turkey: challenges in tax reform in an international perspective

1. Turkey: Challenges in tax reform in an international perspective Presentation by Teresa Ter-Minassian at the MoF-UNDP seminar on �Tax Policy Options for Turkey in the wake of EU accession� Ankara, Jan. 12-13, 2009 The views expressed are those of the author and not necessarily of the IMF

3. Overall revenue trends Turkey increased its overall tax revenue to GDP ratio significantly between 1995 and 2001, by more than the OECD average and most emerging markets (EM) countries, but progress has stalled in recent years The revenue ratio remains significantly below the OECD and EU averages, albeit slightly above the EM average In a medium-term perspective, a gradual further rise in the revenue ratio may be needed, together with expenditure reforms, to create sustainable fiscal space for new priority spending.

4. Revenue trends in the OECD

5. Revenue trends in Turkey General government tax revenue in selected OECD countries, 1998-2006

6. Tax ratios in the OECD

7. Revenue composition The share of taxes on goods and services in general government revenues, albeit declining in the more recent years, is significantly higher in Turkey than in the rest of the OECD The share of excises (Special Consumption Tax, SCT) is especially high (about 20%, compared with less than 8% on average in the OECD), reflecting: Very high rates (as much as 275%) on some products; and The relative ease of collection of these taxes The revenue productivity of the VAT remains relatively low (around 30%, compared to the 40% more typical in better-performing VATs). This reflects broader than average range of exemptions and coverage of reduced rates, as well as weaknesses in the administration of the tax Although the VAT standard rate in Turkey (at 18%) is somewhat above the EU average, VAT revenue in Turkey (at 5.5% of GDP) falls well short of the EU average (7.5% of GDP). Revenue productivity is defined here as the ratio of the VAT/GDP ratio (in percent) to the tax rate (also in percent) Although the VAT standard rate in Turkey (at 18%) is somewhat above the EU average, VAT revenue in Turkey (at 5.5% of GDP) falls well short of the EU average (7.5% of GDP). Revenue productivity is defined here as the ratio of the VAT/GDP ratio (in percent) to the tax rate (also in percent)

