trans- World Bank Support for Domestic Revenue Mobilization  Chapter 4 parent tax system. This directly addressed constraints on budget instability caused by the narrow tax base. However, the procedures and systems available for the payment of tax be- came cumbersome. According to Doing Business 2020, firms on average made 54 tax payments a year; spent 834 hours a year on filing, preparing, and pay- ing taxes; and paid total taxes amounting to 63.5 percent of profits (World Bank Group 2020). Efforts to resolve these challenges included the develop- ment of an integrated tax management system (Standard Integrated Gov- ernment Tax Administration System) in 2015 and the provision of unique tax identification numbers. These have not been successful in changing the direction of tax-related indicators. Elimination of tax exemptions also had little success. Under the Chad Emer- gency DPO (FY17), the government put a freeze on new exemptions (ex- cept for those under the Vienna Convention) and studied tax expenditures. However, the freeze on new exemptions was repealed by the end of 2017, 44 and a prior action under the First Economic Recovery and Resilience DPO to reduce the number of tax exoneration agreements followed in 2018. The government committed to enhancing transparency by issuing an inventory of tax exemptions and derogations as an appendix to the 2020 Finance Law. However, without a results indicator tracking the magnitude of tax expen- ditures, it is difficult to assess the efficacy of World Bank support to bring about a reduction in tax expenditures. In the end, non-oil revenue increased modestly, from 8.4 percent of non-oil GDP in 2016 to 8.8 percent in 2019. Though some progress was achieved, Chad continued to underperform relative to other countries in the Central African Economic and Monetary Community) with the share of tax revenue to GDP at 7.5 percent in 2018, compared with 9 percent in Central African Economic and Monetary Com- munity countries. The World Bank, in its annual assessment of the quality of policies and insti- tutions for revenue mobilization in the country (Country Policy and Institu- tional Assessment), upgraded Chad’s CPIA (Country Policy and Institutional Assessment) rating from 2.5 (out of 6) in 2014 to 3.0 in 2017, but its rating returned to 2.5 in 2019. Colombia The World Bank identified the main DRM challenges in Colombia as low Independent Evaluation Group World Bank Group    45 taxation on high incomes, tax evasion, weakness in custom administration, low overall VAT and excise revenue collection, a shrinking tax base, tax system complexity discouraging formalization with distortions created by the ad hoc granting of favorable tariffs and tax treatment, and overreliance on commodity revenue. Under pillar 3 of the FY16–21 CPF (supporting fiscal sustainability and productivity), DRM-related objectives were to (i) improve fiscal management to increase non-oil revenues and accommodate associ- ated expenditures under the medium-term fiscal framework by 2017, and (ii) improve the business environment and innovation to boost productivity to improve tax registration. The World Bank produced influential diagnostics on tobacco taxation. These informed prior actions for the Fiscal and Growth Development Policy Loans 1 (FY17) and 2 (FY19). The provision of technical support to strengthen the policy framework for trade facilitation, business regulation, innovation, and green growth led the government to adopt the following tax reforms: (i) implementing the 2016 tax reform, which among other things increased the general sales tax (VAT) rate from 16 to 19 percent, and (ii) increasing the rates of tobacco and alcohol tax. The government also adopted a carbon tax on fossil fuels proportional to their carbon dioxide emissions and a tax on plastic bags. At the request of the National Directorate of Taxes and Customs, the World Bank, in collaboration with the OECD, provided capacity-building support on transfer pricing under the Colombia Fiscal Consolidation Programmatic Ap- proach (FY16–18). This supported the development of a macroeconomic and fiscal model for the Ministry of Finance with a detailed module to encourage tax compliance and equity and the effectiveness of the tax system to reduce tax evasion, avoidance, and tax base erosion. According to interviews with World Bank staff, the model helped determine tax rates and decrease expen- ditures. As a result, the Ministry of Finance was in a better position to make improvements to its fiscal rules and fiscal transparency legislation. The World Bank also contributed to improving tax registration, despite shortcomings in project design. The project Tax Simplification for the City World Bank Support for Domestic Revenue Mobilization  Chapter 4 of Cali (FY16–18) modernized the management process and consultation and tax payments for the municipality of Cali, its companies, and its citizens. Among the project’s successes were strengthening the security of informa- tion, reducing the risk of corruption, shortening the time for the execution of tax processes, eliminating in-person taxpayer lines to receive tax forms, and improving overall attention to citizens and taxpayers. Guatemala Guatemala has one of the lowest revenue-to-GDP ratios in the world (10 percent) and widespread tax evasion. The World Bank correctly identified the following DRM constraints limiting fiscal capacity to deliver basic public goods and services: low tax rates, absence of a broader tax base, poor com- pliance with existing tax laws by firms and individuals, high tax expenditures (exemptions), and weak capacity for tax administration. 46 These challenges informed the CPF for FY17–20 under pillar 2, which aimed “to improve public resource management and accountability.” Under the CPF, the World Bank designed two programs that focused on tax adminis- tration: (i) the Improved Governance of Public Resources and Nutrition DPF (FY17–20), which aimed to strengthen the regulatory framework to enhance tax administration, and (ii) the Transparency and Efficiency in Tax Adminis- tration Project (FY17–23), which aimed to modernize tax collection process- es and strengthen tax and customs procedures. The latter was dropped after Guatemala’s legislature failed to approve the project more than 18 months after Board approval. An ASA activity on Guatemala in 2018 addressed the introduction of fiscal rules, tax compliance, and tobacco taxation (World Bank 2018b). A regional ASA, Fiscal Management in Central America (FY15– 17), was provided to improve fiscal rules and tax compliance. These projects were aligned with the government’s K’atun 2032 National Development Plan to improve the regulatory and institutional challenges impeding improve- ments in tax administration, transparency, control, and accountability. World Bank effectiveness was modest in strengthening tax administration. Under the First Improved Governance of Public Resources and Nutrition DPF, a prior action to support amendments to the organic Law of the Tax Administration Superintendence (including provisions to limit bank secrecy to enhance tax collection compliance) helped reduce noncompliance as a share of potential VAT revenues from 34.2 percent in 2015 to 26.3 percent in Independent Evaluation Group World Bank Group    47 2019, surpassing the CPF target of 29 percent. In 2020, tax revenue to GDP was less than 11 percent. As part of technical assistance under the ASA Fiscal Rules in Central America, the World Bank—in partnership with the United Kingdom’s Behavioral Insights Team—supported the government in apply- ing behavioral insights to motivate citizens to pay their taxes. Tax reminders sent by the Guatemalan Tax Authority were initially effective at increasing citizen tax declarations and payment, but interviews with stakeholders indi- cated that results were not sustained. Guatemala was also the focus of Global Tobacco Control Program–support- ed analytical work on tobacco taxation, which recommended, among other things, changing the