How To Notes

7
OCTOBER 2017
NOTES
FISCAL POLICY
How to Establish a Tax Policy Unit
FISCAL AFFAIRS DEPARTMENT | INTERNATIONAL MONETARY FUND

©2017 International Monetary Fund
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Names: Grote, Martin. | International Monetary Fund. Fiscal Affairs Department.

Title: How to Establish a Tax Policy Unit/ this note was prepared by Martin Grote.
Other titles: Fiscal policy, how to improve the financial oversight of public corporations | How to
notes (International Monetary Fund) ; 5
Description: [Washington, DC] : Fiscal Affairs Department, International Monetary Fund,
2017. | How to notes / International
Monetary Fund | October 2017. | Includes bibliographical references.
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Subjects: LCSH: Corporate governance—Quality control. | Corporations--Evaluation.
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HOW TO ESTABLISH A TAX POLICY UNIT
The design of a country’s tax system plays a crit- data constraints and/or has limited capacity to perform
ical role in its economic and social development, as data analysis.1 This lack of information complicates
recognized by the United Nations: its sustainable decision making, hampers the debate about tax reform,
development agenda identifies strengthened domes- and can lead to ill-designed tax policies or a tax system
tic revenue mobilization as a key priority. Clearly, that fails the test of legitimacy in the eyes of the
in developing economies, sufficient tax revenue is public—which can be detrimental to tax morale and
necessary to finance spending on health care, educa- compliance. Under these circumstances, even a small
tion, and infrastructure—all of which are prerequisites TPU (which could gradually be expanded) can be criti-
for economic growth and development. However, it is cal for making progress, not only in supporting good
not simply the revenue ratio that matters; the quality tax policy, but also in identifying the needs for capacity
of the revenue system is also essential for delivering fair development, and coordinating efforts of donor coun-
and efficient outcomes. tries and technical assistance providers.2
To design a revenue system that fosters sustainable Based on several decades of experience in techni-
economic and social development and enjoys broad cal assistance on tax policy by IMF staff, this note
public support, it is essential for tax reform proposals provides advice and guidance for establishing a TPU.
to be carefully assessed, quantitatively analyzed, and It relies largely on collective experience of tax policy
openly debated. This requires that decision makers and experts, mainly from advanced and some emerg-
all stakeholders in the debate have access to the best ing market economies, as well as a sparse literature
available facts, data, and independent evidence-based on the issue, to draw lessons for countries that seek
analysis, including about the impact of tax reforms to make progress. The note covers such aspects as
on revenue, the income distribution, and economic the role and functions of a TPU, its organizational
performance. The central institutional actor in the structure, its location within government, as well as its
decision making process—the executive—is best relationships with other organs of state and external
supported in this process by what is generally called a stakeholders. The analysis here is also informed by a
tax policy unit (TPU). TPUs are tasked to guide and review and comparison of various jurisdictions’ tax
inform the tax policy debate, based on facts, indepen- policy design function—sometimes organized in a
dent data analysis, and multidisciplinary efforts. TPUs TPU—in 25 high-, middle-, and low-income countries
also generally maintain oversight to ensure integrity (see Annex 1).
of the tax system, and play a critical role in informing Several lessons about what has worked well, where,
stakeholders along the path towards a coherent, man- and when, emanate from the analysis. Given, however,
ageable, fair, and efficient design of the tax system. that institutional structures and processes of tax policy
Many developing economies lack a well-functioning formulation vary significantly across countries, the
TPU. Some emerging market economies (Brazil, South study concludes that the structure of a TPU should
Africa) and low-income countries (Burundi) have be tailored to the needs, capacity, circumstances, and
established TPUs or some specialization in tax policy opportunities of individual countries. The note ends
analysis. Yet, in most developing economies, the gov- with ten general lessons for countries seeking to estab-
ernment lacks such a unit; it also suffers from severe lish or further develop a well-functioning TPU.
This note was prepared by Martin Grote. The author is grateful 1Data constraints stem from, among other things, limited use of
for useful comments from Ruud de Mooij, Milena Hrdinková, information technology and lack of transparency on behalf of insti-
Michael Keen, Alexander D. Klemm, Sebastien Leduc, Andrea tutions and policymakers generating taxpayer data that would inform
Lemgruber, Kiyoshi Nakayama, Victoria J. Perry, Patrick Petit, quantitative and qualitative analyses.
Diego Mesa Puyo, Irena Jankulov Suljagic, Artur Swistak, and Mick 2Establishment of a TPU is one important element in the wider
Thackray. He also thanks Peter Barrand, Mario Mansour, and John context of building tax capacity in developing economies (see, for
Norregaard for collaboration in developing Figures 2 and 3. example, IMF and others 2016).
International Monetary Fund | October 2017 2

FISCAL AFFAIRS DEPARTMENT HOW-TO NOTES
Functions ment’s tax policy agenda. It should do so by providing

A TPU generally encompasses four key functions: impartial analysis and recommendations on how to
(1) guide general tax design and associated public con- best serve the public interest. In addition, a TPU
sultations; (2) perform revenue and economic impact can facilitate—through its tax analysis—a broader
analyses; (3) initiate, participate, and oversee manifes- economic policy coordination function across min-
tation of policy content during legal drafting processes; istries and agencies in terms of trade policy (tariffs),
and (4) contribute to international tax obligations by, regional and local government own-source revenue
among other things, supporting the country team that development, sectoral strategies (extractive industries),
is negotiating tax treaties with economic impact analy- unemployment and labor market developments, and
sis. Each of these functions is important, both during a entrepreneurship.
period of major structural tax reform and when imple- Regarding the implementation of tax changes,
menting smaller year-to-year tax changes.3 a TPU’s work program should be realistic, and its
priorities should be based on measurable criteria (for
example, preparing achievable revenue-raising strategies
Guiding Tax Reform and targets in support of the medium-term budget
TPUs play a critical role in guiding tax policy framework). A pragmatic approach would be to rank
reform and producing objective analysis of the avail- priorities by distinguishing different categories of tax
able tax options.4 They generally deal with analyzing changes, for example: (1) items deemed essential and
and evaluating ideas for policy changes or new policies requiring legislation during the next parliamentary
arising from many sources: parliament and government session to correct major drafting deficiencies in the law
officials, business, labor organizations, and the general that are being aggressively exploited as tax loopholes;
public. Within the government, key players in this pro- (2) items that are still important, but not critical,
cess include the ministry of finance, which identifies which should be legislated as soon as practicable, and
and estimates public expenditure and revenue; other certainly within the next 12 to 18 months; (3) items
ministries, which attempt to achieve policy objectives that, while still important, are less urgent and which
through the tax system; and the revenue administra- can be deferred.
tion, whose role is to enforce the law and improve tax The TPU plays a leading role in explaining in a
compliance. Often, these institutions’ objectives with non-politicized way the economic rationale and intent
respect to tax policy proposals compete, and complex behind tax policy changes and tax legislation. How-
policy and administrative trade-offs arise. The TPU ever, it is mainly the revenue administration that drafts
plays a pivotal role in clarifying these trade-offs and interpretation notes that provide taxpayers and revenue
guiding the decision making process under the govern- administration officials with guidance and direction in
applying the existing tax codes and regulations. In this
regard, a TPU should advise the revenue administra-
3Countries with significant extractive industry sectors often
tion and the ministry of finance on the revenue impli-
add a specialized TPU function that focuses on designing a
fiscal framework for extractive industries and negotiates together cations of draft interpretations before their publication.
with the responsible line ministry (that is, mining and energy) Policy interpretations or guidance notes are usually
production-sharing contracts. published to inform and guide taxpayers and their
4Tax policy should be distinguished from tax administrative policy,
which refers to policies conducted by the revenue administration’s advisors, and this secondary or subsidiary legislation
headquarters in relation to administration, taxpayer services, return is an essential element of creating certainty vis-à-vis
and payment processing, collection enforcement, and auditing. the tax law and its application. However, great care is
Administrative policies are codified into staff procedure manuals
and collectively form a key part of the revenue administration’s
required that discretionary powers of the tax admin-
governance system, often embodied in a stand-alone tax procedures istration are not inappropriately expanded without
code. Such code provides a uniform approach on all procedural legislative oversight—for example, a TPU could mon-
aspects relating to income tax, value added tax, excise duties, and
itor and alert the executive if such discretions exceed a
other taxes. The tax procedures code could be an alternative for other
provisions present in the various tax laws that deal with procedures certain predetermined materiality level.5
of registration, collection, and enforcement. Also, note that the
line between tax policy and revenue administration is not always
clear-cut, as a specific stance on determining penalties, fines, and tax
amnesties is equally important from both a policy and an adminis-
trative perspective. 5IMF, OECD (2017): 41–45.
3 International Monetary Fund | October 2017

Figure 1. Percentage of Countries where Tax Expenditures Are Periodically Calculated
South and East-Asia

and the Pacific
Europe and Central Asia
Middle East and

North Africa
Sub-Saharan Africa
Latin America and

the Caribbean
Organisation for Economic
Cooperation and Development
0 10 20 30 40 50 60 70
Source: World Bank (2015).
Revenue and Economic Impact Analysis estimates for medium-term expenditure bud-
TPUs generally perform quantitative and qualita- get purposes.7
tive analyses, often as part of the ministry of finance’s oo Predicting revenues under proposed tax law
broader budget development process. These analyses amendments relative to current law (revenue
should be rigorous, systematic, and based on trans- impact analysis), is often based on microsimula-
parent and up-to-date methodologies. The underlying tion models, which can infer the revenue effects
methodological tools must be made publicly available of detailed parametric changes in the tax code
so that they can be replicated and scrutinized by exter- on specific groups of taxpayers. Aggregating
nal stakeholders (for example, academics, civil society those effects provides insight into the revenue
organizations and businesses).6 The following analyses implications.
are often conducted by a TPU (Bird 2004, UNDP •• Tax expenditure analysis refers to the calculation of
2008, Martinez-Vazquez and Heredia-Ortiz 2009); the revenue forgone due to specific provisions in the
among them, the first two are most essential and of tax code in deviation of a benchmark system—such
critical importance, also for developing economies: as exclusions, deductions, tax credits, deferrals, and
•• Revenue forecasting is essential for every TPU. It has preferential tax rates. Given that tax expenditures
two aspects: may constitute a sizable share of total public expen-
oo Projecting a baseline of tax receipts over the diture, tax expenditure analysis is vital for informing
budget cycle for a given set of policy parame- decision makers and other stakeholders about the
ters. These are usually based on a combination costs and benefits of specific tax preferences, ideally
of micro and macro data and play a vital role annually or every second year. Most advanced econ-
in the budget preparation process. They are also omies perform an annual tax expenditure review,
often used for other purposes, such as to establish often published as part of the budget. This type of
collection targets for the revenue administration. analysis is less common in developing economies
Baseline projections are usually made twice a (Figure 1).
year: first for the annual budget cycle and, sec-
7Revenue estimates used for budget planning purposes may be the
ond, during the middle of the fiscal year to take result of interactions between various agencies, facilitated through
stock and assess the variance from initial budget revenue committees that work towards a technically informed and
credible result. In some countries, the ministry of finance relies
in part on estimates from reputable think tanks (for example, the
6Micro level taxpayer data needed for this analysis is not generally Institute of Fiscal Studies in the case of Spain), thereby improving
public and should be made available to the TPU on an anonymized the transparency of underlying assumptions for revenue projections
basis (see Section II.C). and methods used.