8. Revenue composition Since the PIT and CIT rates are not substantially lower than OECD averages, the relatively low share of income taxes in total revenues (21.5% vs over 36% on average in the OECD) reflects: Leakages from the base (significant exemptions and other preferential treatments); and Weak compliance and enforcement. Despite relatively high rates, revenue from social security contributions is also below the OECD average, reflecting the high degree of labor market informality and enforcement weaknesses The small weight of property taxes (less than 1% of GDP) mainly reflects inadequacies in property valuation Income from public pensions is exempt from the PIT. Income from private pension plans is taxed at preferential rates. The threshold for taxation of agricultural income is very high. There is no general tax allowance (or credit), but individual sources of income (e.g. wages) enjoy certain allowances Deductions for certain �charitable� contributions are not subject to limit. The investment tax allowance has been repealed, effective Jan.1, 2009. 40% of R&D expenditures can be deducted from the CIT. Generous tax incentives are provided for companies investing in underdeveloped regions or in Technology Development Zones. Companies operating in FTZs with licenses pre-dating Feb.6, 2004 are exempt from the CIT, and the incomes of their employees from the PIT. Marginal PIT rates range from 15% to 35%. Interest and dividends are taxed at a 15% final withholding rate (10% for interest on government and company bonds issued after Jan. 1, 2006). The CIT rate is 20% (30% for profit remittances to low-tax jurisdictions) The combined rate of employer and employee contributions (at around 40%, of which 24% for employers) is relatively high, but revenue from social security contributions ((less than 5% of GDP) is about half the European average. Real estate tax rates are 0.3% for building sites 0.2% for buildings; and 0.1% for land and dwellings. The revenue of this tax accrues to the local authorities. For sales of immovable property a transfer tax equivalent to 1.5% of the value of the sale (3% for metropolitan areas) is levied on both the buyer and the seller More than 95% percent of land in Turkey is mapped and registered, and the Turkish Land Registry and Cadastre Agency (TKGM) plans to complete the registration by 2008. The Turkish cadastre and registration system is considered one of the most effective in the region. The system has however serious shortcomings, the most important relating to property valuation and lack of a computerized land registry. Specifically, current property taxation relies on the minimum value of property provided by local governments. The minimum value is in many cases less than 10% of the fair market value (source: World Bank 2008). This significantly reduces the revenue that the government collects on real estate transactions. The Cadastre and land registry offices rely largely on manual systems. Computerized land registry software runs only in 140 out of about 1000 offices (World Bank 2008). This reduces availability of information, costumer services, and possible e-government initiatives. Cadastral maps are in paper format; vary in accuracy and consistency; and are not linked to the national datum; in many localities, maps are out of date and do not correspond to the ground parcel sizes and shapes. Income from public pensions is exempt from the PIT. Income from private pension plans is taxed at preferential rates. The threshold for taxation of agricultural income is very high. There is no general tax allowance (or credit), but individual sources of income (e.g. wages) enjoy certain allowances Deductions for certain �charitable� contributions are not subject to limit. The investment tax allowance has been repealed, effective Jan.1, 2009. 40% of R&D expenditures can be deducted from the CIT. Generous tax incentives are provided for companies investing in underdeveloped regions or in Technology Development Zones. Companies operating in FTZs with licenses pre-dating Feb.6, 2004 are exempt from the CIT, and the incomes of their employees from the PIT. Marginal PIT rates range from 15% to 35%. Interest and dividends are taxed at a 15% final withholding rate (10% for interest on government and company bonds issued after Jan. 1, 2006). The CIT rate is 20% (30% for profit remittances to low-tax jurisdictions) The combined rate of employer and employee contributions (at around 40%, of which 24% for employers) is relatively high, but revenue from social security contributions ((less than 5% of GDP) is about half the European average. Real estate tax rates are 0.3% for building sites 0.2% for buildings; and 0.1% for land and dwellings. The revenue of this tax accrues to the local authorities. For sales of immovable property a transfer tax equivalent to 1.5% of the value of the sale (3% for metropolitan areas) is levied on both the buyer and the seller More than 95% percent of land in Turkey is mapped and registered, and the Turkish Land Registry and Cadastre Agency (TKGM) plans to complete the registration by 2008. The Turkish cadastre and registration system is considered one of the most effective in the region. The system has however serious shortcomings, the most important relating to property valuation and lack of a computerized land registry. Specifically, current property taxation relies on the minimum value of property provided by local governments. The minimum value is in many cases less than 10% of the fair market value (source: World Bank 2008). This significantly reduces the revenue that the government collects on real estate transactions. The Cadastre and land registry offices rely largely on manual systems. Computerized land registry software runs only in 140 out of about 1000 offices (World Bank 2008). This reduces availability of information, costumer services, and possible e-government initiatives. Cadastral maps are in paper format; vary in accuracy and consistency; and are not linked to the national datum; in many localities, maps are out of date and do not correspond to the ground parcel sizes and shapes.

9. Revenue composition in Turkey and the OECD

10. Recent tax reforms in Turkey Main steps taken in recent years to rationalize the tax system Move towards a modern dual PIT: Some simplification of the PIT structure A more uniform taxation of financial income A design of the CIT (including a rate cut, and rules on transfer pricing and thin capitalization) more in line with the growing internationalization of the Turkish economy Tax administration reforms Establishment of a semi-autonomous, functionally organized Revenue Administration (RA) and a large taxpayer office (LTO) Strengthened IT infrastructure for the RA But, also some retrogression: Introduction of new special treatments and tax incentives Repeated tax amnesties, weakening compliance morale Recent reforms: reduction in number of PIT brackets (from 5 to 4); replacement of VAT invoices-based consumption credit with standard allowances for various categories of income; elimination of Investment tax allowance Design of tax policy shifted from RA to MoF LTO has limited geographic coverage and no own audit staff Substantial data warehousing and matching capabilities, but limited use made so far of such capabilities Latest example of granting of new incentives: exemption until 2023 of Technology Development Zones 40 tax amnesties (one every two years on average) since the inception of the RepublicRecent reforms: reduction in number of PIT brackets (from 5 to 4); replacement of VAT invoices-based consumption credit with standard allowances for various categories of income; elimination of Investment tax allowance Design of tax policy shifted from RA to MoF LTO has limited geographic coverage and no own audit staff Substantial data warehousing and matching capabilities, but limited use made so far of such capabilities Latest example of granting of new incentives: exemption until 2023 of Technology Development Zones 40 tax amnesties (one every two years on average) since the inception of the Republic

