Other Public Sector Study
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Publication
Using New Data to Support Tax Treaty Negotiation
(World Bank, Washington, DC, 2021-07-12)This paper introduces the new Tax Treaties Explorer dataset, developed with support from the World Bank and the G-24, and illustrates its use for research by tax treaty negotiators, policy makers, and researchers. The new dataset provides a rich source of data to reexamine existing tax treaty policy, inform negotiation positions, and assess treaty networks. For the first time, it provides a tool to analyze trends in the content of tax treaties, across individual agreements, over time, and between countries. To illustrate the value of such an approach, we replicate a study by Barthel, Busse, and Neumayer (2009), which found a positive association between the presence of a tax treaty and the bilateral stock of FDI. We show that this effect is mainly driven by the withholding tax rates in the treaty rather than by other provisions affecting taxing rights such as permanent establishment. If the outcomes of this proof-of-concept replication are borne out in future research, this would suggest that negotiators can seek the maximum protection of source taxing rights in other parts of the treaty, knowing that this is unlikely to dilute investment-promoting impacts. -
Publication
The Welfare and Distributional Effects of Increasing Taxes on Tobacco in Vietnam
(World Bank, Washington, DC, 2019-06)This paper assesses the welfare and distributional effects of raising taxes on tobaccoin Vietnam. Tobacco taxes are recognized as effective policy tools to reduce tobaccoconsumption and to improve health outcomes. However, policy makers often hesitateto use them because of claims of their potentially regressive effects. According to thoseclaims, poorer households are particularly hurt by tobacco tax policies, as cigarettepurchases represent a larger share of their budgets relative to higher-income smokers.The paper argues that the claims on the regressive effects of tobacco tax policies arebased on naive, shortsighted, and incorrect estimations. Tobacco-related illnessesdamage health outcomes and the quality of the lives of smokers and their families, whilethey also cost billions of dollars in medical expenditures and losses in human capital andproductivity every year. Tobacco consumption imposes heavy economic burdens onhouseholds and governments, in addition to its well-known negative health and socialimpacts. Raising taxes on cigarettes dissuades consumption, hence improving healthoutcomes, adverting premature deaths, and reducing direct and indirect economic costs.The analysis applies the Extended Cost Benefit Analysis (ECBA) methodology to simulateempirically the costs, as well as the benefits of increasing the prices on cigarettes onthe welfare of Vietnamese households. Following a well-established body of literature,the ECBA acknowledges that there may be short-term direct negative effects of raisingprices on tobacco, as smokers can struggle to continue to purchase tobacco with theirunchanged household budgets. However, the model also incorporates two of the mainbenefits of reducing tobacco consumption by increasing taxes: (a) the reduction insmoking-related medical expenses borne by households and (b) the additional incomesthat households can earn by preventing years of productive life lost due to smoking attributablepremature deaths. A critical contribution of the ECBA is to incorporate decile-specific price elasticities of demand for cigarettes, to quantify the behavioral responses or sensitivity of smokers in different income groups to changes in cigarette prices. To the knowledge of the authors, this is the first available empirical exercise to estimate price elasticities by income decile in Vietnam. Consistent with the literature and with empirical findings in other countries, the price elasticities of demand for cigarettes are larger for lower-income households. Lower income smokers are likely to reduce their tobacco consumption more drastically, when faced with a price increase. The ultimate distributional effect on welfare of the increasein the price of cigarettes due to tax increases will then depend on assessing the potentialbenefits against the short-term costs. -
Publication
Reducing Tobacco Use Through Taxation in the Russian Federation: A Modelled Assessment of Two Policy Options
(World Bank, Washington, DC, 2018-10-01)This report presents results of the modelling exercise in terms of excise tax increases for the period 2018–2021, including average excise tax and revenue mobilization options; it also compares the tobacco excise tax already included in the country's current tax code with that necessary to achieve proposed EU minimum rates by 2021 (Minimum EU excise tax rates scenario). -
Publication
The Distributional of Impacts of Cigarette Taxation in Bangladesh
(World Bank, Washington, DC, 2018-06-01)Despite the obvious positive health impacts of tobacco taxation, an argument raised against it is that poor households bear the burden of the increased prices because of their higher share of spending on tobacco. This report includes estimates of the distributional impacts of price rises on cigarettes under various scenarios using the Household Income and Expenditure Survey (HIES) 2016/17. One contribution of this analysis is to quantify the impacts by allowing price elasticities to vary across consumption deciles. This shows that an increase in the price of cigarettes in Bangladesh has small consumption impacts and does not significantly change the poverty rate or consumption inequality. These findings stem from relatively even cigarette consumption patterns between less and more welloff households. These results hold even if one considers some small substitution through the use of bidis, which are largely consumed by the poor. The short-term consumption impacts are also negligible compared with the estimated gains because of savings in medical costs and the greater number of productive years of life. -