ad valorem excise system for cigarettes to a specific excise system with a uniform excise rate in monetary terms. It also rec- ommended that the specific excise rate be increased annually to ensure a reduction in tobacco affordability and an increase in excise revenues (World Bank 2019b). Kenya The relevance of the World Bank’s support to address DRM issues in Ken- ya was low at the outset of the evaluation period. The Country Partnership Strategy (FY14–21) failed to recognize early signs of sliding revenue perfor- mance and did not have explicit DRM-focused objectives, pillars, and inter- ventions or associated results indicators. One reason was a view held within the World Bank that the priority at that time was to support a transition from public sector–driven growth toward private sector–driven growth, and that fiscal consolidation should be driven by rationalizing public expendi- ture. Still, the World Bank pursued extensive analytical and advisory work on DRM. Topics that were tackled later informed lending operations and gov- ernment reform regarding revenue forecasting and reduction of income tax and VAT exemptions. In August 2018, at the government’s request, a retreat was organized to support research on tax expenditure, simplification of the tax regime, and World Bank Support for Domestic Revenue Mobilization  Chapter 4 revenue forecasting. World Bank’s knowledge product Kenya Tax Policy Studies on Value-Added Tax and Corporate Income Tax, published in 2017, was effective in driving discussion on tax exemptions and their cost in foregone revenue collection. However, it did not result in increased revenue collection. Only modest progress was made, despite the World Bank’s extensive pro- duction of 13 DRM-relevant ASA, to inform operations supporting DRM. The Kenya Petroleum Technical Assistance Project (FY15), which provided training for staff at the Kenya Treasury and the Kenya Revenue Authority in forecasting, collecting, and managing oil revenues, had limited relevance to the DRM agenda. However, according to government officials, the capacity- building activities enhanced revenue collection through withholding taxes from subcontractors working on associated projects. The Governance for Enabling Service Delivery and Public Investment Project (FY18), a Program-for-Results, provided training to 11 staff of the Kenya Revenue 48 Authority on revenue modeling and forecasting. The project aimed to reach a target of 94 percent of domestic revenue collection as a percent of the annual budget, but it fell short, partly because of the COVID-19 pandemic. The Kenya Inclusive Growth and Fiscal Management DPF was a break- through in DRM. The DPF included prior actions to enact the Finance Act 2018 to remove VAT exemptions on petroleum products and adopt a governance framework for granting tax exemptions to avoid the creep in tax exemptions and arrest the decline in tax revenues. The act introduced an 8 percent VAT on petroleum products that yielded additional revenue estimated at 0.15 percent of GDP over the first seven months of implemen- tation. Despite these efforts, according to the IMF, VAT and income tax as percentage of GDP decreased from 11.8 percent in FY18/19 to 10.7 percent in FY19/20, falling short of the 2021 target of 12.1 percent. Madagascar The World Bank contributed to modernizing Madagascar’s tax and customs administrations, improving revenue collection (particularly from natural resources), and boosting local capacity to manage revenues from mining operations. It identified weak DRM as a major development constraint (World Bank 2015c), with root causes in weak tax and customs administra- tion, noncompliance and tax evasion, a narrow tax base, limited fiscal de- centralization, and extensive tax exemptions. The World Bank increased its Independent Evaluation Group World Bank Group    49 lending in coordination with the European Union. Two TADAT assessments (2015 and 2021) informed the World Bank’s engagement during the evalua- tion period, and two customs reform ASA activities guided the client’s adop- tion of performance management and risk-based auditing within its customs administration. Other nonlending support included a 2014 DRM Policy Note and influential ASA in 2019 on combating corruption and tariff evasion (World Bank 2022b). The Public Sector Performance Project (FY16–22) included support to im- prove and consolidate taxpayer registration and identification, modernize the country’s integrated tax administration system, strengthen risk-based audit function and controls, introduce performance-based management to the tax and revenue agencies, and improve revenue collection in the mining sector. The Public Sector Performance Project was instrumental in piloting TADAT. More than 100 tax officers were trained and certified in TADAT, at central and local levels. This increased capacity to conduct TADAT self-assessments led to the design of a strategic tax reform plan, the adop- tion of an annual review process, and increased ownership of reform efforts. The three-operation programmatic DPO series supported prior actions to disclose the list of enterprises granted tax benefits under the free-zone regime, tighten the scope of customs exemptions, and boost customs administration by expediting the customs clearance process and establishing performance contracts for customs inspectors at Toamasina port. Several interventions to support DRM were unsuccessful. Although the World Bank supported disclosure of a summary of all tax expenditures in the annual budget law, this did not contribute to a significant increase in reve- nue. Far from supporting the government in meeting its targeted reduction of about $24.8 million in tax exemptions, tax expenditures eliminated during the Public Finance Sustainability and Investment DPO series (2016–18) were less than $0.4 million, and in 2017, the government approved additional tax benefits for special economic, industrial, and agriculture zones. Additionally, the World Bank dropped the establishment of a single administrative identi- fication number to inform revenue mobilization because of lack of progress World Bank Support for Domestic Revenue Mobilization  Chapter 4 on the client side. Implementation was delayed due to difficulties in ap- pointing the entity in charge of managing the identifier during a politically unstable period (elections). Pakistan Over several years, both the IMF and the World Bank undertook significant diagnostic work to address persistently low DRM in Pakistan, which was characterized by distortive, inequitable, and tax base–reducing special reg- ulatory orders and exemptions. This was the main mechanism for granting exemptions. Pakistan’s revenue performance improved significantly under two DPOs. The First and Second Programmatic Fiscally Sustainable and Inclusive Growth Development Policy Credits (FY14–15 and FY15–16, respectively) aimed to “mobilize revenue while expanding fiscal space to priority social needs” 50 (World Bank 2020c, 1). Through a prior action to support a legal amendment to permanently eliminate the discretion of the Federal Board of Revenue in issuing special tax exemptions, overall tax collection reached 12.4 percent of GDP in FY15–16, a significant improvement over the target of 11.5 percent of GDP. The government was also able to curtail the Federal Bureau of Reve- nue’s use of special regulatory orders. IEG found that the Fiscally Sustainable and Inclusive Growth program contributed to a significant improvement in Pakistan’s revenue performance over the review period (World Bank 2020c). The Federal Bureau of Revenue no longer had the discretion to issue special tax exemptions, and proposing exemptions was now subject to parliamenta- ry approval. There was a significant reduction in tax concessions and ex- emptions, as well as improvements in tax compliance and enforcement, both of which caused the tax-to-GDP ratio to increase by nearly 2.5 percentage points over 2013–17. Building on this achievement, the Competitiveness and Growth