•• Distributional analysis refers to the implications for •• Tax indicator analysis refers to the use of simulated
income distribution among households, individuals, indicators capturing certain distortions of the tax
and businesses. This type of analysis is generally system (which can generally be compared across
based on microsimulation models, set at the level of countries). One such indicator is the effective tax
individual households or corporations. Sometimes, rate on business investment, which can be usefully
these models incorporate behavioral effects to pro- employed to reveal distortions of income taxes, such
vide ’dynamic scoring’—that is, forecasts including as corporate taxes, withholding taxes, and personal
the impact of behavioral responses to tax policies. income taxes (IMF and others 2015). Another indi-
If market price responses are also captured by the cator is the labor tax wedge, which summarizes the
model (which is the case in general equilibrium overall impact of taxes and social security contribu-
models), the analysis can take account of the inci- tions on the wedge between the cost of labor and
dence effects of taxes—that is, the ultimate effects the net wage for the employee—as an indication of
on individuals after taking account of tax shifting the distortion to the labor market (OECD 2016).
effects that occur through market responses to the
tax. The economic incidence of a tax change might TPUs are not always sufficiently resourced to
be quite different from the statutory incidence and employ the full range of economic models and
can be very relevant for the distributional implica- economic analyses mentioned here. However, the
tions of a tax change.8 most essential ones, such as revenue forecasting, tax
•• Economic impact analysis often refers to the macro- expenditure reviews, and some form of costing tax
economic implications of tax policy changes on the policy changes (that is, revenue impact) are generally
labor market, investment, aggregate inflation, eco- undertaken. In developing economies, it is advisable to
nomic growth, and so on. This is generally carried focus initially on capabilities that improve the accuracy
out by employing partial and/or general equilibrium of revenue forecasting, quantitative assessments of tax
models that capture various behavioral responses changes, and calculating tax incentives’ revenue losses.
to taxes and include possible interactions between As countries advance on these fronts, models ana-
markets. Different models will generally need to lyzing economic and distributional impacts could be
be employed for different taxes, for example, an developed, and cost-benefit analyses for major adjust-
elaborate household model for personal tax reform ments of tax instruments be conducted. It is quite
and an elaborate business sector model for corporate common that governments outsource more refined
tax reform. Parameters are often estimated based on analysis to a group of academics, external consultants,
econometric data analysis or calibrated on the basis or a government agency (for example, autonomous
of existing empirical literature. Some models also fiscal institutes) that specialize in data analysis and
capture international spillover effects of tax policies, economic modeling. As indicated in Annex 1, coun-
such as through trade, the international allocation tries that have specialized fiscal analysis institutions
of labor and capital, and international profit shifting include Italy, the Netherlands, Norway, Spain, and the
by multinational companies. United Kingdom. Moreover, some analyses are more
•• Cost-benefit analysis is the most comprehensive appropriately conducted by the revenue administra-
assessment for determining the desirability of certain tion, such as tax gap analysis (mostly conducted for
tax provisions (such as tax incentives) based on a value added tax or corporate income tax, as elaborated
broad welfare concept. Other types of analysis are in detail in the Fiscal Affairs Department’s gap analysis
usually used as input for cost-benefit analysis, for program which constitutes a model for value added tax
example, a tax expenditure study is a necessary input gap estimation)—or a methodology for revealing the
to determine the direct fiscal costs of a certain tax untaxed share of the tax base due to non-compliance.
provision (see IMF and others 2015). The results inform discussions on revenue adminis-
trations’ compliance risk management strategies and
8Incidence effects can also be informed by evidence reported in complement tax expenditure analyses, which seek to
external sources. For example, when assessing the incidence of the identify revenue effects associated with policy design
value added tax in Europe, Benedek and others (2015) report that (the tax policy gap).
changes in reduced value added tax rates might not be fully passed
through to consumers; such effects might inform European value
added tax policy, as well as policies elsewhere.

Legal Drafting be familiar with standards and guidelines developed

Legal drafting is a complex stage in the tax design by the Organization for Economic Co-operation and
process. Based on the policy formulation of intended Development (OECD), Group of Twenty (G20) and
tax changes, legal drafters must translate these into the United Nations (UN). TPU senior staff should also
concrete and transparent law. On one hand, the be involved in international initiatives on tax coordina-
applied drafting language must be tight to reflect the tion in respect of the G20/OECD inclusive framework
policy’s intent fully, without creating loopholes for tax on base erosion and profit shifting (BEPS), the global
avoidance and evasion. On the other hand, language forum on automatic exchange of information, and the
must be informed by the interpretations of a juris- UN Committee of Experts on International Coop-
diction’s courts. Due to the complex nature of tax eration in Tax Matters. Countries’ tax treaty negotia-
legislation, it is important for revenue administration tion teams, constituted on an inter-agency basis, are
officials to be closely involved in the drafting of tax commonly led by high-ranking revenue administration
legislative amendments and to stay engaged through- officials or a senior tax counsel in the Treasury, who
out the legislative process. should rely on the TPU’s quantitative analysis when
Drafting can be managed by the office of the negotiating treaty benefits for the country.
attorney general, yet be undertaken through a draft-
ing committee with different participants, including Governance
TPU staff. Sometimes, a separate parliamentary office
oversees legislative drafting standards or undertakes
the drafting role directly. In some jurisdictions, all Placement
legislation is drafted by parliament’s counsel (for exam-
ple, the U.K. Office of Parliamentary Counsel), but TPUs are commonly placed within the executive
in close cooperation with tax lawyers of the TPU and branch of government, but there are exceptions. In
revenue administration. The TPU will also manage the Russia, for example, the TPU was initially situated
legislative program and participate in reading debates in an academic environment and resourced through
on draft tax legislation in a parliament’s standing or an independent foundation.9 This independence can
select committee responsible for the deliberation on tax have the advantage of providing protection against
law amendments. overly restrictive political influences of the analyses and
forecasts by the TPU. However, an external TPU may
suffer from limited access to confidential taxpayer data
Treaty Negotiations and Participation in or a lack of information about controversial reform
International Tax Fora proposals. Instead of full delegation of all TPU func-
International tax law expertise is needed for dealing tions to an independent institution, certain tasks can
with international taxation, such as negotiating bilat- be outsourced (such as the development of economic
eral tax treaties, considering appropriate source rules, models or certain types of analysis, for example, a tax
anti-avoidance rules (thin capitalization and controlled gap study or an economic impact analysis). In some
foreign company rules), and transfer pricing. Ideally, countries, tax policies are analyzed by an independent
this process requires knowledge about the costs and ministry of planning. However, this is not generally
benefits of certain provisions in a tax treaty, calling seen as best practice, as the staff of such a ministry
for specific data analysis by the TPU on such issues. might be insufficiently informed about broader fiscal
For example, the TPU should over time begin to policies. Thus, it can lead to advice that is inconsistent
get a better understanding of the effects of tax treaty
provisions on inbound and outbound investments, as
well as on tax revenue obtained from such flows. It 9It is not uncommon that countries opt for managing advanced
should also assess risks associated with treaty shopping. fiscal analysis out of semi-autonomous fiscal institutes. An example
Moreover, the TPU should contribute to discussions of an independent fiscal policy think tank is Britain’s Institute for
Fiscal Studies, founded in 1969, and recognized as a leading inde-
about internationally agreed standards, such as binding pendent microeconomic research institute. Its research remit is one
directives (for example, used in the European Union or of the broadest in public policy analysis, covering subjects ranging
the West-Africa Economic and Monetary Union) and from tax and benefits to education policy, from labor supply to
corporate taxation (see https://www.ifs.org.uk/).

with the tax system’s overall integrity or with the wider that respond quickly to external changes. Still, a TPU
fiscal policy design (Bird 2003). needs to engage and consult continuously with the
In most countries, the TPU is placed in the ministry revenue administration to reap the benefits of “insider
of finance. Out of the 25 countries listed in Annex 1, knowledge” with respect to taxpayer behavior and
only two (Croatia and New Zealand) have assigned compliance, and to access taxpayer data generated by
the tax policy design function to the revenue adminis- the revenue administration in line with an explicit
tration. In Argentina, Brazil, Chile, Guatemala, Peru, taxpayer data exchange protocol. Institutional rivalry
and Tanzania, well-organized tax research units are between the revenue administration and TPU should
embedded in the revenue administration. These units be minimized; if left unaddressed, it could undermine
perform similar or complementary analysis of tax joint efforts in revenue forecasting and impact analy-
reform proposals, for example, by reviewing revenue sis and ultimately lead to poorly informed or highly
collections against targets, assessing and reporting on biased tax policy debates and policy choices.
tax evasion and compliance trends, and producing tax
expenditure reports. In these countries, there is gener-
ally a close working relationship between the revenue Staffing and Organization
administration and the Treasury (responsible for tax The size of TPUs tend to vary considerably among
policy design) in formulating tax policy and amend- countries, depending on the size of the country, its
ing tax laws. stage of economic development, and the governments’
Placing the responsibility for the tax policy function capacities (that is, resources) regarding the process of
within the ministry of finance—as opposed to the rev- policymaking. Figure 2 gives an example of a mid-sized
enue administration—has two main advantages. First, TPU of approximately 35 staff. Alternative structures
it is consistent with the ministry of finance’s general are also observed: for instance, direct and indirect
responsibilities for fiscal policy and macroeconomic tax experts are also sometimes responsible for the
management. Indeed, TPUs located in the ministry quantitative analysis of their respective areas; or the
of finance are often part of a wider fiscal policy unit revenue forecasting group may cooperate closely with
that formulates both tax and expenditure policy. The the macroeconomic forecasters in the budget office to
fiscal policy unit’s functions and outputs are varied but assess the overall revenue envelope. In some advanced
are usually clustered around six core areas: macroeco- economies, the number of staff could be substantially
nomic analysis and forecasting; tax policy analysis; higher. For example, Canada’s TPU employs more
revenue forecasting and taxpayer statistics; expendi- than 150 staff. In developing economies, however,
ture planning and analysis; public debt management; the TPU or division dealing with tax policy design is
and the analysis of intergovernmental fiscal relations much smaller—for example, Kenya’s National Treasury
(Martinez-Vazquez and Heredia-Ortiz 2009). Impor- currently employs about 10 staff in its tax division.10
tantly, while tax policies preferred and advocated by A TPU should be staffed with interdisciplinary
the revenue administration can be expedient from an expertise—economists, statisticians, lawyers, accoun-
administrative perspective, they might give too little tants, and tax administrators (Bird 2004). At least
weight to economic, social, or distributional impacts some analysts should have practical experience in
or the wider fiscal stance. By placing it in the ministry revenue administration and legal drafting. The inter-
of finance, the TPU is better able to serve the public disciplinary approach is important to guard against a
interest in all its dimensions. narrow policy orientation.
A second advantage of locating a TPU in the min- TPU staff should be employed on a long-term basis;
istry of finance instead of the revenue administration their positions require ample investment in human
is that the latter may be naturally more risk-adverse capital development through in-house training, which
to policy changes (especially if they are frequent) that calls for firm commitment from both the staff and the
necessitate substantial adjustments to administrative organization. Experts should impart their knowledge
and information technology systems. It is for those
reasons that the revenue administration might be more
10Systematically documented information about the organizational
inclined than the ministry of finance to refrain from
arrangements of countries’ TPUs is scarce. South Africa’s TPU has
proactively advocating tax policy changes that could a staff of about 40, with their focus split evenly between legal tax
improve the overall architecture of the tax system or design and economic tax analysis.