Publication
Ethiopia: Modelling the Impact of Tobacco Tax Policy Reforms on Tobacco Use and Domestic Resources Mobilization Under Different Scenarios
(World Bank, Washington, DC, 2018-01-23)As part of the ongoing tax policy dialogue with the Government of Ethiopia, the World BankGroup organized a workshop in Addis Ababa, on June 20, 2016, to discuss tobacco use, its healthimpact, and excise taxes on tobacco as a public policy measure to reduce tobacco use, and hencethe risk of ill health, premature mortality, and disability due to tobacco-related diseases, andmobilize additional domestic resources to expand the fiscal capacity of the government, inaccordance with the Financing for Development Addis Ababa Action Agenda. This event wasattended by officials from the Ministry of Health (MOH) and Ministry of Finance & EconomicCooperation (MoFEC). Ethiopia's Health Sector Transformation Plan 2015-2020 lists noncommunicable diseases (NCDs) as one of the major public health challenges facing the country. As in the rest of sub-Saharan Africa, NCDs are expected to become the leading cause of ill health and death by 2030, influenced by rapid urbanization, rapid per capita economic growth, increase in behavioral risk factors (most NCDs are the result of tobacco use, physical inactivity, unhealthy diet, and/or the harmful use of alcohol), and improvements in the control of infectious diseases that increase life expectancy. As NCDs have become a major health burden in the country, the Government has put in place ambitious targets to reduce the prevalence of the main health risk factors associated with the onset of NCDs among the population. The strategy focuses on increasing prevention and control of the main risk factors: tobacco use and alcohol abuse, physical inactivity and unhealthy diet, which contribute to about 80 percent of NCDs. -
Publication
Assessment of Tax Compliance Costs for Businesses in the Kyrgyz Republic
(World Bank, Bishkek, 2017-12)The International Finance Corporation (IFC), a member of the World Bank Group, is the largest global development institute focused on supporting the private sector in emerging economies. Through its work with more than 2,000 companies worldwide, IFC mobilizes capital, expertise, and influence to create markets and opportunities for developing countries. The objective of the IFC Central Asia Tax Project is to improve compliance with mandatory requirements of tax legislation through increased transparency and simplification of tax administration procedures. Simplification of tax accounting procedures will reduce costs of tax compliance, lessen the administrative burden on small and medium businesses, reduce barriers to entry into the formal economy, and serve as a driver for economic growth in the Kyrgyz Republic. The key element of reforms is an immediate assessment of their efficiency and possibility for adjustments based on assessment results. With this view, IFC, through its technical assistance tax reforms projects, has conducted a series of studies, which help monitor the tax system reforming processes in the Kyrgyz Republic. The main goal of the studies was a periodic assessment of time and costs to taxpayers in the Kyrgyz Republic in complying with the mandatory requirements of the tax legislation. Equitable intervals of measurements allowed an immediate assessment of the impact of implemented tax reforms on the cost of taxpayers to comply with tax legislation. In addition, actual data on the tax system status helped elaborate concise recommendations for the Government with the focus on elimination of identified issues and reduction of the tax administration costs to businesses. This report outlines the results of all three rounds of business environment surveys in the area of tax regulation; it includes the estimates of tax accounting costs of taxpayers in the Kyrgyz Republic in 2012, 2014, and 2016. -
Publication
Assessment of Tax Compliance Costs for Businesses in the Republic of Tajikistan
(Washington, DC, 2017-12)The principal outcome of the tax reform implemented in recent years in the Republic of Tajikistan is the reduction of administrative burden on the private sector associated with compliance with tax legislation through simplified tax procedures and less time required to pass these procedures. The International Finance Corporation (IFC), a member of the World Bank Group, is the largest global development institute, which is focused on support to the private sector in emerging economies. The objective of the IFC Central Asia Tax Project is to improve compliance with mandatory requirements of tax legislation through better transparency and simplification of tax administration procedures. IFC through its technical assistance tax reforms projects, has conducted a series of studies, which allow to monitor the tax system reforming processes in Tajikistan. The main goal of the studies was a periodic assessment of time and costs of taxpayers in Tajikistan to comply with the mandatory requirements of the tax legislation. As part of the study, three rounds of measurements were performed, where the tax administration costs of the Tajik taxpayers were assessed at a regular time span - in 2012, 2014, and 2016. This report presents the results of all three rounds of business environment surveys in the area of tax regulation. It includes the estimates of tax accounting costs of taxpayers in Tajikistan in 2012, 2014, and 2016. -
Publication
Kazakhstan: Enhancing the Fiscal Framework to Support Economic Transformation