DPF oper- ation (FY16–17) included prior actions to eliminate the discriminatory tax concessions granted through statutory regulatory orders, estimated at 1 per- cent of GDP. These prior actions were as follows: (i) the recipient has posted improved processes to simplify and streamline the payment of taxes on the website of the Federal Board of Revenue, and (ii) the recipient has started to implement a new audit policy that includes risk profiling of taxpayers for improved tax compliance. The Federal Board of Revenue did implement an audit policy that included risk profiling of taxpayers by initiating 40 compre- hensive audits of large taxpayers. Independent Evaluation Group World Bank Group    51 The Fiscally Sustainable and Inclusive Growth program contributed to a significant improvement in Pakistan’s revenue performance, but this gain was not sustained. The tax-to-GDP ratio increased by nearly 2.5 percentage points of GDP during 2013–17, exceeding the Fiscally Sustainable and Inclu- sive Growth program target because of a significant reduction in tax conces- sions and exemptions, increased rates on withholding taxes (income taxes), and improvements in tax compliance and enforcement. Progress in tax policy and administration was made at both the federal and provincial levels. After reaching its peak of 12.9 percent of GDP in FY17–18, tax collection de- teriorated to about 11.6 percent in FY18–19 because of a major reemergence of tax expenditures. Critical reforms stalled because of opposition from privileged interest groups, and Pakistan’s tax revenue remains substantially below 15 percent of GDP. Pakistan benefited from analytical work on tobacco taxation though the Global Tobacco Control Program, which recommended, among other things, to increase the excise rates annually by at least 30 percent for lower tier cig- arettes and by at least 15 percent for higher tier cigarettes to ensure a reduc- tion in cigarette consumption as well as growth in tobacco revenue. Rwanda A 2015 TADAT assessment in Rwanda identified a weak taxpayer database, inadequate risk management practices, weak VAT administration, and tax arrears. TADAT and Public Expenditure and Financial Accountability assess- ment results informed the Public Sector Governance Program-for-Results (FY15–18). The Program-for-Results supported activities related to the removal of nonfilers and nonpayers, and taxpayers registering under the correct VAT codes broadened Rwanda’s tax base and strengthened tax com- pliance. These efforts led to a 27 percent increase in the number of taxpayers between 2016 and 2019 (Rwanda Revenue Authority 2019). World Bank Support for Domestic Revenue Mobilization  Chapter 4 Program-for-Results support for the implementation of the electronic billing machine improved VAT revenues and tax compliance. According to the Rwanda Revenue Authority (2019), the number of electronic billing machines grew by 45 percent from 2016 to 2019. This helped modernize the tax system, which resulted in a continuous increase in tax revenues during the evaluation period, according to the Completion and Learning Review for Rwanda’s Country Partnership Strategy FY14–18. By the end of the project, all 30 districts in Rwanda had adopted the e-tax platform. Between 2016 and 2019, tax revenue increased by 29 percent. Similarly, local government taxes and fee collection increased by 27 percent. The time spent paying taxes was reduced significantly, from 109 hours in 2016 to 91 hours in 2019 (World Bank Group 2019). 52 1 See the 2023 Independent Evaluation Group Evaluation Insight Note on domestic revenue mobilization.  Independent Evaluation Group World Bank Group    53 5 | Findings and Recommendations The World Bank scaled up its support for domestic revenue mobi- lization (DRM) between 2016 and 2019, especially to International Development Association–eligible countries and in Sub-Saharan Africa. An increase in operations supporting tax policy reform was particularly pronounced in development policy operations (DPOs). Recently, the number of diagnostic tools on DRM has increased significantly. Each has potentially important value added in informing policy dialogue, operational design, and priority setting, but there is no clear framework to guide task team leaders in setting priorities for reforms and capacity-building support across tax issues. The availability of funding through the Global Tax Program has allowed the World Bank to increase its analytical support to client countries for DRM and improve the analytical foundations of DRM work more broadly. At the same time, it presents challenges in ensuring that this valuable analysis is sufficiently well integrated into operational work and priority setting. Ramping up DRM support has intensified pressure on limited reg- ular staff and an increasing cadre of consultants. Significant staff turnover and several shifts of responsibility for tax issues within the institution have exacerbated the pressures and made continuity more challenging. On the positive side, important improvements were made in collaboration with development partners. Green and health taxes took on greater prominence in the evaluation period, though from a low level. The work of the Global Tobacco Control Program has been particularly effective, making extensive use of collaboration across Global Practices and with external partners. Attention to the expected distributional implications of DRM inter- 54   ventions has increased in low-income countries, from a low level, but was less evident in operations in middle-income countries. Reporting of the ex post impact of tax reform was infrequent in Implementation Completion and Results Reports. Results from investment projects supporting DRM were generally favorable. The share of investment projects rated satisfactory was 41 percent, with 35 percent rated moderately satisfactory. DRM-related investment projects were more likely to have satisfac- tory outcome ratings than other World Bank investment projects. DPOs showed a marked improvement in achievement of DRM- related objectives, although the indicators used to measure impact were often inadequate. Targets for DRM-related results indicators in DPOs were largely achieved, but results indicators were often too high level or did not adequately capture the impact of prior actions or progress toward objectives. Case study analysis suggests that results from DPO-supported DRM policy reforms were often not sustained. Even for operations that recorded significant achievements at closing, progress was frequently reversed over time because of policy reversals. This was particularly the case for reductions in tax exemptions and tax expenditures. Staff self-evaluations at the project and operation levels yielded few DRM-related lessons, suggesting scope for greater attention to learning from experience with DRM-focused projects and operations. 