Box 1. The African Tax Institute

The African Tax Institute was born out of the and cooperated with the University of Pretoria to
fortuitous union of two initiatives: first, the United establish the Southern African Tax Institute. Due to its
States Agency for International Development (USAID) wide regional acceptance and recognition for its suc-
and the U.S. Treasury supported, through financial cessful tax training modules, the Southern African Tax
and technical resource transfers, the creation of the Institute evolved into the African Tax Institute. The
South African tax policy unit in the National Treasury. Institute is devoted to training, research, and technical
Second, the Harvard International Tax Program pro- assistance in areas of tax policy and tax administration
moted the establishment of an academic tax institution for Africa. The Institute employs international tax
serving Africa. In 2002, the South African National experts, including from the International Monetary
Treasury, a private U.S. donor, and the USAID funded Fund, on a short-term basis.
on junior staff, evidencing the organization’s commit- Where foreign donors initially set up a TPU, it
ment to the lifelong training and development of staff. is critical to pair local staff with foreign experts and
The TPU should offer market-based salaries to attract international advisors who initially run and manage
qualified staff and retain scarce skills. This is often it. These cooperative efforts encourage domestic staff
problematic in developing economies. For example, to publish working papers jointly with international
some African countries face a limited pool of individ- experts, which can raise the quality and usefulness of
uals with skills in accountancy, economics, statistics, reports (Martinez-Vazquez and Heredia-Ortiz 2009).
and tax law. In addition, even when trained within the Analytical capacity can be provided by local academic
TPU, staff are often drawn away to the private sector institutions to preserve capacity for the future and
or to a semi-autonomous revenue administration that encourage fresh inflow of academically trained staff,
offers more competitive wages. A TPU with a dynamic especially in cases where donor-funded skills transfers
internship program, offering bright finishing PhD are expected to dry up after some time. An example is
students practical work experience for a few years, the African Tax Institute (Box 1).
could counter some of these destabilizing effects of the
labor market.
Figure 2. Example of an Integrated Tax Policy Unit
Minister of Finance
Head of Tax Policy

Division
Manager of Manager of Manager of Revenue

Manager of Indirect Manager of Direct Administrative
International Tax Legislation Drafting Forecasting and Policy
Tax Policy Division Tax Policy Division Support Staff
Division Division Costing Division
Six tax policy Nine tax policy Three tax policy

Five legal drafters Three data analysts
analysts analysts analysts
Note: The head of the tax policy department is synonymous to the head of a TPU.

Figure 3. The Tax Policy Development Life Cycle

Broad Policy Design Level
Increasingly detailed design issues including revenue adminis-

tration operations, and taxpayer compliance considerations.
Consultation with stakeholders affected by the tax proposals

Ministry of Finance Role:
Decides the broad policy
parameters, taking into account
advice on practical administrative
and compliance considerations.
Revenue Administration Role:

Advises ministry of finance on likely
administrative and compliance issues
of high level policy options. It is
responsible for specification of the
operational policy features, including
those that must be codified in legislation.
Detailed Operational
Policy Design
Interactions with the Revenue Administration and other administration. For example, Australia has broken
External Relations down barriers by organizing preparatory work through
The relationship between the TPU and the legal/ project committees (Box 2). Such committees can
technical and operational departments within the foster a coordinated and effective approach to rev-
revenue administration is critical. Tax policy analysts enue forecasting, policy analysis, and guidance of
should consult with the revenue administration’s the tax debate.
operational managers on the feasibility of tax policy In the interest of well-considered and practical
proposals under consideration. Conversely, managers taxation policies, the relationship of the TPU and the
in the revenue administration should be responsible operational side of the revenue administration should
for alerting the TPU of possible weaknesses in the be formalized under a firm institutional arrangement
tax legislation that are identified while processing (for example, a protocol). This is especially import-
and auditing tax declarations, and for ensuring that ant if the revenue administration is organized as a
anonymized taxpayer data is made available regularly semi-autonomous revenue authority. A mutually
in the format and within timeframes required by the binding protocol could delineate how their respec-
TPU. Figure 3 illustrates the nature of these interde- tive inputs would be coordinated and organized. The
pendencies. It shows the greater relative influence of protocol also needs to provide for conflict resolution
the ministry of finance during the early stages of the when the Treasury and revenue administration cannot
policy development process when broad policy issues agree on a common tax policy stance and/or legislative
are being decided upon. Subsequently, the revenue matter. In such situations, the Treasury, as the leading
administration has greater influence, as matters of policy institution, must ensure that the revenue admin-
detailed operational design of the legislation are being istration’s opposing view is provided to the executive
developed.11 (the minister) in the format approved by the revenue
Countries have developed different ways to orga- administration. The minister should provide direction,
nize collaboration between the TPU and the revenue and utilize input from the legislative counsel or a tax
advisory body (for example, Australian Board of Taxa-
11“Legal drafting” would be an integral part of the process labeled tion, Turkish Tax Council, and so on).
in the figure as “detailed operational policy design.”

Box 2. Australian Integration Model in Tax Policy Design

The Australian integration model in tax policy development and for ensuring that the final products
design and the drive towards transparent public con- of the integrated design process achieve their stated
sultations was initially applied to business tax reforms. policy objectives. It is also responsible for the oversight
The approach emphasized the need to move from a of tax laws and regulations. Second, the Australian
“sequential” taxation design process (different units Taxation Office is primarily responsible for the design
organized in terms of labor specialization) to a holistic and development of the legislative, administrative, and
approach by combining units of different institutions compliance systems to give practical effect to stated tax
in project committees or cross-functional teams. In policy in addition to the implementation and ongoing
formulating new tax proposals, the design commit- administration of these systems. Finally, the Office
tees draw their membership from the Treasury’s tax of Parliamentary Counsel has primary responsibility
policy unit, the revenue administration and its various for detailed tax design and drafting of tax legislation.
specialist units, and parliament’s counsel. These units These tax design working committees need to be
maintain their separate identities, accountabilities, resourced properly (especially if external expertise is
and core functions, but cooperate in committees or drawn into such a process); the research brief needs to
teams that are tasked to review separate aspects of be drawn up and agreed upon by responsible govern-
the tax system or a specific tax policy issue. This tax ment institutions, team leaders need to be appointed,
design approach delegates, first, to the Treasury’s tax and effective project management arrangements need
policy unit the primary accountability for tax policy to be established.
The TPU should have reasonable access to taxpayer The TPU should also coordinate with other stake-
data to ensure its successful operation. Given that rev- holders to ensure a smooth and sound tax reform
enue administrations’ collection activities generate data process that receives broad public support. External
on the financial affairs of taxpayers, access to such data consultation with the private sector, the statisti-
is legally protected and often subject to strict secrecy cal office, and parliament’s legislative counsel are
rules. Consequently, access rights must be carefully important—and the evidence in Annex 1 suggests that
balanced within such cooperation protocols. For that this is almost universal. TPUs should be judicious as to
purpose, the identity of taxpayers must be concealed which other institutions contribute to tax policy for-
or, in the case of large taxpayers, information needs mulation so that hints of state capture by private sector
to be merged with aggregate taxpayer data if it would interests do not arise (McIntyre and Oldman 1975).
allow for their identification (for example, if only one Also, communication is important to build support
big oil company or brewery is operating in the jurisdic- across party lines. Stakeholders should be informed
tion). Access to taxpayer data is best achieved through about the need for certain tax policy reforms through
the signing of binding protocols, as informal under- active information campaigns. It is desirable that the
standings or traditional practices based on an individu- TPU’s research and policy discussion papers be widely
al’s conduct and willingness to cooperate in a taxpayer available on the government’s website (D’Ascenzo
data exchange may not be sufficient. The alternative of 2002, Du Toit 2004).
allowing TPU staff to take so-called oaths of secrecy
to access confidential and individualized taxpayer data
from the revenue administration is neither common TPU and Advisory Boards
nor favored by revenue administrations.12 If major structural changes to the tax system are
contemplated, the appointment of a special “one-off”
commission may assist the government in deflecting
12The TPU may also encourage the revenue administration
political difficulties during the tax reform process.
to share anonymized taxpayer data with academic researchers or
international organizations, under strict agreement regarding the This has sometimes proven an effective tool for tax
disclosure of information. Revenue administrations are increasingly reform. Australia, Canada, Columbia, Germany,
inclined to do this, as new research can benefit the quality of policy India, Italy, Japan, the Netherlands, New Zealand,
analysis and decision making.