(World Bank, Washington, DC, 2017-11-27)Kazakhstan benefited from the oil boom of 2000–14 that led to income growth and poverty reduction and helped build a fiscal cushion to stabilize the economy during downturns. During this period, nominal GDP per capita increased ten-fold, from US$1,229 in 2000 to US$12,807 in 2014, mainly due to price effects from currency appreciation that followed an expansion of the oil sector. Income growth led to a substantial decline in the poverty rate, from 77 percent in 2001 to 16 percent in 2014. As oil output more than doubled and the oil price super-cycle emerged, the Government of Kazakhstan (GoK) accumulated substantial fiscal savings in its oil fund, the National Fund of the Republic of Kazakhstan (NFRK).2 Fiscal savings in the NFRK peaked at US$73 billion (33 percent of GDP) at end-2014. A portion of these funds was used for anti-crisis programs in 2007-10, during which time the fiscal stimulus program totaled US$18 billion (about 15 percent of GDP). The authorities must urgently adopt and start implementing a fiscal consolidation strategy and refocus macro-fiscal policy on promoting diversified growth and high-quality job creation. The countercyclical fiscal stance adopted in 2014 led to an increase in the nonoil fiscal deficit (NOD), which is too high to ensure medium-term fiscal sustainability and threatens the long-term growth potential of the nonoil tradable economy. Successful fiscal consolidation would require: (i) reducing inefficient expenditure that distorts private incentives while redirecting savings toward productivity-enhancing spending; and (ii) eliminating inefficient tax benefits that result in an uneven playing field for investment. While pursuing a fiscal consolidation effort over the medium term, there are potential benefits to reviewing Kazakhstan’s fiscal policy framework and institutions with the goal of strengthening their coherence, credibility, and flexibility. This Public Finance Review (PFR) aims to help the authorities identify areas for fiscal consolidation that will bring about fiscal sustainability in the medium term and support economic transformation in the long run. While developing a fiscal consolidation strategy, the authorities should address four policy areas to enhance fiscal sustainability and support economic transformation. These are discussed in the following four policy focus chapters: (i) enhancing the credibility of the fiscal policy framework; (ii) improving public spending efficiency and effectiveness; (iii) mobilizing nonoil revenue and optimizing the tax system; and (iv) strengthening fiscal policy institutions. -
Publication
Formal Informality: Informal Practices of Formal Firms as a Key Business Constraint
(World Bank, Washington, DC, 2017-10)Despite strong economic growth in recent decades led by the resource-based sectors, Lao PDR facessignificant challenges, including high poverty rates and limited productivity. A highly challenging business and investment environment continues to hamper stronger private sector-led growth, especially outside the natural resource sectors, where job creation could be larger. In the still largely unreformed business and trade environment, the World Bank’s 2016 Enterprise Survey identified "practices of firms in the informal sector" as the biggest problem reported by firms in the country, and addressing these and other challenges fundamentally will be critical to generate inclusive growth. Based on interviews with business owners and top managers, this note finds that there are four main types of problematic informality in Lao PDR’s business environment: inadequately registered enterprises that "fly under the radar"; widespread tax evasion; irregular adherence to complex and burdensome regulations; and a culture of noncompliance with basic rules and standards. Fully registered and formalized firms incur higher costs and feel unfairly targeted by authorities who are eager to collect revenue and fulfil their mandates. Unregistered or rule-evading competitors are alleged to escape the same level of scrutiny, due to the difficulty of enforcement and prevalence of petty corruption. Tackling problematic informality in the business environment will require stronger institutions and a continued government focus on eliminating petty corruption. In the near-term, this note recommends eliminating unnecessary regulations and streamlining others by leveraging public support for transparency and consistency in the tax and regulatory systems. This should be complemented by a functional, efficient one stop window for enterprise registration to encourage formalization. Putting these recommendations into practice will require improved monitoring, evaluation, and assessment practices based on reliable and timely common data. -
Publication
Regressive or Progressive?: The Effect of Tobacco Taxes in Ukraine
(World Bank, Washington, DC, 2017-09-27)Tobacco taxes are usually considered regressive as the poorest individuals allocate larger shares of their budget towards the purchase of tobacco related products. However, because these taxes also discourage tobacco use, some of the most adverse effects and their economic costs are reduced, including lower life expectancy at birth, higher medical expenses, increased years of disability among smokers, and the effects of secondhand smoke. This paper projects the effects of an increase in the tobacco tax on household welfare in Ukraine. It considers three price-elasticity scenarios among income deciles of the population. Results show that although tobacco taxes are often criticized for being regressive in the short-run, a more comprehensive scenario that includes medical expenses and working years, the benefits of tobacco taxes far exceed the increase in tax liability, benefitting in large measure lower income households. Our results also indicate that lower health expenditure seems to be the main driver because of the reduction in tobacco-related diseases that require expensive treatments. Tobacco taxes are also associated with positive distributional effects related to the higher long-term price elasticities of tobacco consumption.