11. Agenda for further reforms Additional efforts to mobilize revenue over the medium term should be consistent with efficiency and equity objectives, and take into account Turkey�s growing trade and financial integration into the global economy, and in particular Europe These considerations argue for focusing further tax reform efforts on: Broadening the bases of the major taxes Reducing those rates that are relatively high in an international perspective Continuing to strengthen the tax administration, facilitating voluntary tax compliance and making enforcement more effective; and Seeking to expand own revenue-raising capacity of local governments

12. Broadening the tax base:Income taxes PIT Subjecting public pensions to the PIT, with (possibly partial) offsetting adjustment in value of pensions, and reducing generosity of treatment of private ones Eliminating current exemption of certain types of employment income Reducing threshold for agricultural incomes Capping all deductions Subjecting all financial income to uniform final withholding CIT Significantly reducing existing incentives (with respect of acquired rights), and refraining from introducing new ones PIT The tax treatment of pensions in Turkey is extremely generous, compared to international practice. Public pensions are exempt from the PIT. As regards private pensions, contributions are deductible up to the lesser of 10 percent of monthly salary and the annual minimum wage. Returns accumulating in private pensions funds are exempt. At retirement, for pensions paid from individual retirement plans, 25% of pension benefits (this is a lump sum as there are no private annuity pensions in Turkey) is exempt, the remaining 75% is subject to a 5% withholding tax. For pension paid by private insurance companies, banks and private institutions, 10% of pension benefits is tax exempt and the remaining 90% is subject to a 10% withholding tax. Other countries typically exempts from taxation pension contributions and the returns on pension savings, while fully taxing pension benefits. This is known as the EET tax treatment, widely adopted in OECD countries (see table). An approach for Turkey more in line with the international practice would be to adopt an EET tax treatment. This would imply: Bringing public pensions under the PIT; in this case, it would be appropriate to increase gross pensions (possibly at a declining rate)to offset the impact of the tax on existing pensioners; and Fully integrating private pensions and lump sum payments into the PIT. The exemption of miners� and domestic employees� incomes should be eliminated, to improve horizontal equity CIT Turkey has a long history (dating back to the 1960�s) and a wide range of tax incentive schemes. Some old schemes have specified sunset dates, but new incentive schemes have also been recently established. Incentives cover investment in specific sectors or regions (e.g. technological development zones, free trade zones, organized industrial zones, first priority regions) and include a general investment allowance, R&D investment allowances, various CIT and PIT exemptions, VAT, CST, duties and fees exemptions. In general, tax incentives reduce the CIT base and are often little effective in boosting total investment. Recent work at the IMF shows that there is little empirical evidence on the effectiveness of regional tax incentives and that, even when investment incentives seem to work (e.g. in the case of R&D and FDI incentives), uncertainty remains about the actual size of the boost and whether a cost-benefit analysis would support the establishment of such incentives. Tax incentives also introduce complications into the administration of the tax system and increased opportunities for corruption and tax evasion. This same research shows that, if governments want indeed use tax incentives to attract high profit earning investments, they would do better by permanently reducing CIT tax rates. However, with a CIT rate at 20%, Turkey has already a competitive CIT system according international standards and it does not need new incentives schemes (as the ones recently introduced) or expanding the old incentives. Indeed, dates for existing tax holidays should be advanced in order to quickly broaden the tax base and increase revenue collection. PIT The tax treatment of pensions in Turkey is extremely generous, compared to international practice. Public pensions are exempt from the PIT. As regards private pensions, contributions are deductible up to the lesser of 10 percent of monthly salary and the annual minimum wage. Returns accumulating in private pensions funds are exempt. At retirement, for pensions paid from individual retirement plans, 25% of pension benefits (this is a lump sum as there are no private annuity pensions in Turkey) is exempt, the remaining 75% is subject to a 5% withholding tax. For pension paid by private insurance companies, banks and private institutions, 10% of pension benefits is tax exempt and the remaining 90% is subject to a 10% withholding tax. Other countries typically exempts from taxation pension contributions and the returns on pension savings, while fully taxing pension benefits. This is known as the EET tax treatment, widely adopted in OECD countries (see table). An approach for Turkey more in line with the international practice would be to adopt an EET tax treatment. This would imply: Bringing public pensions under the PIT; in this case, it would be appropriate to increase gross pensions (possibly at a declining rate)to offset the impact of the tax on existing pensioners; and Fully integrating private pensions and lump sum payments into the PIT. The exemption of miners� and domestic employees� incomes should be eliminated, to improve horizontal equity CIT Turkey has a long history (dating back to the 1960�s) and a wide range of tax incentive schemes. Some old schemes have specified sunset dates, but new incentive schemes have also been recently established. Incentives cover investment in specific sectors or regions (e.g. technological development zones, free trade zones, organized industrial zones, first priority regions) and include a general investment allowance, R&D investment allowances, various CIT and PIT exemptions, VAT, CST, duties and fees exemptions. In general, tax incentives reduce the CIT base and are often little effective in boosting total investment. Recent work at the IMF shows that there is little empirical evidence on the effectiveness of regional tax incentives and that, even when investment incentives seem to work (e.g. in the case of R&D and FDI incentives), uncertainty remains about the actual size of the boost and whether a cost-benefit analysis would support the establishment of such incentives. Tax incentives also introduce complications into the administration of the tax system and increased opportunities for corruption and tax evasion. This same research shows that, if governments want indeed use tax incentives to attract high profit earning investments, they would do better by permanently reducing CIT tax rates. However, with a CIT rate at 20%, Turkey has already a competitive CIT system according international standards and it does not need new incentives schemes (as the ones recently introduced) or expanding the old incentives. Indeed, dates for existing tax holidays should be advanced in order to quickly broaden the tax base and increase revenue collection.