orway, Poland, South Africa, Sweden and the United

N end, experience yields a number of lessons that may be
Kingdom (mostly through the Institute for Fiscal of assistance to countries in the process of establishing
Studies) have complemented the Treasury and revenue or advancing a TPU:
administration tax policy machinery with appointed 1. Establishing a TPU requires broad support in
commissions of inquiry into the tax system. Com- government. There should be wide political
missions often consist of panels of tax practitioners, consensus regarding the importance of effective,
business leaders, and academics. Some make use of efficient, and fair domestic revenue mobilization.
tax specialists from the TPU, as they depend on their The ministry of finance should convey to other
knowledge and secretarial inputs. Yet, tax reform organs of state the TPU’s central role in designing
commissions are not always successful. For instance, tax policies.
experience suggests that governments often appoint 2. A TPU may start on a small scale and grow
tax commissions to deflect popular resentment of the gradually. Low-income countries with limited
tax system, thereby postponing hard decisions. Also, resources and weak institutionalized capacity could
tax-reform-by-commission may allow the govern- begin with a small TPU comprising perhaps five
ment to cherry-pick recommendations acceptable staff—for example, two analysts focusing on direct
to the executive while ignoring those elements of and indirect taxes, one tax lawyer, and two econo-
the proposed tax reform that underpin the tax sys- mists in the revenue analysis section (focusing on
tem’s integrity. tax expenditure budgeting and revenue projec-
Countries may also establish permanent review tions). This could gradually be expanded with
bodies or tax advisory boards, which report to the more specialized functions.
ministry of finance and serve as screening devices in 3. The revenue analysis section of the TPU may ini-
assessing public support (mainly from tax practitioners tially operate as a technical working group with
and businesses) before draft tax legislation is tabled for delegated staff, for example, from the statistical
wider public comment. In Australia, for example, a bureau or similar institution, thereby leveraging
non-statutory Board of Taxation is tasked with advising scarce skills and knowledge in government until
the treasurer on improving the tax system. The Board the TPU’s own capacity is expanded.
comprises ten members, seven of whom, including the 4. The drafting of tax laws may initially be assigned
chairman, have been appointed from the nongovern- to the attorney generals’ office, with growing
mental sector. The Board is supported by a secretariat involvement of the TPU over time. The legal
provided by the Treasury. Permanent advisory commit- drafting process could be executed by an interde-
tees may, however, sometimes run the risk of lobbying partmental committee with treasury and revenue
for special interests (or perceived as doing so), which administration representation. Ultimately, as tax
should of course be avoided; the latter can be achieved lawyers join the TPU, the unit could draft tax laws
through governance rules that excuse members from itself, or provide expert advice during the tax law
deliberating on matters in which they have a direct drafting process where that function is in another
interest. South Africa and Turkey have put in place government agency or parliamentary body.
similar advisory boards, which provide an institutional 5. The TPU should ultimately employ an interdis-
platform for engagement with taxpayers on identifying ciplinary group of experts, with qualifications in
inconsistencies in tax laws and seeking ways to alleviate economics, econometrics, statistics, tax law, and
compliance burdens. accountancy. Staff should have advanced academic
qualifications, together with experience in govern-
ment, budgeting, and taxation.
How to Establish a TPU? 6. TPU staff positions need clear job descriptions
Most advanced economies—in contrast to many and performance agreements, aligned with the
developing economies—have well-functioning TPUs short- and medium-term strategic plans of the unit.
that provide revenue forecasts and economic impact 7. TPU leadership must have solid experience in tax
analyses, support legal drafting and tax treaty negotia- policy theory and contemporary tax debates. The
tions, and guide the tax policy debate. For developing unit will be responsible for overseeing a country’s
economies, establishing a TPU is a vital step toward tax policy development and implementation. TPU
building an effective revenue-raising system. To that leadership will engage with legislative counsel,

arliament’s standing or select committees on pub-

p
lic finance, taxpayer associations, and practitioners.
To provide objective advice to the minister, TPU
leadership should be apolitical.
8. The TPU should be supported by a binding
agreement with the revenue administration
about accessing sanitized taxpayer data for
modeling purposes—while honoring important
taxpayer confidentiality protocols enforced by the
revenue administration.
9. A newly created TPU should disseminate infor-
mation publicly, for example, through releasing
tax analysis working papers and aggregated tax
statistics (for example, revenue structure, sectors’
revenue contributions, and distributional analy-
ses). This will improve the TPU’s public profile
and perceptions about its objectivity.
10. Complex analyses may be contracted out to
local academic institutions as part of long- term
academic backstopping. This should include an
internship program managed by the TPU to
identify, attract, and ultimately retain competent
analysts. TPU management should play a strong
mentoring role and encourage life-long train-
ing of staff.
The translation of these lessons into operational

advice on establishing a TPU requires an assessment of
country-specific circumstances, capabilities, and pref-
erences. The IMF stands ready to provide such tailored
technical assistance where desired.

References
Arnold, B.J. 2013. “The Process for Making Tax Policy: An
International Comparison—Proceedings of a Round Table
on the Tax Policy Process.” Canadian Tax Foundation,
Ottawa. June 20.
Benedek, D., R. de Mooij, M. Keen, and P. Wingender. 2015.
“Estimating VAT Pass-Through.” IMF Working Paper
15/214, International Monetary Fund, Washington, DC.
Bird, R.M. 2004. “Administrative Dimensions of Tax Reform.”
Asia-Pacific Tax Bulletin, International Bureau of Fiscal Docu-
mentation, March: 134–50.
———. 2003. “Managing the Reform Process.” Joseph L.
Rotman School of Management, University of Toronto Inter-
national Tax Program Paper 0301 (April): 32.
D’Ascenzo, M. 2002. “Taxation Law Design.” Journal of Austra-
lian Taxation 5 (1): 34–58.
Du Toit, P. 2004. “Tackling Tax.” In Manuel, Markets and
Money—Essays in Appraisal, edited by R. Parsons. City: Press,
with du Toit, P. “Tackling Taxes.” Juta, Cape Town, South
Africa, 63–84.
International Monetary Fund (IMF), Organization for Economic
Co-operation and Development (OECD), World Bank,
and United Nations. 2016. “Enhancing the Effectiveness of
External Support in Building Tax Capacity in Developing
Countries.” Report prepared for the G20 Development
Working Group by the Platform for Collaboration on Tax,
Washington, DC.
———. 2015. “Options for Low Income Countries’ Effective
and Efficient Use of Tax Incentives for Investment.” Report
prepared for the G20 Development Working Group by the
Platform for Collaboration on Tax, Washington, DC.
IMF and OECD. 2017. “Tax Certainty.” IMF and
OECD Report for the G20 Finance Ministers, March,
Washington, DC.
Lang, M., J. Owens, P. Pistone, A. Rust, J. Schuch, C. Staringer,
and A. Storck (editors). 2016. “Trends and Players in Tax
Policy.” Institute for Austrian and International Tax Law,
European and International Tax Law and Policy Series 4,
Amsterdam: IBFD.
Martinez-Vazquez, J., and E. Heredia-Ortiz. 2009. “Designing
and Establishing Fiscal Policy Analysis Units – A Practical
Guide.” United States Agency for International Development,
Washington, DC.
McIntyre, M.J., and O. Oldman. 1975. “Institutionalizing the
Process of Tax Reform: A Comparative Analysis.” Harvard
Law School International Tax Program/International Bureau
of Fiscal Documentation, Cambridge, MA.
Wales, C. J., and Christopher, P. Wales. 2012. “Structures,
Processes, and Governance in Tax Policy-Making: An Initial
Report.” Oxford University Centre for Business Taxation,
Oxford, United Kingdom.
World Bank. 2015. “East Asia and Pacific Economic Update.”
October. World Bank, Washington, DC.

ANNEX 1
Cross-Country Practices with
Tax Policy Design
Institutional Location of Tax Policy Other Institutions outside
Arrangements
Formulation/Tax Policy Ministry of Finance Pronouncing Role and Capacity of Legislature to Process of Public Consultation/
Country Unit Function Core Functions on Tax Policy Independently Analyze Tax Design Taxpayer Engagement
1. Australia The Treasury formulates advice The design of structural tax reforms The role of the Australian Taxation The power to promulgate tax laws The Board of Taxation (a non-
for government on taxation and legal drafting is organized Office (ATO) in policy design is rests with parliament (the House of statutory advisory body) creates
options, drafts tax laws and within an integrated working more limited, but it contributes to Representatives and the Senate). a tax discussion forum for the
regulations, and prepares committee. Several divisions in the a number of working committees The Senate’s Standing Committee on Treasury, the ATO, and the
economic impact statements Treasury’s Revenue Group formulate of the Australian Integration Model Economics reviews all taxation bills. private sector. Consultations with
and official revenue impact tax policy advice, which includes regarding tax policy. Treasury’s Parliamentary scrutiny is somewhat taxpayers constitute an integral
assessments and forecasts, revenue forecasting: Corporate and core policy and revenue forecasting hindered by the maintenance of part of the policy design and
in support of the annual International Tax; Small Business functions are executed in close strict confidentiality during the draft legislation phases, as it is
government budget. The tax Tax; Indirect Tax, Philanthropy conjunction with the ATO, the budget process with reference a discovery process on how best
policy debate is contested and Resource Taxation; Personal principal revenue collection agency. to tax law changes. Given strong to implement policies; minimize
among the different arms of and Retirement Income Tax; Tax In 2012 this relationship was party discipline, there is little compliance costs; elucidate on
government: the executive, the Analysis; Tax Law Design Practice. delineated in a protocol between the room for amending tax proposals policy intent; create a forum
legislature, and the judiciary. The operations of the Revenue ATO and Treasury. The Cabinet of once assumed into the taxation for discussing policy options on
Group are managed by an executive. Ministers is the eminent tax policy amendment bill. The Parliamentary an informed basis; and provide
The group has an active technical decision making body. Budget Office, created in 2011, situational awareness for
assistance program, which provides with a staff complement of 25–30, taxpayers, which could have a
Major structural tax reforms or
for the secondment of private sector provides independent, non-partisan positive impact on tax morale. In
reviews are conducted by way of
experts to government for periods analysis of budget policy issues, 2013 a Tax and Transfer Policy
review commissions (for example,
of up to two years in return for including taxes, accessing tax Institute was established as an
the 1975 Asprey Review on tax
compensation. statistics, and reviewing the results independent center of excellence
base broadening; the 1999 Ralph of Treasury’s revenue modeling. The at the Australian National
Review on International Taxation Joint Committee of Public Accounts University’s Crawford School of
Arrangements; and the 2010 Henry and Audit and the Senate Economics Public Policy. It collaborates with
Review on Australia’s Future Tax Committee conduct public hearings academics on a wide-ranging tax
System). There is limited use of with respect to the design and research agenda.
academic institutions by government, administration of taxes.
with semi-independent institutions
conducting commissioned tax
research.
(Continued)
International Monetary Fund | October 2017