55 This evaluation finds that the World Bank scaled up its support for DRM between 2016 and 2019, especially to IDA-eligible countries and in Sub-Saharan Africa. Support was greatest in countries with lower revenue-to-GDP ratios and in the South Asia Region. At the same time, the tax-to-GDP ratio for low- and middle-income countries continued its declining trend (even before COVID-19). The increase in support for DRM has put greater demands on limited regular World Bank staff and an increasing number of consultants—significant staff turnover and several shifts of responsibility for tax issues within the Bank Group over the past decade have exacerbated pressures and made continu- ity more challenging. The shifting responsibility for tax issues has compli- cated the World Bank’s ability to have a long-term, integrated strategy and vision and budgetary predictability for DRM. The creation of the Global Tax Program in 2018 has improved the predictability of funding, but the heavy reliance on consultants has exacerbated challenges for internal collaboration and continuity, with some exceptions such as work on tobacco taxation. World Bank interventions and priorities in support of DRM at the country level were generally well grounded in analytical work that identified major World Bank Support for Domestic Revenue Mobilization  Chapter 5 country-specific constraints to DRM. At the same time, the number of tax tools and diagnostics from within and outside the World Bank has increased significantly. These include TADAT, three new tool kits on international tax, tax treaty explorers, the Innovations in Tax Compliance Conceptual Framework, Commitment to Equity Assessment Diagnostic Framework tools, Tax DIAMOND, microsimulation models, tax analysis modules (tax policy assessment frameworks), tax gap models, and tax incentive analyses. Each one focuses on a distinct dimension of DRM and has potentially important value added in informing policy dialogue, operational design, and priority setting, but their proliferation puts pressure on the capacity of task team leaders (many of whom are not tax experts) to effectively identify and prioritize reforms and constraints with the greatest potential for impact at the country level. Although medium-term revenue strategies under the PCT have potential to generate an integrated perspective on country-specific needs and reform priorities, the PCT is not yet able to provide a framework to prioritize across tax objectives that can be easily drawn on to directly and 56 routinely inform priorities in CPFs, CPF updates, and the articulation of prior actions in DPOs. The World Bank has significantly scaled up awareness and advocacy for the use of health taxes as a source of revenue, to preserve human capital, and to reduce already heavily burdened health systems in developing economies. The health taxes program has made a significant contribution to analytical work and to raising awareness of the win-win potential of these taxes and reforms in a number of countries. Demand for health tax interventions has grown substantially from a very low base, and it is expected to continue growing rapidly. Green and health taxes took on greater prominence in the evaluation period, though from a low level, reflecting the evolution of the international policy agenda. Although evidence is limited, prior actions in this area have generally been successful in achieving targeted outcomes. Attention to the expected distributional implications of DRM interventions has increased from a low level in low-income countries but has not gained prominence in middle-income countries. Analytical work on the distribu- tional implications of tax policy increased relative to the previous three-year period, although there is still little work to do at the country level on the incidence of proposed tax reforms (that is, which groups are most likely to shoulder the effective burden of tax reforms). The World Bank has generally paid attention to the expected distributional impacts of DRM interventions but has paid less attention to ex post impacts. Operations have increased emphasis on tax policy reform. This was partic- Independent Evaluation Group World Bank Group    57 ularly pronounced in DPOs, where prior actions often supported changes in tax rates (VAT, corporate income tax, and personal income tax) or reductions in tax expenditures and exemptions. More than two-thirds of DRM-related DPO results indicators achieved their targets, but many of these indicators had weaknesses. Many DPOs ap- proved over the evaluation period have not yet been evaluated, but targets for DRM-related results indicators were generally met, though case study evidence shows that progress was often not sustained. Moreover, many of the results indicators intended to capture the impact of DRM-related prior actions showed several weaknesses, limiting their value in capturing actual impact. Higher-level indicators, such as revenue-to-GDP ratios, may be ap- propriate for longer-term country strategies and programs, but they are used excessively where more focused alternatives would be better to measure impact at the level of individual operations. The World Bank increased its use of prior actions in DPOs to support the re- duction of tax exemptions over the evaluation period. Approaches varied, with prior actions seeking to increase transparency regarding tax expenditures, eliminate exemptions, and strengthen accountability in granting exemptions. However, case study evidence suggests that tax policy reforms supported by DPOs were often reversed after disbursement, even for operations that record- ed significant achievements shortly after closing. Risks often materialized, even though the preparation of projects and operations regularly involved political economy analyses and project documents identified related risks (with varying degrees of specificity). Although informed risk taking should not be discouraged, this suggests the need for more concrete mitigating measures. For example, sequencing and complementarity of instruments supporting DRM need to be considered more strategically, and prior actions should be designed with an aim of making their reversal more difficult. For tax exemp- tions, changes in governance frameworks that made it more difficult to grant World Bank Support for Domestic Revenue Mobilization  Chapter 5 exemptions tended to be more resilient, whereas eliminating specific exemp- tions was often overridden over time under pressure from vested interests. How easily some World Bank–supported tax policy reforms can be reversed points to potential tension between the successive provision of budget support to clients that fail to make concrete and sustained progress on DRM. Specifically, the provision of budget financing can reduce how urgently clients approach DRM and the priority they assign to sustaining progress. This suggests that a failure to make and sustain progress on DRM should be considered more explicitly in deciding on the size and frequency of subse- quent budget support, at least outside the context of countercyclical support during a crisis. Staff self-evaluations of operations and projects yielded few DRM-related lessons, and those were insufficiently specific. Only 3 of 60 closed opera- tions and projects that focused on DRM had DRM-specific lessons. Moreover, when reported, the lessons were generic, suggesting minimal value added 58 in informing future interventions supporting DRM. This suggests scope for greater attention to learning from experience with DRM-focused projects and operations. Recommendations Given the fungibility of financing, the following recommendations recog- nize the enabling role that improved DRM plays in promoting a wide range of country-level development objectives across sectors, including health, education, climate adaptation, and infrastructure development and main- tenance. As such, efforts to improve DRM should be seen as contributing directly to ensuring the availability of more predictable financing for de- velopment priorities such as achievement of the SDGs and the twin goals. They should not be viewed in isolation. That said, support for DRM should also recognize that willingness to pay taxes is partly a function of the degree of confidence taxpayers have in their governments and of the quality and accessibility of the public services they provide. IEG’s recommendations are largely consistent with or build on the World Bank DRM Approach to Implement Green, Resilient, and Inclusive Devel- opment as presented to the Board in June 2021, in which World Bank man- agement pointed to the need to increase human and financial resources dedicated to DRM. In the presentation (World Bank 2021b), World Bank man- Independent Evaluation Group World Bank Group    59 agement expresses the intention to » Scale up country support to reshape fairer, equitable, and greener tax systems based on country priorities and demands; » Introduce DRM-related activities into World Bank operations, from the CPFs and Systematic Country Diagnostics to lending operations and technical assistance; and » Increase World Bank’s human and financial resources to timely