13. Broadening the tax base:VAT and property taxes VAT: Reducing the coverage of exemptions Eliminating the 1% rate (not consistent with the EU acquis communautaire): Exempting wholesale sales of unprocessed agricultural foods Moving other categories to 8% or standard rate Moving some categories of goods and services (e.g. textiles; entertainment tickets; restaurants; tailoring; and hotel services) to the standard rate, in line with international experience Limiting scope of free trade zones, especially in view of likelihood of leakages Property tax Potentially important source of own revenue for local governments Local governments should be given limited authority to set rates of the tax Ensuring up-to-date valuation of properties through development of modern national cadaster Since VAT is rebated for exports, and levied on import, reductions of its rate for selected sectors (e.g. textiles) do not improve the competitiveness of the sector. Such reductions may have been granted to alleviate cash-flow problems stemming from excessive delays in export refunds, but this is an expensive way to deal with the problem, and it unduly benefits production for internal consumption. Countries often adopt reduced VAT rates on goods like foodstuffs and medicines for equity and distributional purposes as these items accounts for a much larger share in the expenditure of the poor than of the rich. Even so, the amount of redistribution achievable through reduced VAT rates is quite limited. While the proportion of income that the rich spend on these items may be relatively low, the total amount they consume may be very large. Thus, much of the money spent in subsidizing, e.g. foodstuffs, actually goes to the rich. Indeed, several empirical studies examine the distributional effects of different taxes and conclude that direct taxes and expenditures are more efficient tools to redistribute income. Specifically, empirical studies show that income transfers and income tax deductions for families with children lead to the largest improvement in equality. Reductions in the standard rate of indirect taxes (e.g. VAT and excises) have usually the lowest effect on equality (in some case worsening effect), and the redistributive effect of reduced VAT rates on specific items such as foodstuffs falls between these two extremes. Of course, the precise results depend on countries� specific consumption patterns and tax system as well as on the equality measures used as a reference (e.g. standard of living and consumption Gini index, Sen welfare index) but are usually rather robust and consistent across countries. Since VAT is rebated for exports, and levied on import, reductions of its rate for selected sectors (e.g. textiles) do not improve the competitiveness of the sector. Such reductions may have been granted to alleviate cash-flow problems stemming from excessive delays in export refunds, but this is an expensive way to deal with the problem, and it unduly benefits production for internal consumption. Countries often adopt reduced VAT rates on goods like foodstuffs and medicines for equity and distributional purposes as these items accounts for a much larger share in the expenditure of the poor than of the rich. Even so, the amount of redistribution achievable through reduced VAT rates is quite limited. While the proportion of income that the rich spend on these items may be relatively low, the total amount they consume may be very large. Thus, much of the money spent in subsidizing, e.g. foodstuffs, actually goes to the rich. Indeed, several empirical studies examine the distributional effects of different taxes and conclude that direct taxes and expenditures are more efficient tools to redistribute income. Specifically, empirical studies show that income transfers and income tax deductions for families with children lead to the largest improvement in equality. Reductions in the standard rate of indirect taxes (e.g. VAT and excises) have usually the lowest effect on equality (in some case worsening effect), and the redistributive effect of reduced VAT rates on specific items such as foodstuffs falls between these two extremes. Of course, the precise results depend on countries� specific consumption patterns and tax system as well as on the equality measures used as a reference (e.g. standard of living and consumption Gini index, Sen welfare index) but are usually rather robust and consistent across countries.