16
17
Arrangements
2. Austria Experts in the Ministry of Finance Legal specialists drive the design The Council of Ministers (cabinet), The legislative process must be fair A draft tax bill is circulated to
(MOF) design tax policies and— of the tax bill and its associated after the public comment period, and transparent and it must ensure all state departments, federal
through a consultative process regulations. Given the complex authorizes the tax law’s promulgation that the general public is adequately governments, and interest groups
with representatives from other technical nature of tax law, the on the basis of unanimous approval. informed. Formal requirements and for comment. The draft is also
ministries, scholars, external MOF’s technocrats lead the process. The so-called post-World War II compliance with specific deadlines published on the home page of the
experts—draft the annual “social partnership” requires the are especially important to ensure parliament’s website, allowing all
finance bill with the contained tax reconciliation of social partners’ transparency. In order for the National political stakeholders to provide
proposals. different interests—that is, the Council to be able to assess a tax further input. The Council of
Austrian Federal Economic Chamber; proposal, a bill must be presented in Ministers must consider these, but
the Chamber of Agriculture, the the form of a motion. In the National is not bound by them.
Austrian Federal Chamber of Labor, Council, bills are deliberated in the

and the Austrian Trade Union relevant committees and in the

Federation. Each of these bodies plenary. Before a bill is adopted, it
have their own tax experts that must be studied and discussed in
participate, through comments, in the detail. The Federal Provinces are also
conceptualization phase towards a involved in the legislative process.
draft tax law. Their representatives in the Federal
Council can confirm, or veto, a bill
passed by the National Council. Before
a law enters into force, it must be
authenticated by the federal president
as having been passed in good order.
Once authenticated, it is published in
the Federal Law Gazette.
Arrangements
3. Brazil The executive plays a prominent The Tax Studies Unit in the Revenue The key players in tax policy Congress approves tax legislation, Although it is not mandatory,
role in proposing tax policy Service and the MOF are responsible reform are potentially all those line but the right to propose new key draft laws are in some
reforms and amendments to for analyzing taxes and their policies. ministries (for example, the Ministry tax laws can be exercised by cases submitted for public
tax laws. This work is jointly For that purpose, they employ multi- of Commerce and Development, the the executive and the legislative consultation, which in general
carried out by policy and legal disciplinary teams of economists, Ministry of Agriculture) that could be branches. Individual members of involves engagement with
drafting specialists in the engineers, lawyers, statisticians, and involved in, or whose line functions congress can also introduce their business associations, the Bar,
Revenue Administration and by accountants. The Tax Studies Unit is are impacted by, proposed changes own motions for tax policy changes and public sector agencies.
macroeconomists in the Ministry tasked with: (1) preparing the official in tax law. They can comment or amendments to the draft tax Commercial interests may exert
of Finance (MOF). The Revenue revenue forecast that goes into the on the policy content of draft tax legislation. Tax bills are reviewed by important influence on tax policy
Service is responsible for impact Federal Budget; (2) monthly monitoring laws. Congress can also comment the Congress Legislative Committee. design through this process,
analyses, calibration of rates of the revenue execution performance on the desirability of certain tax The Committee on Constitution and opposition to tax policy
and bases, and the drafting and publishing corresponding data/ policy changes, as can various and Justice vets tax bills’ changes can be also expressed
of legislation. All explanatory analysis; (3) preparing and publishing private institutions (for example, constitutionality. After the House via the media. However, it is not
memoranda supporting tax the Federal Tax Expenditures the Bureau for Small and Medium- of Representatives and the Senate apparent that this is in all cases
changes are signed by the Budget; (4) proposing and drafting Sized Enterprises, which often have approved the bill, the president a structured public consultation
Minister of Finance. The tax law changes and amendments; exercises influence on presumptive receives it for approval or veto. process with a specified range of
preparation of secondary law (5) carrying out impact analyses of tax legislation affecting small taxpayer associations. In certain
(normative rulings, tax admin changes in tax laws to support tax and medium-sized enterprises), situations, consultations may
decisions and practices) are policy changes; and (6) preparing and diverse trade and business take place at the discretion of
carried out by the Revenue and publishing analytical studies associations. the Ministry of Finance or the
Service. about the Total Tax Burden (all levels Congress.
of government) and with reference
to individual taxes. The Tax Policy
Unit works in coordination with the
Legal Department of the Revenue
Administration to draft the laws.
Technocrats in the MOF influence
policies underlying the amended drafts
of tax laws.
4. Burundi During 2007–13 fundamental tax Tax policy design is formally The semi-autonomous revenue Parliament owns the process During the drafting of tax laws,
reforms were executed by the managed by the MOF, together authority (SARA/OBR) drafted the of passing tax legislation and representatives of the private
Burundi Revenue Authority (OBR) with the responsibility to draft tax new income tax law, with the tax organizing the necessary hearings on sector, through the Burundi
under direction of the Ministry laws. The MOF oversight role is design having been prepared by draft tax laws. Secondary legislation Federal Chamber for Commerce
of Finance (MOF). The envisaged developing; most of the technical the IMF’s Fiscal Affairs Department. (guidelines and rulings) are drafted and Industry and the Association
reform process, given political work in terms of tax design and legal Drafting support was provided by an ad hoc technical committee of Professional Accountants, can
uncertainties, is not necessarily drafting is advanced by external by the IMF’s Legal Division, the with representation from the MOF, comment and provide further
being comprehensively specialists, with the OBR providing International Finance Corporation, the OBR, and an international expert technical input.
implemented. policy direction and support. and East African Community experts. under the auspices of parliament.

Donors are providing material and
technical assistance for establishing
and developing the capacity of a tax
policy unit within the MOF.
18
(Continued)
19
Arrangements
5. Canada The Department of Finance Policies and legislation with respect The CRA develops tax proposals Tax legislation is initiated in Public consultations are generally
(DOF) is responsible for to key taxes, such as the personal as well, but decisions to change the House of Commons on undertaken with regard to most
tax policy formulation; the income tax, corporate income tax, elements of the tax system are recommendation of the Governor substantive changes to tax laws.
Canadian Revenue Agency (CRA) and sales and excise taxes, are tightly controlled by the executive General. The Parliamentary Budget Taxpayer and tax practitioner
administers tax legislation. The developed by the Personal Income (the Prime Minister and the DOF). Office has independent research input is also facilitated during
Tax Policy Branch (one of ten Tax Division; Sales Tax Division; The DOF usually undertakes public capabilities and comments on the hearings in the House’s
branches) in the Department of Business Income Tax Division; consultations on key tax policy department’s annual budget and Committee reviewing the budget
Finance develops and evaluates Intergovernmental Tax Policy, issues and engages in constant tax proposals. The Tax Legislation proposals, as embodied in the
federal taxation policies. The Evaluation and Research Division; dialogue with stakeholders, such Division drafts income tax legislation finance bill. Nonprofit institutes
Minister of Finance presents and Tax Legislation Division (which as the four large accounting firms, and supports its passage through can contribute to tax policy
(annually) the budget with tax mainly drafts federal tax law). The Tax Executives Institute of Canada, parliament in consultation with the debates by releasing studies
proposals (by Notice of the Ways Tax Policy Branch is comprised of a Canadian Tax Foundation, Joint Department of Justice Canada and and preparing submissions for

and Means Motion). large staff of economists, lawyers, Committee of the Canadian Institute the CRA. Parliament’s (House of parliamentary hearings. Changes
accountants, and modelers. of Chartered Accountants, and Commons) Standing Committee on to tax legislation in the form of
Canadian Bar Association, and tax Finance, through pre-budget/ad hoc technical amendments are made
advocacy groups (CD Howe Institute, consultations, can also influence tax available for public comment. Tax
Fraser Institute, Conference Board policy design and legislation. The law regulations are extensively
of Canada, the Taxpayers Advocate tax bill is read in the House (first used, and it is not necessary
Inc., Canadian Taxpayers Federation. reading), debated (second reading), that these are passed by the
The Auditor-General’s (AG) office and the third reading follows the legislature—they are approved
has significant influence on tax review in the Committee of Ways by the executive (Governor in
policy and tax law development and Means before it is sent to the Council) and published in the
through its independent audit of Senate. Canada Gazette.
federal government operations. By
reviewing CRA operations, auditing
the effectiveness of taxing non-
residents, reviewing the handling
of tax credit claims for research
and development, and by auditing
write-offs of tax debt, important
pointers for tax reform are being
generated by the AG’s office. Canada
uses tax reform commissions for
complex reform initiatives to canvass
opposing views and work towards
a wider consensus in the House of
Commons.
Arrangements
6. China The Ministry of Finance and the The formulation of tax laws follows The SAT is in charge of tax collection State organs that participate in The NPC’s Standing Committee
State Administration of Taxation four steps: drafting, examination, and the exchange of information. It is formulating tax laws or tax policy drafts the tax amendment bill and
(SAT) are responsible for tax voting, and promulgation. The four also intricately involved in executing include the NPC and its Standing publishes it on the NPC website,
policy formulation, drawing up steps for the formulation of tax the Thirteenth Five-Year (2016–20) Committee, the State Council, the calling for comments from the
the national annual budget, administrative regulations and rules Plan’s tax reform blueprint. The Ministry of Finance (MOF), the State whole country. During this public
and executing government are: planning, drafting, verification, Standing Committee of the National Administration of Taxation, the Tariff review phase, full compliance
expenditure programs. and promulgation. People’s Congress (NPC) constitutes and Classification Committee of with the constitution and
a working team of academics the State Council, and the General obligations under international
(universities and research institutes) Administration of Customs. The agreements are verified.
and officials from the SAT and MOF administrative regulations on tax Secondary legislation (that is,
to design and propose tax policy (for example, the Detailed Rules rulings and interpretations,
changes. Academia, tax officials, the for the Implementation of the Tax administrative regulations)
media, and business associations Collection and Administration Law, are important instruments for
actively contribute to the Chinese and so on) are formulated by the implementing tax laws—the
tax policy reform process. Their State Council. Departmental tax State Council can draft and enact
involvement covers the entire tax regulations, guidelines, and rules tax regulations with the help
legislative process through drafting are formulated by the MOF, SAT, the of academics, supporting SAT
of proposals for new revenue Tariff and Classification Committee and MOF staff. Such secondary
instruments, amending existing of the State Council, and the General legislation is then sent to the NPC
ones, and providing comments and Administration of Customs. and its Standing Committee for
suggestions on the proposal and endorsement.
the draft legal text when the NPC
publishes these for comment.
(Continued)

20
21
Arrangements
7. Colombia The Ministry of Finance and Tax policy design, economic analysis, Colombia employed, for the 2016 During congressional debates on Before the final bill is submitted
Public Credit is responsible for and legal drafting are the core Tax Reform Program, the institutional draft tax laws, members of Congress to Congress, it is vetted by the
the tax policy design function. functions in support of tax reforms. arrangement of an independent are heavily influenced by sectoral president’s advisors to ensure
tax reform commission, making interests—the academic input has that it supports presidential
extensive use of advice provided by only a secondary role to play. During programs and does not violate
experts. External tax practitioners times of peace, it is only Congress the constitution. The tax bill is
and academics contributed to the that has the authority to impose debated in Congress (the House
process of reviewing and drafting and amend tax legislation in line of Representatives and the
tax reform proposals. These are with the general principle of “no Senate). Its text can be modified
consultative reports only, as drafting taxation without representation.” The by members of Congress during
of tax initiatives remains the tax reform bill is prepared by the four reading debates. The
responsibility of the government. government (sanctioned by cabinet) government’s tax proposals—not