respond to greater demands from countries for support to address current revenue chal- lenges, and to help them prepare for future challenges. This could involve mainstreaming DRM experts in regional Equitable Growth, Finance, and Institutions units. More resources may be warranted, but there is scope for the World Bank to make better use of the resources it currently has for supporting DRM. In this spirit, the following recommendations are made and are particularly relevant in the wake of the COVID-19 pandemic (which has exacerbated preexisting DRM challenges) and because many lower-income countries face mounting risks of debt distress. The following are the recommendations from this evaluation: 1. On a country-by-country basis, regularly take stock of the findings of the broad range of tax diagnostics tools and instruments to (i) identi- fy knowledge gaps and (ii) more systematically inform priority setting for country-level policy dialogue, capacity building, and operations to improve DRM. Rigorous analysis and diagnostics are needed to inform country-specific DRM strategy and operational priorities, particularly in IDA-eligible countries. The range of specialized DRM tools and diagnos- tics from within and outside the World Bank is wide and increasing. Each may serve a useful purpose, but their proliferation risks complicating the ability of task team leaders (many of whom are not tax experts) to distill and set DRM reform priorities for inclusion in country strategies World Bank Support for Domestic Revenue Mobilization  Chapter 5 and budget support operations. Therefore, there is a need for a periodic country-specific stocktaking of diagnostic findings to identify information gaps and set priorities for analytical and operational World Bank support to improve DRM. The outcome of this exercise should be timed and used to inform Country Partnership Frameworks, CPF updates, and the identifi- cation of prior actions in DPOs. 2. Given the potentially large and regressive fiscal impact of tax exemptions, the World Bank should regularly assess the effectiveness and efficiency of tax exemptions in achieving country-specific policy objectives, with an eye to more actively supporting the sustainable reduction of regressive tax exemptions through policy advice and prior actions in DPOs. World Bank staff should be equipped with and regularly make use of tools to assess the merits of the existing stock of tax exemptions and tax expenditures in individual countries—particularly those with low tax-to-GDP ratios— and the results should inform policy priorities in Country Partnership Frameworks, policy analysis, and prior actions in DPOs. 60 3. The frequency with which tax policy reforms are reversed calls for strengthening incentives to sustain reforms and make reversal more chal- lenging. As part of this effort, the World Bank should seek to support not only the publication of tax exemptions and expenditures but also ways to control the future proliferation of new tax expenditures and exemptions that undermine longer-term growth, equity, and accountability objectives. In efforts to reduce tax exemptions, and where feasible, prior actions should prioritize measures that improve the governance framework for granting exemptions. These efforts would also help alleviate the potential tension between the incentives for a country with a low tax-to-GDP ratio to improve DRM performance and the repeated provision of significant budget support by the World Bank. 4. Provide clearer guidance to staff on the choice of results indicators to measure the impact of DRM support, facilitate learning from experience, improve monitoring of progress toward DRM-related objectives, and promote an outcome orientation in the World Bank’s support for DRM. Given how often shortcomings were identified in results indicators intended to capture progress on DRM, the World Bank staff needs more concrete and targeted guidance on good practice in defining results indicators for tracking the impact of World Bank DRM interventions. Improving the quality of DRM results indicators will facilitate learning from experience and strengthen the outcome orientation of World Bank Independent Evaluation Group World Bank Group    61 support in this area. Bibliography AfDB (African Development Bank), ADB (Asian Development Bank), EBRD (Euro- pean Bank for Reconstruction and Development), EIB (European Investment Bank), IDB (Inter-American Development Bank), IMF (International Monetary Fund), and World Bank Group. 2015. “From Billions to Trillions: Transforming Development Finance Post-2015 Financing for Development: Multilateral De- velopment Finance.” Development Committee Discussion Note DC2015-0002, World Bank and IMF, Washington, DC. 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Washington, DC: World Bank. https://ieg.worldbankgroup.org/sites/default/files/Data/Evaluation/ files/Madagascar_CPE_v2.pdf. World Bank. 2023. Domestic Revenue Mobilization. Evaluation Insight Note. Indepen- dent Evaluation Group. Washington, DC: World Bank. World Bank Group. 2019. Doing Business 2019: Training for Reform. Washington, DC: Independent Evaluation Group World Bank Group    67 World Bank Group. World Bank Group. 2020. Doing Business 2020. Washington, DC: World Bank Group. APPENDIXES Independent Evaluation Group World Bank Support for Domestic Revenue Mobilization Appendix A. Evaluation Design and Methodology The evaluation covers the activities and interventions intended to enhance domestic revenue mobilization (DRM)—strategies, financing and knowledge products, and collaboration with the International Monetary Fund—of the International Bank for Reconstruction and Development and the Interna- tional Development Association (IDA). Findings and insights from earlier evaluations that cover DRM before 2016 were used as benchmarks in assess- ing the World Bank’s more recent performance. Evaluation Questions The evaluation focused on the following questions: 1. Relevance: How relevant were World Bank strategies, activities, and inter- ventions to enhancing DRM in World Bank client countries? Were World Bank interventions appropriate to individual country conditions? World Bank Support for Domestic Revenue Mobilization  Appendix A 2. Effectiveness: To what extent has the World Bank been effective in sup- porting client efforts to broaden tax bases, improve tax structures and eq- uity, and strengthen tax administration? In achieving results at the coun- try and intervention levels, what worked, what did not work, and why? 3. Complementarity: Were World Bank interventions to support client DRM complementary? Was complementarity with development partners pur- sued and achieved? The evaluation used a multilevel mixed methods approach. Seven case studies were selected as a purposive sample from World Bank client countries to reflect diverse levels of DRM and of World Bank engagement, and a mix of low- and middle-income countries, with particular emphasis on Sub-Saharan Africa. Design The evaluation design matrix (table A.1) shows how different methods apply 70 to different questions and different levels of analysis.  