14. Reducing high rates and distortive taxes SCT Very high rates on some products may promote smuggling and other forms of evasion. The rate structure for certain products (e.g. alcoholic beverages and tobacco) favors domestic production over imports, and will need to be modified to adjust to EU requirements on accession To the extent that some of the taxed goods are used as inputs into production, and the SCT cannot be rebated for exports, it reduces competitiveness The fiscal dividends of base broadening for other taxes, and of improved compliance could be used for selective reductions in the SCT rates

15. Reducing high-rate and distortive taxes Financial intermediation taxes (BITT and RUSF) While for the most part acting as substitutes for the VAT on financial services, in some cases (e.g. purchases of foreign exchange and financing of imports) they represent actual turnover taxes, with distortive effects. Even as substitutes for the VAT, these taxes may be incompatible with the EU Sixth Directive Social security contributions Relatively high social security contributions rates promote labor market informality, and reduce employment, as well as competitiveness (since they are not eligible for border tax adjustment). Improved enforcement of their collection (including through avoiding further amnesties) would open space for some reduction in the rates. In Turkey, there are two financial intermediation taxes: the Banking and Insurance Transaction Tax (BITT) and the Resource Utilization Support Fund Levy (RUSF). The BITT collects about 0,3 percent of GDP, the RUSF about 0.5% of GDP. The Banking and Insurance Transaction Tax (BITT) Financial companies� transactions are exempt from VAT, but are subject to the BITT. Nature of the tax and tax base: The BITT is a sort of income tax except for a special case (see below). Specifically, the BITT is a tax levied on the income of banks, insurance companies and bankers operating in Turkey deriving from any type of transaction with another party. For instance, the BITT is levied on: income deriving from banking/insurance activities (such as loans, repurchase agreements, foreign exchange transactions, treasury operation) and income deriving from non�banking/insurance activities (such as disposal of assets or other extra ordinary activities. Exemptions: Various exemptions apply, for example, to: income generated from transactions carried by Turkish resident banks with their branches offices or agents; income generated from transactions between Turkish branch offices or agent and non-resident banks; dividends and interest income deriving from tax-exempt bonds. Rates: The general rate of the BITT is 5%, a special rate of 1% applies to the income from specific transactions (e.g. transactions between banks or involving treasury bills and government bonds). A special case: A special rate of 0,1% applies to the amount of foreign exchange sold rather than on income. In this case, the BITT is not levied on the income from a transaction but on Turkish lira value of foreign exchange sold. and as such is a pure transaction tax. Resource Utilization Support Fund Levy (RUSF) Nature of the tax and tax base: The RUSF is a tax on income derived from loans, except for the case of loans used to finance imports (see below). Specifically, the RUSF applies to the accrued interest income from: (a) loans provided by Turkish banks and financial institutions, and (b) loans obtained from abroad by Turkish banks and financial institutions and Turkish residents. The RUSF also applies to (c) the Turkish lira equivalent of imports realized against acceptance credits, term letter of credit and cash against goods basis. In this latter case, the RUEF is not levied on income but on Turkish lira value of imports, and as such is a transaction tax. Exemptions: Various exemptions apply, such as: loans provided under investment incentive certificates, inter-bank loans, loans provided to the government). Rate: Rates Since 2004, rates have ranged between 3 and 15%, depending on the taxed item. In Turkey, there are two financial intermediation taxes: the Banking and Insurance Transaction Tax (BITT) and the Resource Utilization Support Fund Levy (RUSF). The BITT collects about 0,3 percent of GDP, the RUSF about 0.5% of GDP. The Banking and Insurance Transaction Tax (BITT) Financial companies� transactions are exempt from VAT, but are subject to the BITT. Nature of the tax and tax base: The BITT is a sort of income tax except for a special case (see below). Specifically, the BITT is a tax levied on the income of banks, insurance companies and bankers operating in Turkey deriving from any type of transaction with another party. For instance, the BITT is levied on: income deriving from banking/insurance activities (such as loans, repurchase agreements, foreign exchange transactions, treasury operation) and income deriving from non�banking/insurance activities (such as disposal of assets or other extra ordinary activities. Exemptions: Various exemptions apply, for example, to: income generated from transactions carried by Turkish resident banks with their branches offices or agents; income generated from transactions between Turkish branch offices or agent and non-resident banks; dividends and interest income deriving from tax-exempt bonds. Rates: The general rate of the BITT is 5%, a special rate of 1% applies to the income from specific transactions (e.g. transactions between banks or involving treasury bills and government bonds). A special case: A special rate of 0,1% applies to the amount of foreign exchange sold rather than on income. In this case, the BITT is not levied on the income from a transaction but on Turkish lira value of foreign exchange sold. and as such is a pure transaction tax. Resource Utilization Support Fund Levy (RUSF) Nature of the tax and tax base: The RUSF is a tax on income derived from loans, except for the case of loans used to finance imports (see below). Specifically, the RUSF applies to the accrued interest income from: (a) loans provided by Turkish banks and financial institutions, and (b) loans obtained from abroad by Turkish banks and financial institutions and Turkish residents. The RUSF also applies to (c) the Turkish lira equivalent of imports realized against acceptance credits, term letter of credit and cash against goods basis. In this latter case, the RUEF is not levied on income but on Turkish lira value of imports, and as such is a transaction tax. Exemptions: Various exemptions apply, such as: loans provided under investment incentive certificates, inter-bank loans, loans provided to the government). Rate: Rates Since 2004, rates have ranged between 3 and 15%, depending on the taxed item.