Tax law amendments face many and is drafted by a committee of those originating from individual
iterative changes by members of experts, practitioners, academics and members of Congress—are
Congress, who can individually foreign advisors, as appointed by usually those that are finally
propose deviating tax amendments. the MOF and the Tax Administration accepted. After each round of
Research institutions and universities (DIAN). The final draft, before its debate, a commission consisting
have only limited influence on tax submission to Congress, is prepared of members of both chambers
reforms, but the Ministry of Finance by a small group of senior officials to seeks to reconcile the text of
(MOF) is promoting increased forge coherence and maintain strict the newly forged post-debate
participation by the Colombian Tax confidentiality. agreement. The final text of the
Institute and representatives of the tax amendment bill becomes
top three law schools in Bogota in law. The process is influenced by
the policy design and legal drafting Congress members’ individual tax
process. Annually, government’s tax amendment motions, and is the
bill to Congress usually includes result of pressure from regions
only a limited number of the well- and campaign supporters.
researched proposals.
Arrangements
8. Croatia Tax policy design is part of The MOF—organized in directorates Special commissions for researching, Final tax law amendment bills are There is no formal consultative
the Tax Administration’s (RA) and sectors—oversees the drafting, and evaluating tax reform drafted by legal drafting experts in tax forum involving the business
functional domain within the development of tax policy, customs processes, or using the academic the MOF, but often in consultation community. However, the tax
Ministry of Finance (MOF). Its policy and tax administration. It community for purposes of structural with academics. Parliamentarians law drafting team must hold
basic task is to implement tax includes non-customs protection, tax reforms, so far, has not been can also propose tax law changes. public discussions on the aims
laws and regulations in respect supervision, and inspection tasks common practice. However, in Upon submitting the draft tax law to of the draft law before finalizing
of social security contributions in the field of taxes, customs, isolated cases, representatives parliament, the Law on Evaluating the draft bill. The allotted time
(SSCs). The RA compiles and and other public revenues, and of universities are invited by the Effects of Laws kicks in, and for such discussion is 30 days.
processes data on taxes and of foreign currency exchange MOF to make presentations on the revenue and compliance impacts The draft bill is published on
SSCs, suggests changes in tax and foreign trade business final draft of a tax law amendment must be assessed. For the following the website of the legal drafting
policy, tax and other regulations, operations, and the organization of bill (for example, the recent real 15–30 days, said draft bill must team, and the team must report
and prepares and draws up draft games of chance. The Sector for estate tax bill). Two state-financed be publicly discussed. Parliament’s back in detail on discussions
legislation and regulations aimed Legislative Activity, Education, and research institutes—the Institute Committee for Finances and State held with all stakeholders,
at improving the tax system. International Cooperation in the for Public Finance and the Institute Budget organizes the hearings on including on suggestions that
Parliament and working groups Tax Administration contributes to of Economics—often participate on the draft tax bills. After the hearings, would require accommodation.
of parliament, including political policy development and is organized an ad hoc basis in governmental the committee submits its report Furthermore, reasons for rejecting
parties, have the right to propose into departments as follows: VAT advisory bodies (for example, the to parliament, which includes private proposals must be clearly
tax policy amendments. Department Contribution, PIT and CIT Council of Economics of the Prime the suggestions put forth by tax provided. There is no hard rule on
Department PIB; Fiscalization, Local Minister) to research economic, practitioners and other stakeholders. the relative influence of parties
Taxes Department; Tax Procedure revenue, and distributional impacts commonly involved in tax policy
Department, Information and of envisaged tax changes. Although formulation (that is, political
Education of Taxpayers Department, the MOF does not have a de jure parties, public officials, MOF). The
Lottery Games Department, Fun and veto power, tax policy is the exclusive ultimate process and outcome
Rewarding Games Department, Tax prerogative of the MOF, and its is very much influenced by the
Treaty Division; European Affairs minister will have a de facto veto issue itself.
and International Cooperation power on tax proposals coming from
Department. The Sector for other line ministries. So far, ministers
Legislative Activity, Education, and of finance have been very strong and
International Cooperation prepares influential in cabinet.
draft tax laws.
(Continued)

22
23
Arrangements
9. Czech Republic The Department for Tax Policy, The Department for Tax Policy, The MOF is responsible for tax policy Newly drafted tax law amendments Public consultations are the
Cooperation, and Administration Cooperation, and Administration design, but during consultations on closely adhere to government’s practice for any legislative
in the Ministry of Finance Department proposes additional amendments of tax laws, cooperation legislative rules and guidelines and proposal, preceded by the
(MOF) coordinates inputs from revenue raising measures as needed with other line ministries on taxes’ aim to comply with international obligatory inter-departmental
a number of tax departments by coordinating closely with the economic and distributional impact treaties, EU law, and case law. or inter-service consultations
in the MOF and those that are public budget department, which, is actively sought. Nevertheless, Draft legislation is circulated for in which all members of the
involved with the formulation on a quarterly basis, reviews the the MOF can always veto other comment through a formal inter- government and their services
of tax policies. The department revenue predictions, as influenced line ministries’ tax proposals. service consultative process among must be involved. Also, non-
reviews the tax system’s by macroeconomic developments. The influence of academia, the ministries, regions, the office of the governmental bodies receive
individual revenue instruments The department also maintains a media, and tax practitioners on president, and both chambers of the tax laws amendment bill for
and customs duties in order to tax statistics database, designs structural tax reforms varies. parliament. Draft legislation is also comments, including professional
raise revenues in line with the strategies for combating tax evasion, Public consultations are conducted published on the website of the chambers and employer

annual budget requirements. The and implements some European openly in the case of key reforms. ministry. The Legislative Council of federations, associations, and
tax department usually works on Union (EU) and Organisation Tax dialogue with trade unions, Government reviews the draft tax bill academia. All these bodies
two or three big tax policy reform for Economic Co-operation and employer organizations, and other for its constitutionality. The so-called are granted the opportunities
projects during the political term Development tax-related agendas stakeholders takes place after tax “Tripartism”, which is a voluntary to discuss individually their
of a government. (that is, international tax cooperation). proposals have been assumed into conciliation body made up of trade comments with the Ministry
The international agenda, such as draft legislation, with the exception unions, employers, and government, of Finance. Political parties,
communication with the European of the Chamber of Tax Advisers, is specifically requested to comment especially those who have taken
Community and representing the which is often consulted before the on the draft tax bill. political control of the MOF,
country in the EU Council, value release of draft legislation. The Czech wield strong influence over the
added tax and excise harmonization; Republic’s tax administration—the agenda and substance of tax
direct tax harmonization; and Financial Administration (FA)—has policy design—which is a quite
tax treaty negotiations, is spread considerable impact on tax design common global practice.
across separate departments, such through its regular inter-service
as Indirect Taxes, Direct Taxes, consultations with the Minister of
Property and Road Tax. These Finance. The FA is consulted for
departments are also responsible input before the tax amendment
for the design of these respective bill is circulated for comment to
taxes. The Administrative Operations other ministries. Formulation of
Department formulates policies tax policies does not follow a rigid
on user-charging and functions procedural process. It is largely
as an appellation body for some driven by the needs of the day and
decisions on tax administration. the make-up of working committees,
The Tax Legislation Department constituted from relevant ministerial
prepares draft tax legislation based departments. Very often, an informal
on solutions delivered by the Area arrangement develops within a group
Departments for all direct and of experts tasked with the drafting
indirect taxes. It guides tax bills of tax options. Independent research
through the legislative process and institutes and universities can, to
designs policy in the area of tax some extent, influence tax reform
Arrangements
9. Czech Republic and customs management and deliberations. Although the tax reform
(continued) procedures, including the gambling process is directed by the political
tax. The Section Taxation and forces of the day, in the past, some
Customs of the MOF is headed by the Prime Ministers have chosen to rely
Deputy Minister in Charge of Taxation on independent advisory bodies, such
and Customs. as the National Economic Council
of Government that was established
in 2009. It is staffed by economists,
advising government on broad
public policy topics, one being public
finance.
10. Finland The Ministry of Finance (MOF) is The Tax Department in the MOF Although the MOF is responsible for The Tax Committee in parliament Civil Society and trade unions
responsible for tax policy design, formulates tax policy and is tax policy design, close links with exercises strong oversight over the make substantive inputs and
including economic analysis responsible for legal drafting of academia and research institutes are tax policy design process by inviting comments during the tax policy
of the tax system. The Tax tax and customs legislation. It also maintained. They play an important testimony from academia, tax development phases. Their
Department is the government’s negotiates Double Tax Treaties role in preparation and evaluation practitioners, and the private sector engagement is facilitated by an
expert on tax policy. It is and acts as the Finnish Competent of tax reforms, for example the to be submitted during hearings. open and formalized process of
responsible for developing the Authority under these treaties. The Government Institute for Economic The committee also initiates post- consultation.
tax system and assessing the Tax Department is divided into six Research, under direction of the implementation reviews of newly-
effects of tax policy. The tax units: Personal Income Tax; Corporate MOF, has participated in tax reforms. introduced tax measures.
policy design process is further Income Tax; Value Added Tax; Finland has also used commissions
supported by the Economics Customs; Excises; and International and committees, comprised of tax
Department (through analysis of Tax Affairs. experts, to contribute to important
the developments in the Finnish structural tax review initiatives.
economy and its public finances)
and the Budget Department
(which coordinates the work on
central government budget and
budget policy). The Finnish Tax
Administration collects taxes; it
is an agency under the authority
of the MOF.
(Continued)