valuation Design Matrix Table A.1. E Evaluation Intervention Level/ Question Dimensions Total Portfolio Level Country Level Outcome Area Level Background » Literature review, portfolio » Characterization of typical and descriptive analysis, theory of change interventions and their analysis review, statistical analysis of design and use in country data and indicators of different country DRM, and tax administration contexts Relevance » Alignment of DRM » Review of key country » Review of documents interventions with strategies, diagnostics, and SSIs for typical SCD and CPF knowledge products, interventions » Client-driven, and SSIs with demand-driven stakeholders in approach in headquarters and country context during field missions » Policy coherence of » Template-based different DRM comparative analysis interventions and narrative synthesis across cases to strengthen external validity (continued) Independent Evaluation Group World Bank Group    71 72 World Bank Support for Domestic Revenue Mobilization  Appendix A Evaluation Intervention Level/ Question Dimensions Total Portfolio Level Country Level Outcome Area Level Effectiveness » Strategic CPF pillar » Review and comparative » Review of ICRRs, PPARs, » Develop causal performance analysis of project-level CLRRs pathways for selected » Project-level validations (ICRRs) » SSIs cases performance » PPAR evaluations of » Narrative synthesis of » Template-based SSIs » ASA influence on tax-centered operations comparative information and desk review government’s policy » SSIs across cases » Develop understanding and World Bank » Manual qualitative analysis, of effectiveness along strategy and projects which may be supplemented by the causal pathway » Collaboration and qualitative analysis of interview using triangulation within coordination on DRM data to compare and seek and across sources of issues with the IMF at patterns across cases data; enhance external the country and validity through » Statistical analysis, including DEA, intervention levels analytical generalization to calculate efficiency scores (finding commonalities on DRM across countries at the in causal factors among beginning and end of the typical cases and the evaluation period broader portfolio) » Regression analysis to correlate efficiency scores with structural and policy variables and a variable capturing World Bank engagement Source: Independent Evaluation Group. Note: ASA = advisory services and analytics; CLRR = Completion and Learning Review Review; CPF = Country Partnership Framework; DEA = data envelopment analysis; DRM = domestic revenue mobilization; ICRR = Implementation Completion and Results Report Review; IMF = International Monetary Fund; PPAR = Project Performance Assessment Report; SCD = Systematic Country Diagnostic; SSI = semistructured interview. Theory of Change The theory of change posits that the Word Bank–supported country strat- egies; lending, projects, investments, and knowledge services; and coor- dination and complementarity with development partners—especially the International Monetary Fund—are important to support client countries to improve DRM at the country and global levels. It is based on an examina- tion of past Independent Evaluation Group (IEG) evaluations related to tax issues, related literature on crisis preparedness, and interviews with World Bank (and development partner) staff to understand the World Bank’s ap- proach to DRM (figure A.1). Independent Evaluation Group World Bank Group    73 74 World Bank Support for Domestic Revenue Mobilization  Appendix A  heory of Change for Domestic Revenue Mobilization Figure A.1. T Inputs/Activities Outputs Intermediate Outcomes Outcomes Tax Improve and modernize tax systems, databases, and ID • Better use of staff and Revenues   resources Reduce the cost of compliance by improving control and • Improved coordination with Strengthened revenue other tax departments and audit and tax arrears recovery systems and   actors • •   Increase in compliance interagency Improve institutional structure and capacity coordination • Increase in government • Better taxpayer information   in database revenue collection Increase communication, tax education, and information campaigns and surveys • Identification of taxable • Broaden the tax base Tax entities Enhanced tax system Efficiency • Tax liability determination efficiency, tax bases, • Increase in taxpayer trust, Reduce tax exemptions Base-erosion and profit shifting regulations • Taxpayer education and equity compliance, and enforcement Simplify tax and eliminate distorting taxes New revenue, investment codes • Facilitation of voluntary • Improvements in tax •   Reduce stamp duties and nuisance taxes compliance •   transparency, accountability, • Representations in tax and equity disputes Improvements in Tax • New or revised tax extractive sector fiscal • Improvements in investment Equity Introduce equity in tax schedule brackets and position VAT exemption for beneficiaries of social transfers climate related to taxation classifications completed Royalties New entrants to the Manage- Tariff management, support to tariff rationalization • Improvements in tariff policy • Reduction in losses sector •   ment Adopt tariff and subsidy policy guidelines New investments from (for example, electricity) domestic or overseas investors Influencing actors: Ministry of Finance, tax administration, and firms and individuals Final outcomes/impacts—Links to twin goals Buoyant, efficient, and equitable revenues/fiscal sustainability Source: Independent Evaluation Group. Note: World Bank interventions interact with influencing actors at all stages of the results chain but are especially important in translating domestic revenue mobilization reforms and intermediate outcomes into final results. ID = identification; VAT = value-added tax. Portfolio Identification The identification of the DRM portfolio was done in two stages. The first stage identified a universe of projects that met specific criteria. The second stage involved a manual screening to rule out false positives and select only those with relevant DRM content. The project universe included projects approved or closed during the evaluation period, fiscal years 2016–19. The preevaluation period, fiscal years 2012–15, was used as a benchmark to assess the extent to which the World Bank scaled up its support for DRM activities in response to its international commitments, including at the Addis Ababa Third International Conference on Financing for Development. Lending Activities Projects were identified based on theme codes assigned by Operations Policy and Country Services:1 tax policy (114) and domestic revenue administration (412). For development policy operations, IEG used the Operations Policy and Country Services prior actions database to confirm the use of theme codes at the level of the operation. Development policy operations included in the portfolio were those that had at least one DRM-related prior action. The portfolio was then screened manually to rule out false positives. IEG manually reviewed project development objectives, project components, and prior actions. The confirmed portfolio was divided into one or both of the Independent Evaluation Group World Bank Group    75 two DRM themes. Nonlending Activities The identification of advisory services or analytics followed the following protocols: » Approved during benchmark period or evaluation period » Advisory services and analytics coded with at least one of the two theme codes: » 114: tax policy » 412: domestic revenue administration This process yielded a final portfolio of 161 International Bank for Recon- struction and Development (IBRD) and IDA projects and operations: 60 investment projects (including 14 trust-funded activities) and 101 devel- opment policy operations with at least one DRM-related prior action. IEG identified 322 advisory services and analytics activities (tables A.2 and A.3).  ource and Volume of World Bank Support to Domestic Table A.2. S Revenue Mobilization, FY16–19 Commitments Active Portfolio Approved during at the Start of the Total Evaluation Period Evaluation Period Projects Commitment Projects Commitment Projects Commitment (no.) (US$, millions) (no.) (US$, millions) (no.) (US$, millions) IPF 31 1,488 15 616.4 46 2,104 DPF 84 n.a. 17 n.a. 101 n.a. Trust 9 68.5 5 47.7 14 116 funds ASA 322 88 n.a. n.a. 322 88 Source: Independent Evaluation Group staff estimate from the World Bank Business Intelligence data- World Bank Support for Domestic Revenue Mobilization  Appendix A base, May 2021. Note: ASA = advisory services and analytics; DPF = development policy financing; FY = fiscal year; IPF = investment project financing; n.a. = not applicable. 