FORUM ECONOMIC MINISTERS MEETING
AND
FORUM ECONOMIC OFFICIALS MEETING
25-27 April 2018
Koror, Palau
STANDING AGENDA ITEM: Improving Public Finance Management In The Pacific |
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Summary of Issue | |
This paper which has been prepared by PFTAC provides (i) an update since the 2017 FEMM, on public expenditure and financial accountability (PEFA) assessments and public finance management (PFM) roadmaps in Pacific Island countries (PICs) and PFM reforms more generally; and (ii) an update on revenue administration. | |
Since the last update provided at the 2017 FEMM, PEFA self-assessments have been undertaken in Kiribati and Tokelau. PFTAC assistance in facilitating self-assessments places an emphasis on local staff involvement which allows for greater country ownership of the process and understanding of the results. PFTAC provides an initial orientation on the PEFA framework and rating methodology, and then validates the appropriateness of the ratings determined by local officials based on the evidence presented. Self-assessment demonstrates that PIC officials are capable of fairly applying the PEFA rating criteria on the PFM processes in their countries. Forty-three PEFA type exercises have been undertaken from 2005 to 2017 (see Table 1).
Table 1 – Summary of PEFA Exercises in the Pacific Context 2005 to 2017
Country | First | Recent | Total | Final | Self Asses | Draft |
Cook Islands | 2011 | 2015 | 3 | 2 | 1 | 0 |
Fiji | 2005 | 2013 | 3 | 1 | 1 | 1 |
Kiribati | 2009 | 2017 | 2 | 0 | 1 | 1 |
Marshall Islands | 2012 | 2012 | 2 | 1 | 1 | 0 |
Micronesia | 2013 | 2016 | 2 | 1 | 1 | 0 |
Nauru | 2010 | 2016 | 2 | 1 | 1 | 0 |
Niue | 2011 | 2011 | 1 | 1 | 0 | 0 |
Palau | 2013 | 2013 | 1 | 0 | 1 | 0 |
Papua New Guinea | 2005 | 2015 | 5 | 3 | 1 | 1 |
Samoa | 2006 | 2014 | 5 | 3 | 2 | 0 |
Solomon Islands | 2008 | 2012 | 3 | 2 | 1 | 0 |
Timor Leste | 2007 | 2014 | 3 | 3 | 0 | 0 |
Tokelau | 2017 | 2017 | 1 | 0 | 1 | 0 |
Tonga | 2007 | 2014 | 3 | 2 | 1 | 0 |
Tuvalu | 2007 | 2015 | 3 | 2 | 1 | 0 |
Vanuatu | 2006 | 2015 | 4 | 3 | 1 | 0 |
Total | 2005 | 2017 | 43 | 25 | 15 | 3 |
Table 2 – Summary of Roadmaps by Country
Country | Comment |
Cook Islands | Public Financial Roadmap 2016-2020 issued by Government in November 2016. Major focus is on implementation of a new FMIS across Government. |
Fiji | Public Financial Management Improvement Program 2016 – 2019 was endorsed by the Government and focuses on improving compliance, expenditure management, strengthening procurement, debt management, and internal audit. |
Kiribati | Support for the Development of a Public Financial Management Plan (PFMP) for Kiribati. A preliminary draft was issued in March 2011. The initial draft was focused on several strategic objectives. |
Marshall Islands | The last draft of the Public Financial Reform Roadmap 2013 to 2015 was prepared in April 2013. The plan contains a significant number of activities to be undertaken over the medium term. |
Micronesia | First draft of the Public Financial Management Roadmap 2017-2020 developed. |
Nauru | No Roadmap drafted. |
Niue | No Roadmap drafted. |
Palau | No Roadmap drafted. |
Papua New Guinea | Public Expenditure and Financial Accountability Roadmap 2015-2018 endorsed by Government in July 2015 that focused on improving on accounting processes and the rollout of the Integrated Financial Management System (IFMS) |
Samoa | Public Finance Management Reform Plan (2015-2017) endorsed by Government in August 2014 that focused on legal and regulatory institutional arrangements, management systems framework, and capacity considerations. |
Solomon Islands | Public Financial Management Reform Roadmap July 2014 to June 2017 endorsed by Government in June 2014. Focused on strengthening institutions, improving service delivery and expenditure quality, and advocating the importance of good PFM. |
Timor Leste | Budgeting for a sustainable future: Towards a Roadmap of Budgetary Governance Reform in Timor-Leste endorsed by Government in 2017. Focused on modernising the budget process. |
Tokelau | No Roadmap drafted |
Tonga | Tonga’s Public Financial Reform Roadmap 2014/2015 to 2018/2019, endorsed by Government in October 2014. Covering a variety of PFM activities. |
Tuvalu | Public Financial Management Reform Roadmap 2017 to 2021 endorsed by Government in July 2017. Focused on consolidating reforms to core PFM functions. |
Vanuatu | Public Financial Management Reform Roadmap 2017-2020 is in draft, but focusing on a sustained fiscal strategy with reduced exposure to fiscal risks ad improved transparency. |
Policy-focused Budget Preparation with a medium-term time frame
Budget Execution, including internal audit
Accounting and Reporting
Box 1. PFTAC – TA Delivered/Planned in Fiscal Year 2018 (May 2017 – April 2018)