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11. France Tax policy design is a core The Minister of Finance oversees the The Minister for the Budget, Public There is scope in commenting Business participates only to
function of the Ministry for the drafting of tax laws by exercising Accounts, the Civil Service, and State on tax policy changes. Tax policy a limited extent in the public
Economy and Finance (MOEF). control over the Tax Policy Board Reform supervises the preparation changes in the context of the consultation process on tax
It is one of the most important of the Department of Revenue. The of the annual finance law and annual budget are assumed into legislation. There is a limited
ministries in cabinet—and relies French tax system is managed by coordinates tax rulings closely the finance bill, which is kept engagement with academia.
notably on highly qualified staff three separate divisions dealing with: with the Ministers for the Economy secret until tabling in the National
from the National School of (1) corporate income tax and value and Finance, and Industry and Assembly, but can be amended
Public Administration. added tax; (2) personal income tax Employment. For that purpose, he due to received comments. The
and local taxes; and (3) customs and requires inputs from the Board for parliamentary standing committee
excises (fuel, alcohol, tobacco). Tax Policy. In the tax design phase, on budget/taxation hesitates to
other government departments make summon Ministry of Finance officials

inputs. Within the tax administration to hearings explaining adopted

(DGFiP) the fiscal legislation tax policies. Parliamentarians are
directorate (DLG) drafts tax law, not professionally supported by
once revenue projections have been analytical research staff to review
finalized by the revenue analysis government’s tax policy proposals in
units in the MOEF and the DGFiP. a non-partisan way.
Arrangements
12. Germany In the Ministry of Finance These are the key policy divisions The MOF’s tax policy proposals are Tax law amendment bills are During hearings of draft
(MOF), DG IV is responsible for and functions on the DG/Section III thoroughly prepared and remain prepared by drafting experts in legislation in the Bundestag or
tax policy development. The on customs, value added tax (VAT) mostly unchallenged from tax the Federal Ministry of Finance parliament, external experts
task is complicated, given the and excises (Customs: strategic practitioners outside government. in consultation with the tax and interest groups can make
fiscal federalism dispensation. planning, administration, control The MOF can rely on strong administrations of the Länder. At written and oral representations
Depending on the type of tax audits for European Union (EU) and academic support (both in economics times, tax legislation is prepared by as part of a broader consultation
(as specified in the constitution), the Global Economy; compliance and law) for tax policy development. Länder Ministries of Finance and process. In the case of hearings
tax legislation is either prepared monitoring, risk analysis); (Excises: This is made available through the the Bundesrat (a body representing on fundamental structural tax
at the federal or state level, in air transport taxes, circulation taxes, highly regarded and capacitated the federal states). It is important reforms, consultations take first
which case it can (depending on EU harmonized excises, energy Academic Advisory Board. In to note that the Bundestag and place in the Federal Ministry of
the tax) either be in competition taxes, tobacco, alcohol and green addition, structural tax reforms are Bundesrat are two separate Finance, before cabinet adopts
to the federal level (that is, taxes); and consumption taxes (VAT, at times being advanced through the institutions under the constitution the draft taxation bill. There is
the Länder are only allowed to transport taxes, fire insurance tax, appointment of Tax Commissions and both can originate legislation some criticism by taxpayers about
legislate a tax if no federal tax taxation of lottery winnings and (Brühl Commission on fundamental with both institutions having insufficient or inconsistent policy
law exists), or exclusively at games of chance). The DG/Section IV business tax reform), given that their defined procedures and roles in deliberation approaches when
subnational level. In practice, deals with tax policy design and broad membership (representatives adopting such draft legislation. it comes to engagement with
most tax legislation is formulated law for all direct taxes—income from business, public administration, Limited professional support is external stakeholders, taxpayer
at the federal level—that is, the and capital, property taxes, tax academia, tax practitioners, trade made available to the elected associations and practitioners.
federal level uses the option to law design, updating the tax unions and local authorities) provides representatives in the Bundestag and Legislation in some cases is
pass legislation in areas where it procedural code, interpretation and a realistic chance for the acceptance its review committees. Committees finalized when the hearings and
could also be done by the Länder. guideline notes, tax simplification, of tax proposals by parliament. Less use expert witnesses but they reading debates in the German
The states are responsible for tax coordination federal and complex tax review projects rely on adopt a certain partisanship in their Bundestag/national parliament of
the administration of both federal states, budget revenue analyses, ad hoc working groups comprising rendered advice and evidence. the federal republic commence
and Länder taxes. Lawyers international taxation and tax tax experts from the federal and but that seems to apply to only
dominate the MOF’s staffing in treaties, and EU tax harmonization. regional tiers of government. the very few major structural tax
the tax policy department. Highly complex and controversial reform initiatives. Commonly,
tax reforms, such as corporate tax these are preceded by intense
reviews are managed jointly by deliberations conducted within
requesting inputs from the Council the Federal Ministry of Finance
of Economic Experts, together with before hearings and reading
the Centre for European Economic debates in the Bundestag are
Research, the Max Planck Institute, being scheduled.
and the Market Economy Foundation.
In particular, the German Institute
for Economic Research is popular
with tax policymakers for ongoing
analytical support.
(Continued)

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27
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13. Ireland The Tax Policy Unit within the The division is responsible for all The Department of Finance leads Annual tax law amendments are Time for wider and earlier
Fiscal Policy Division of the aspects of tax policy, domestic and a Tax Strategy Group which is being debated in parliament’s consultation with the private
Department of Finance (DOF) is international. It collaborates closely an interdepartmental committee Joint Committee on Finance, sector and other relevant
responsible for the development with the Office of the Revenue comprising senior officials from Public Expenditure and Reform, stakeholders is reportedly limited.
of tax policies in support of Commissioners, the OECD and the the DOF, the Taoiseach (Prime and Taoiseach to promote and
government’s economic, social EU in its tax formulation processes. Minister’s) office, Public Expenditure coordinate improvements to
and environmental objectives It would also coordinate outputs and Reform, Jobs, Enterprise and the tax law amendments. The
through the publication of an with the Tax Strategy Group (being Innovation, Foreign Affairs and Committee’s deliberations present
annual Budget. an interdepartmental committee), Trade, Social Protection and the an opportunity for government to
chaired by the Department of Revenue Commissioners. The Tax inform representatives and the
Finance. The Group’s core function is Strategy Group will prepare and private sector about the reasons for
to conduct an economic and revenue publish technical reports containing adjustments.

impact analysis for the tax policy various options for next fiscal
proposals and draft the necessary year’s Budget and medium and
tax legislation. longer-term tax policy proposals.
Its terms of reference are to: (1)
examine and develop proposals for
measures in the areas of taxation,
social insurance (PRSI), levy finance,
for budget and finance bills within
agreed government parameters
for the overall budget position and
in the context of the framework of
a medium-term and longer-term
strategy set out in the government’s
program, and (2) examine the
strategic approach for a general
social welfare package and to
assess the interaction of income tax/
levies proposals with social welfare
proposals, including child income
support, its impact on the labor
market, and income distribution.
Since 1999 the Tax Strategy Group
has been preparing analytical papers
in the runup to the annual budget
discussions
Arrangements
14. Italy The Ministry of the Economy While tax policy is centralized in the Italy is using the institution of tax Commonly, tax legislation is The introduction of major tax
and Finance (MOEF) is the MOEF, mainly operated out of the reform commissions with the view to approved by tabling it in parliament law amendments and drafting
responsible line ministry tasked Department of Finance (Directorate reforming complex aspects of the tax for debates. It is ultimately approved of tax bills is preceded by
with the formulation of tax policy for Studies and Research on Tax system. Academia is then coopted after it passes through hearing meetings between government,
and revenue-raising strategies, Economics and Directorate for Tax in by appointing knowledgeable debates of the parliamentary budget representatives of social
whereas the semi-autonomous Legislation and Fiscal Federalism), tax experts to serve on these tax committee; or taxes are imposed constituencies, trade unions, and
Revenue Agency collects taxes. the revenue administration is commissions. Even though there is by legislative decree upon receipt employer federations. The same
fragmented across multiple bodies: no public finance institute, such as of a law-making parliamentary representatives also participate
Revenue Agency, the Customs the UK Institute for Fiscal Studies, delegation; or a law decree by in parliamentary hearing debates
Agency, the Guardia di Finanza specializing in tax research, the government. All tax legislation is on the tabled draft tax legislation,
(customs and excise enforcement Council on Economics and Labor accompanied by reports providing by presenting comments
agency), Equitalia (tax debt collection (a consultative body for economic reasons for the legislative change, and alternative tax options to
agency), Social Security Information and social matters reporting to its purpose, and the financial impact members of the parliamentary
IT (SOGEI), and SOSE (private Government, parliament, and the of the proposed measures. These budget committee. This process
company owned by the MOEF and regions) recently drafted proposals technical-financial reports, measuring is only adopted for core tax
the Central Bank) responsible for for a comprehensive tax code, economic impact, are reviewed by legislation covering the scope
statistical research. Tax policy design, addressing mostly procedural the Office of the State Auditor. of the tax, its tax base, the tax
therefore, needs to coordinate issues that would systematize rate and penalties in case of
outputs from a range of special uniform tax collections. Moreover, non-compliance. All subsidiary
revenue agencies. the Parliamentary Budget Office provisions are assumed into
is an independent body set up in secondary legislation. These
2014 with the purpose of carrying regulations need only approval
out economic analysis and impact by the Council of Ministers after
assessment concerning government’s vetting by the Council of State
economic policy. This is carried out and the Court of Audit as to their
in accordance with national and constitutionality.
European budgetary rules.
(Continued)

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15. Japan The tax policy design process The annual tax law amendment The Tax Commission in the Prime The annual tax law amendment It is common practice for tax
follows an annual cycle. Usually procedure managed by the Tax Minister’s Office (Cabinet Office) is bill is approved by both Houses law amendments and tax reform
during December of each year, Commission is supported by the Tax currently chaired by an esteemed of Parliament (Diet) (the House initiatives to be accompanied by
the cabinet’s Tax Commission Bureau for National Taxes in the professor in Tax Law; in the past, it of Representatives and House of public consultation. For purposes
Office releases tax proposals Ministry of Finance (MOF) and the was chaired by a leading economist Councilors), usually by the end of of tax reviews (for any tax),
for the following year. The Tax Bureau of the Ministry of Internal or an academic of note. The com- March, becoming effective April 1. the Tax Commission calls for
Commission’s members (39) Affairs and Communication for local mission focuses more on structural But the effective date can differ submissions from stakeholders
include 19 that are appointed taxes. The Tax Bureau in the MOF tax system changes, such as the depending on the contents of the before the final tax design is
for certain periods until the end comprises the following divisions: recent amendments to consumption amendments. The Commission’s tax accepted and translated into draft
of the specific tax discussion, (1) Planning and Administration; taxes in Japan, and addresses also reform proposal (Taiko), as approved legislation.
while 20 are standing members, (2) Tax Research; (3) Income Tax current topical themes such as by cabinet on the basis of consensus,
with a three-year term. The Tax and Property Tax Policy; (4) Indirect base erosion and profit shifting by is released in December of each year,