76 BRD/IDA and Trust-Funded Projects and Operations with Table A.3. I a Focus on Domestic Revenue Mobilization Tax Policy and Administration, FY16–19 Projects and Theme ASA Activities Theme Code Operations Overall universe total 207 322 114 Tax policy 24 162 412 Domestic revenue administration 47 40 114 and 412 Both 70 120 Non-DRMa Projects not tagged to DRM 20 0 themes Final portfolio 161 322 Source: World Bank Business Intelligence database, April 1, 2021. Note: ASA = advisory services and analytics; DRM = domestic revenue mobilization; FY = fiscal year; IBRD = International Bank for Reconstruction and Development; IDA = International Development Association. a. "Non-DRM" refers to projects that were not tagged to either theme code (114 or 412) but were identi- fied to contain DRM-relevant content. A few such projects were identified during the case studies. Random checks were performed for inclusion and exclusion errors, which resulted in the adjustment of the portfolio by only a few interventions. Semistructured Interviews IEG conducted more than 180 semistructured interviews with World Bank Independent Evaluation Group World Bank Group    77 staff at the corporate level (headquarters) and country office level; devel- opment partners, especially International Monetary Fund staff; and country stakeholders. In-depth interviews were conducted for country case study countries. Meeting notes from interviews were consolidated and analyzed within and across stakeholder groups, triangulating findings and identifying patterns. Case Study Selection IEG ranked countries using relevant indicators for the benchmark period (2012–15). Countries were ranked from highest to lowest in terms of average government revenue as a percentage of GDP. IEG identified countries with both investment project financing and development policy financing projects and operations with at least one DRM component or DRM-related theme. Using these criteria, IEG selected the following seven countries, which represent low-, medium-, and high-income countries: » Madagascar (low revenue to GDP, at 10 percent) » Guatemala (low revenue to GDP, at 11 percent) » Pakistan (low revenue to GDP, at 14 percent) » Chad (medium revenue to GDP, at 19 percent) » Kenya (medium revenue to GDP, at 19 percent) » Rwanda (high revenue to GDP, at 23 percent) » Colombia (high revenue to GDP, at 29 percent) The assessment of interventions followed the following steps: 1. Review the country portfolio to ensure that it included at least one typical intervention for IDA or the IBRD. 2. If “yes,” identify a specific tax administration and advisory project to study World Bank Support for Domestic Revenue Mobilization  Appendix A at the intervention level based on the project’s relative importance to the country’s DRM engagement. 3. If “no,” one or more selected country cases do not have a typical IBRD or IDA intervention, choose a typical intervention from that country’s DRM portfolio. The evaluation team drew on existing evaluative evidence for these projects (Implementation Completion and Results Report Reviews, Project Performance Assessment Reports). Studies also featured at least one in-depth review of interventions per country. This assessment provided a more granular view of what worked and did not work. Case study interviews and consultations were conducted remotely because of the COVID-19 pandemic. With the support of World Bank task teams, IEG identified relevant government officials and development partners for interviews. Despite important challenges, IEG adjusted to the new remote 78 environment and delivered all the planned building blocks of the evaluation and the resulting draft report. Data Envelopment and Regression Analysis The evaluation also included a nonparametric data envelopment analysis to calculate efficiency scores—gaps between the actual and potential levels of government revenues across countries for which data are available—as com- parative and benchmarking evidence on DRM across countries (see Khwaja and Iyer 2014 and appendix C). This formed a basis for quantitative insights into the congruence and correlations between World Bank DRM engage- ments and efficiency of revenue collection across countries. Reference Khwaja, M. S., and I. Iyer. 2014. “Revenue Potential, Tax Space, and Tax Gap.” Policy Research Working Paper 6868, World Bank, Washington, DC. Independent Evaluation Group World Bank Group    79 1 The World Bank’s theme coding system serves as the foundation for the analysis of and reporting on World Bank interventions. The World Bank’s lending and nonlending support is assigned at least one theme code reflecting its purpose. A project can be assigned up to five theme codes. For lending, each theme code is assigned a percentage indicating the relative importance of the theme to the intervention. Themes can add up to more than 100 percent, reflecting the fact that a single intervention can relate to more than one theme. World Bank Support for Domestic Revenue Mobilization  Appendix A 80 Appendix B. Lessons on Tax Reform from Previous Independent Evaluation Group Evaluations The Independent Evaluation Group has assessed World Bank support for tax reform on several occasions. This appendix summarizes some of the past findings and lessons. The Independent Evaluation Group published a Learning Note in 2017 that reviewed World Bank support to tax policy and administration reform over the period of fiscal years 2005–15. The review covered 98 World Bank operations, of which 80 were development policy operations and 18 were investment projects. Seventeen International Finance Corporation advisory services on business taxation were also included. Key Findings Focus of Operations Most World Bank interventions focused on tax collection, with only a few Independent Evaluation Group World Bank Group    81 directly addressing tax efficiency (12.5 percent). Only two operations specifically sought to improve the tax system’s progressivity. Relevance and Quality of Design Operations were well informed by analytical and diagnostic work, often drawing on the work of other institutions. The Independent Evaluation Group rated domestic revenue mobilization–related relevance of objectives substantial or higher, while relevance of design tended to be rated lower. There was room to improve monitoring of the outcomes of operations relat- ed to domestic revenue mobilization, with excessive use of the ratio of tax to GDP, an indicator that was often too broad to capture the impact of spe- cific World Bank interventions. Only one operation included a measure of the direct effect of tax administration improvements on revenue collection. Effectiveness Tax administration measures were generally more successful at achieving their objectives than measures that supported tax policy or sought to im- prove tax system efficiency or equity. Government support for domestic revenue mobilization reform frequently fluctuated during the life of an operation, with implications for front loading and sequencing reform. Key Lessons Government ownership is particularly important for politically sensitive tax reforms. Because correcting structural issues requires long-term engagement, World Bank Support for Domestic Revenue Mobilization  Appendix B short-term interventions and stand-alone development policy operations are generally inadequate on their own to support tax reform. 82 Appendix C. Cross-Country Analysis of Domestic Revenue Mobilization Efficiency This appendix describes cross-country analysis to estimate countries’ do- mestic revenue mobilization (DRM) efficiency and assess the targeting of World Bank engagement in DRM across groups of countries. A nonparamet- ric data envelopment analysis (DEA) was performed to rate each country’s untapped potential in generating government revenue relative to its eco- nomic structure and constraints.1 The DEA accounts for differences in eco- nomic fundamentals across countries that the literature has found influence revenue potential. Summary of Main Findings 1. World Bank engagement in DRM appears stronger in countries with weak revenue mobilization outcomes (low ratios of revenue to GDP). This holds for both projects and operations and for advisory services and analytics. 