16. Promoting voluntary taxpayer compliance Effectively promoting voluntary tax compliance requires both facilitating the latter and increasing enforcement deterrence. Possible actions to facilitate compliance include: Firmly and publicly committing to not introducing new tax amnesties Streamlining taxation of small businesses Introducing a threshold for VAT payers (aligned with the simplified PIT regime ceiling) Eliminating the rental ceiling for application of the simplified PIT regime. Developing and announcing industry-specific standards for input credits and sales for the regime, to guide audit efforts in this area. Continuing to improve taxpayer services, in particular by developing a national outreach service for new businesses Implementing a risk-based and timely export refund system, to promote VAT compliance and export competitiveness

17. Strengthening tax enforcement Vigorously pursuing implementation of RA-led multi-agency Action Plan to Reduce Informality Substantially strengthening the audit function Consolidating the audit function under the RA Increasing the number and capacity of RA auditors Developing improved, risk-based audit selection strategies (including with respect to employers and high net-wealth individuals) Better exploiting data matching and cross checking IT capabilities in audits Allowing indirect determination of tax liability, based on clearly specified criteria Establishing a specialist investigation unit for criminal tax frauds, and publicizing results of successful prosecutions Developing and implementing modern approach to tax arrears management Focusing on larger, more recent debt Establishing automated debt collection procedures Introducing clear criteria for debt write-offs Only 5% of RA resources are currently devoted to audits (compared with an international standard of 20-30%) There is a need to strengthen recruitment and retention of qualified staff (in particular tax auditors) Also, greater use of indirect evidence should be allowed in tax enforcement Audit weaknesses are also substantial as regards SS contributionsOnly 5% of RA resources are currently devoted to audits (compared with an international standard of 20-30%) There is a need to strengthen recruitment and retention of qualified staff (in particular tax auditors) Also, greater use of indirect evidence should be allowed in tax enforcement Audit weaknesses are also substantial as regards SS contributions

18. Concluding remarks Turkey has already made significant progress in establishing a modern tax system and tax administration Although the overall tax burden is not out of line with those of many countries at a comparable level of development, it may well have to rise further over the medium term, as the economy integrates further into the OECD and ultimately the EU Tax and tax administration reforms to mobilize additional revenue should also pursue other important objectives: Efficiency (reduction of distortions) and international competitiveness Reduction of incentives to informality Horizontal and vertical equity Facilitation of voluntary tax compliance; and More effective deterrence of non-compliance

19. Concluding remarks In my view, the reforms advocated in this presentation would support these objectives, in as far as: Effectively broadening the bases of the VAT, PIT and CIT would enhance horizontal equity and reduce distortions The additional revenue generated by these reforms could be used to reduce certain rates (of e.g. employers� contributions, certain excises and the financial intermediation taxes), with favorable impact on growth and competitiveness, and to fund additional targeted spending for the poor A significantly strengthened tax administration would certainly enhance both equity and economic efficiency I look forward to a lively discussion of these and other possible reforms in the course of the seminar

20. Thank you!