Fiji · Strengthening Compliance Risk Management · Developing a taxpayer services strategy · Expanding self-assessment · Improving on-time filing and on-time payment of taxes · Strengthening the audit function and building a strategy to address compliance in the high-net worth individuals segment · Advising on the implementation of a new IT system Kiribati · Facilitating implementation of a new function based structure · Developing a high-level reform implementation plan · Strengthening core tax functions Republic of the Marshal Islands · Strengthening core tax functions · Training to improve the delivery of services to taxpayers Federated States of Micronesia · Strengthening core tax functions · Training to improve the delivery of services to taxpayers Papua New Guinea · Design of a Medium-Term Revenue Strategy (MTRS) · Development of an IT strategy · Development of a new corporate strategy · Design of a Large Taxpayer Office · Establishment of a design unit · Design of a new taxpayer services department Palau · Developing a taxpayer services strategy · A project plan to introduce policy and legal reforms Niue · Design of a new functional structure · Strengthening core tax functions Solomon Islands · Improving on-time filing and payment of taxes Samoa · Improving core tax functions Tonga · Strengthening the audit function Vanuatu · Development of a reform project plan · Facilitating the implementation of a new function based structure · Strengthening core tax functions · Improving compliance risk management |
Box 2. PICs: Review of Selected Country Tax Reforms –
Lessons for Future Revenue Mobilisation
The study showed that tax reforms have had a positive impact when assessed against the key measures of a good tax system: revenue, equity, efficiency, and simplicity. Average tax revenues for PICs, as a share of GDP, have increased, albeit at a slower pace. However, for some countries the reforms have had a significant impact on reversing declining revenue trends. The focus on indirect tax reforms has led to a clear change in the tax mix, with a greater share of revenue from indirect tax, declining revenue from trade taxes, and a small rise in income taxes. Furthermore, the study showed that tax administration efficiency is improving, but that there is scope for significantly further improvement. Several factors contributed to successful reforms that included strong political will and leadership, strong leadership and management in key government institutions, especially the tax administration, and the existence of a tax policy reform unit to guide reforms. Lessons learned highlighted ongoing challenges for PICs like the need for good data for tax policy analysis and for reviewing tax administration performance, difficulties in getting small businesses to comply, slowness in implementing complex reforms that have been legislated, for example, transfer pricing rules and capital gains tax. Taxpayer compliance with core obligations (registration, filing, and audit) remains low. A key concern identified is that PIC tax administrations do not appear to have enough critical mass to carry out their mandate and even less to invest in future planning with staff to populations comparisons being low compared to for example the Caribbean Islands. An IMF Working Paper published in early 2017 reviewed tax reforms in the Caribbean over a similar time-period that had benefited from technical assistance from CARTAC, the equivalent IMF center to PFTAC based in the Caribbean. The two studies reflect revenue reforms across most of the world’s Small Island Developing States (SIDS), with valuable insights between and across regions. To this end, a joint seminar is planned in mid-2018 that will be co-hosted by PFTAC and CARTAC to bring senior tax administrators together from both regions to share and leverage off the experiences of each other. |
Box 3. Concept of a Medium-Term Revenue Strategy
What is an MTRS? An MTRS is a high-level road map of the tax system reform over the coming 4-6 years—covering policy, administration, and legal components. It embodies a government strategy to mobilise resources through the tax system to finance spending needs and secure macroeconomic sustainability, while reflecting distributional considerations and creating appropriate incentives for economic and social development. An MTRS should be a public document, since wide consultation with the tax system’s stakeholders is desirable in its development, including to promote accountability of all concerned. An MTRS thus becomes a government-led and country-owned effort, supported at the highest political level—critical, given the broad reach of the tax system. Some countries may wish to have external support with development and implementation of their MTRS. The formation and implementation of the MTRS will then require support from development partners that is aligned and subordinated (notably in sequencing) to the government-led strategy. Why an MTRS is needed? A medium-term and comprehensive approach to reform the tax system’s components is beneficial because: ü A medium-term tax policy enables governments to have a clearer picture of their likely revenues over a meaningful planning period, and taxpayers to have more certainty on how they will be treated and what the tax implications of their investment and other decisions will be. ü Tax priorities are too often driven by short-term considerations. Commitment to reforms over the medium- term can help prioritise intermediate objectives, such as increasing the number of high value taxpayers. ü Institution building in tax administration is complex and needs sustained effort over several years. ü The legal framework requires timely change to support evolving policy and administration. ü Successful reform requires continued commitment and trust among a wide range of stakeholders. An MTRS provides a setting to achieve these critical goals. For further information contact David Kloeden DKloeden@IMF.org (PFTAC Coordinator) or Stan Shrosbree (PFTAC Revenue Administration Advisor) Sshrosbree@imf.org or visit the PFTAC website to access |
Pacific Financial Technical Assistance Centre (PFTAC), Suva
February 2018