2. World Bank engagement in DRM is not influenced significantly by revenue Independent Evaluation Group World Bank Group    83 efficiency. Many countries with large, untapped revenue potential (low revenue efficiency) have little or no World Bank engagement in DRM. 3. The analysis suggests that overall, World Bank engagement in DRM tend- ed to focus on those countries with the greatest need for intervention in DRM in the period 2016–19. Magnitudes of World Bank engagement in DRM do not seem to be strongly related to client natural resource endow- ments, tax policy, informal sector activity, or measures of social trust. Data and Methodology The analysis focuses on revenue mobilization outcomes in World Bank client countries in the evaluation period 2016–19.2 The sample includes 118 countries, comprising 25 low-income countries, 45 lower-middle-income countries, and 48 upper-middle-income countries. Part of the analysis includes high-income countries as a benchmark group and data for the years 2008 to 2015 to identify time trends preceding the evaluation period. To limit the role of temporary fluctuations, most of the analysis is based on four-year averages covering the periods 2008–11, 2012–15, and 2016–19. The frontier is defined as the maximum possible level of revenue for a given level of input. Countries’ level of efficiency in mobilizing domestic revenues is then measured according to the distance (efficiency gap) to the estimated frontier. This provides an estimate of the revenue each country should be able to achieve based on what other countries with similar economic char- acteristics are achieving. Countries that generate more revenue (as a per- centage of GDP) with the same economic characteristics (or countries that generate the same level of revenue with less favorable economic characteris- tics) are considered more efficient than others. Revenue-to-GDP ratios tend to be lower in countries with lower income levels. The efficiency scores obtained are normalized to range between 0 and 1, where units located on the frontier are assigned the maximum value of 1. Scores close to 1 thus indicate that a country is achieving relatively high lev- World Bank Support for Domestic Revenue Mobilization  Appendix C els of revenue, given its economic conditions—that is, the country is efficient in generating revenue. Efficiency scores well below 1 indicate inefficiency or untapped potential. Four economic variables are commonly identified as important determi- nants in this context: (i) per capita income levels, (ii) sectoral composition of output, (iii) international trade relative to GDP, and (iv) demographic com- position as captured by the age dependency ratio. We aggregate these four main factors into a single composite measure, the DEA input index, which is a proxy of the economic structure that determines a country’s revenue po- tential. To study the empirical relationship between World Bank engagement and estimated efficiency in DRM, we use the obtained DEA scores as the dependent variable in a panel regression, with the regressors listed in table C.1 (panel D). 84  ist of Variables and Data Sources Table C.1. L Indicator Description Source Panel A: Revenues (DEA output) Revenue Government revenue, excluding ICTD/UNU-WIDER, grants (% of GDP) Government Revenue Dataset Panel B: Economic fundamentals (DEA input index) Per capita income GDP per capita, PPP (constant 2017 World Bank, international dollars) World Development Indicators Share of Agriculture, forestry, and fishing; value World Bank, agriculture in GDP added (% of GDP) World Development Indicators Trade Trade (% of GDP): sum of exports and World Bank openness imports of goods and services measured as a share of GDP Age dependency Age dependency ratio (% of World Bank ratio working-age population): ratio of dependents (people younger than 15 or older than 64) to the working-age population (those aged 15–64) Panel C: World Bank engagement World Bank World Bank’s own commitment World Bank (public and engagement (% of GDP): total amount commit- internal data) as reported ted for projects related to domestic in Bogetić, Naeher, and revenue mobilization by approval Narayanan (forthcoming) fiscal year as a share of the recipient country’s GDP (scaled by factor 1,000 Independent Evaluation Group World Bank Group    85 for better readability) Panel D: Other factors (regressors) Tax policy Score on CPIA indicator “efficiency World Bank, CPIA database of revenue mobilization” (values from 1 = low to 6 = high) Control of Score on “control of corruption” Worldwide Governance corruption indicator (values from −2.5 = weak Indicators database to +2.5 = good governance Informal sector Informal employment (% of total International Labour nonagricultural employment); Organization Department harmonized series of Statistics (continued) Indicator Description Source Technological Score on GCR 2016–17 indicator “ninth World Economic Forum, readiness pillar: technological readiness, index” GCR (values from 1 = low to 7 = high) Trust Percentage of respondents stating, World Values Survey “Generally speaking, most people can be trusted”; survey waves mapped to four-year periods as follows: survey 2005–09 (period 1), survey 2010–14 (period 2), survey 2017–19 (period 3) Natural Total natural resources rents (% of World Bank, World resources GDP): sum of oil rents, natural gas Development Indicators rents, coal rents, mineral rents, and database forest rents Source: Bogetić, Naeher, and Narayanan, forthcoming. Note: CPIA = Country Policy and Institutional Assessment; DEA = data envelopment analysis; GCR = Global Competitiveness Report; GDP = gross domestic product; ICTD = International Centre for Tax and Development; PPP = public-private partnership; UNU-WIDER = United Nations University World Institute for Development Economics Research. Results World Bank Support for Domestic Revenue Mobilization  Appendix C When DEA is applied to account for differences in countries’ fundamental economic structure, the results show that many low-income countries—de- spite featuring lower revenue-to-GDP ratios—are more efficient in generat- ing revenues than countries from higher income groups. The analysis finds that these ratios are not an adequate indicator of the efficiency of govern- ment revenue mobilization, given the economic structure and associated capacity to raise revenues. At the same time, the results show that countries with large, untapped po- tential for increasing government revenues are not concentrated in a par- ticular income group or geographical region—all income groups and regions cover wide ranges of DEA scores. Efficient government revenue mobilization appears to be a challenge across income groups (including across countries with different revenue-to-GDP ratios). 86 Bibliography Bogetić, Ž., D. Naeher, and R. Narayanan. Forthcoming. “Measuring Untapped Revenue Potential in Developing Countries: Cross-Country Frontier and Data Envelopment Analysis.” Journal of Public Finance and Public Choice. Herrera, S., and G. Pang. 2005. “Efficiency of Public Spending in Developing Coun- tries: An Efficiency Frontier Approach.” Policy Research Working Paper 3645, World Bank, Washington, DC. Khwaja, M. S., and I. Iyer. 2014. “Revenue Potential, Tax Space, and Tax Gap.” Policy Research Working Paper 6868, World Bank, Washington, DC. Independent Evaluation Group World Bank Group    87 1  Data envelopment analysis is a nonparametric method for estimating production possibility frontiers based on linear programming, which is used to rate countries’ performance relative to that of other countries facing similar conditions. Some methodological background is pro- vided in Bogetić, Naeher, and Narayanan (forthcoming). 2  For a more detailed presentation of the underlying methodology and results, see the back- ground paper prepared by Bogetić, Naeher, and Narayanan (forthcoming). World Bank Support for Domestic Revenue Mobilization  Appendix C 88 The World Bank 1818 H Street NW Washington, DC 20433