Commission, or Tax Advisory Tax Policy; (5) Corporate Tax Policy; revisiting domestic anti-avoidance followed by the draft bill (prepared
Commission, is under the and (6) International Tax Policy legislation. An outline of annual tax in the Ministry’s Tax Bureau
direction of the cabinet’s office. (tax treaties, and so on). The Tax law amendments (Taiko) reflects the responsible for tax policy design) in
Commission reviews on an ongoing consensus of represented Leading January the following year. On the
basis changes to the tax systems. Parties in the commission. Cabinet’s basis of hearings, conducted by the
The Commission publishes, for Legislative Council must vet the Budget and Finance Committee of
comment, in November its report tax laws amendment bill before it the Diet, consultations ensue with
on planned tax law amendments for is tabled in the Diet for its reading interested parties. This iterative
the following fiscal year. In- house debates. The Tax Commission can process culminates in the approval
trained tax lawyers in the MOF’s appoint ad hoc advisory committees of the bill in March. The Budget and
Tax Bureau draft the annual tax law for purposes of reviewing special Finance Committee has its own
amendment bill, with comments from aspects of the tax system. On such non-partisan staff of tax analysts
the National Tax Agency (RA). committee private sector and tax that independently evaluate the
practitioner participation is possible annual tax laws amendment bill.
as the proposal must be finalized An individual party member can
the latest in mid-December and a propose tax law changes but with
comprehensive view must be found little chance of acceptance given
within tight time frames. that the ruling party pushes its
preferred tax plan for the next fiscal
year. Tax regulations are issued as
cabinet orders and are not subject to
parliamentary debate.
Arrangements
16. Netherlands The Ministry of Finance (MOF) The MOF staff is involved in Based on its macroeconomic forecast New tax legislation is proposed by During the legal drafting
has a central role in putting all aspects of tax and revenue model, the Central Planning Bureau the MOF, which also prepares legal process, inputs from a number
together the national budget analysis, tax instrument design and provides the official, independent drafts. The Second Chamber of of stakeholders are invited to
and the budget statement. legislative drafting. Some of the revenue forecasts, which parliament can change government’s improve the amended tax laws,
One of its key tasks is the revenue, distributional and economic complements that of the MOFs own tax proposals. The First Chamber can such as employers’ associations
design and levying of taxes. analysis is outsourced to the Central assessment. The DCTA influences only approve or reject the tax plan and the central bodies of trade
The Directorate-General for Planning Bureau (CPB), which offers the preparatory process of the tax legislation. After the bill has been unions (who together with
Tax and Customs Policy and independent forecasts and analysis, legislative program by advising tabled in parliament, stakeholders independent members represent
Legislation is responsible for yet it resides within the government. the MOF about the feasibility, such as business confederations, the Social Economic Council).
tax policy formulation and The MOF provides the first revenue enforceability and cost-effectiveness tax practitioners, trade unions Draft legislation is in most
legislation (signed off by estimates for tax policy changes but of intended tax legislation. In this and consumer bodies can submit cases put on the ministerial
parliament) whereas the Dutch the CPB validates these in case large phase, the DCTA calculates the comments to parliament. These internet site to solicit comments.
Tax Administration levies and revenue changes are expected. The implementation and taxpayer are often referenced during the Government’s close cooperation
collects taxes. MOF together with the Dutch Tax compliance costs, it assesses hurdles reading debates. This inclusive with private sector tax expertise
and Customs Administration (DCTA) in implementing new legislation and comprehensive consultation is evident by testing legislative
conduct ex-post evaluations of within the DCTA due to IT system process supports greater tax morale. proposals with the Netherlands
implemented tax law amendments. change requirements, and conducts Secondary tax laws are drafted Association of Tax Advisors which
It also prepares the annual tax post-implementation evaluation. by the Ministry’s technical staff. checks draft tax laws against
expenditure budget. There have been several Tax Reform These so-called regulations do not criteria such as incompatibility
Commissions in the Netherlands, require any discussion or debate with the law; effectiveness;
comprising of both independent in parliament. The Netherlands efficiency, retroactive effect;
members and stakeholders from Council of State examines draft tax feasibility; administrative burden;
within the government. They review legislation whether it complies with and the fiscal attractiveness of
major tax structure adjustments: the Constitution and international the Netherlands. This review has
(1) 2012/13 Dijkhuizen Commission treaties. no binding effect but it is being
on income tax and allowances; carefully considered by the MOF.
(2) the 2009/10 Van Weeghel
Commission on tax base broadening,
rate reductions, greater neutrality
in tax treatment of debt and equity,
and environmental taxes. The
Commissions are supported by the
technical staff in the MOF and the
Central Planning Bureau.
(Continued)

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17. New Zealand Tax policy design is a shared In terms of the GTPP, the Treasury Generally, academics, the media, Tax policy design is one of the core The GTPP embodies the principle
responsibility by the Inland advises government on changes trade unions, employer associations functional domains of the Minister that major tax reforms are subject
Revenue Department (IRD) and to the tax systems and reviews and other stakeholders play a limited of Revenue (that is, IRD), but less to public scrutiny throughout the
the Treasury. Within the IRD, quantitatively the economic, revenue, role in tax policy formulation. Yet, tax so in the case of the Minister of phases of their development. It
tax policy formulation and legal and social impact on the economy. practitioners and the corporate sector Finance (that is, Treasury). For a focuses on how the tax system
drafting is executed by the It also monitors and advises are highly influential. Since 2000 tax policy change to translate into fits in with government’s overall
Policy and Strategy Division. government on the IRD performance. New Zealand has used only once the legislation both Ministers need the economic, fiscal and revenue
This division is also responsible Treasury’s Macro-economic and commission/committee approach for full support by cabinet. The IRD strategy. It discloses upfront to
for the general administration Fiscal Policy, Forecasting and major tax reform; the 2001 McLeod through the GTPP process drafts tax practitioners and the business
of the tax system. The (IRD) in Modeling and Research divisions Committee reviewed the tax system tax legislation as the Parliamentary community government’s tax
its policy advice role, follows contribute to the quantitative and advised the coalition government Counsel Office has delegated work program for the next
the Generic Tax Policy Process analysis side of the tax policy design on a new tax framework. The this to the IRD. The IRD has the 18 months and pursues wide-

(GTPP) framework. The GTPP has process as the Treasury’s forecasts Committee’s independent analytical necessary tax technical expertise ranging consultations prior to
not been enacted as a statute; are the Crown’s official forecasts. work was driven by the Victoria and an experienced expert team of legislation. Consultation consists
as such, it is not binding on IRD pre-pares an independent set University of Wellington Tax Working tax law drafters. The drafting skills of the dialogue before drafting a
the government, but it works of tax forecasts based in the short Group (TWG, 2009). The Treasury and are reinforced by the experience in green paper and the consultative
effectively so that successive term on taxpayer data, but for the IRD, however, provided considerable administering tax laws, the drafting approach of reviewing draft
governments adhered to this longer term, bases its forecasts on support to the Working Group. The of binding rulings and interpretation legislation. Active participation
protocol of cooperation between the same macro-economic trends TWG comprises tax practitioners, guidelines. The IRD coordinates the in the Parliamentary Select
the Treasury and IRD. used by Treasury. The IRD drives academics, business representatives, process of submitting the tax laws Committee process of hearings
tax policy analysis for all taxes, and public officials. amendment bill to parliament and on legislation is guaranteed. The
data collection, revenue analysis, supports technically the Finance and ensured participation of private
legislative design and drafting. The Expenditure Committee that manages sector professionals guarantees
Policy and Strategy group identifies the hearings on draft tax legislation. an open access to the Treasury
tax and related social policy issues Outside stakeholders have ample and the IRD, although limiting
as it raises taxes, it develops policy opportunity to engage and comment consultations to mostly tax
proposals to deal with shortcomings, on the taxation bill during the Select practitioners and the corporate
draws up implementation plans, Committee Phase. This is done by world may be too narrow. This
manages taxpayer consultations, way of written submissions, followed can translate into more pragmatic
obtains ministerial and cabinet by requests to appear before the and taxpayer-accepted solutions.
approvals for tax changes, drafts Select Committee and comment However, subtle lobbying by
tax legislation and manages directly on the written material. the private sectors needs to be
the passage of the bill in the Business and tax practitioners would carefully monitored.
Parliamentary Select Committee’s comment however much earlier on
hearing debates. Finally, it reviews so-called green and white papers
the revenue and compliance impact that precede legal drafting of newly
post-implementation. amended tax provisions.
Arrangements
18. Norway The Ministry of Finance (MOF) Next to tax law drafting, the Tax The Tax Policy Department works The Ministry’s Tax Law Department Outside stakeholders can
is responsible for tax policy Law Department is responsible for with the Ministry’s Economic Policy is responsible for legal drafting and comment on draft legislation
design, including the economic interpretation and administration of Department, which coordinates the the preparation of the annual tax law during MOF- arranged hearings.
analyses of the tax system. Two regulations relating to income and preparatory work for the national amendment bills. This is often done This enables other government
departments within the MOF are wealth tax, petroleum tax, national budget, incl. modeling of impacts by an expert committee in the case agencies, private sector
closely involved—the Tax Law insurance contributions, property and revenues. In this process, close of major tax reforms. From October organizations, business, employer
Department and the Tax Policy tax, inheritance tax, VAT, customs links with academia and independent to November each year, the Govt.’s associations to review and
Department. The Norwegian Tax duties and other special taxes. It research institutes are maintained. tax and expenditure proposals are add suggestions for improving
Administration (NTA) collects is also tasked with the negotiation They play a key role in preparation debated in Parliament’s Standing effectiveness, fairness, and ease
taxes and it is an agency under of Double Tax Treaties and acts as and evaluation of tax reforms. Two Committee on Finance and Economic of administration, and so on. In
the authority of the Ministry. The the Norwegian Competent Authority independent research institutes, Affairs. particular, the Confederation of
NTA consists of the Directorate of under these treaties. The Tax Policy Statistics Norway and Rambøll Norwegian Business Enterprises
Taxes and five regional offices. Department analyses how tax Management Consulting AS, under as well as the Tax Forum for
legislation and any amendments direction of the MOF, participated Large Norwegian Business
thereto affect revenues, savings, in the 2006 tax reforms. Norway Enterprises is consulted during
consumption, investments and labor has also used Commissions and the hearing process.
supply, and how tax revenues change committees, comprised of domestic
when regulations are amended. and inter-national tax experts, to
The Department is responsible for contribute to important structural tax
preparing the annual budget’s tax review initiatives, such as the 2006
proposals. PIT reform. The MOF has established
an Advisory Panel on Macroeconomic
Modelling and Methods that informs
tax simulations and prepares
comments for white papers on tax
reform. Statistics Norway operates
a competent tax department which
releases tax statistics and runs
sophisticated econometric models
for simulating revenue and economic
effects of tax proposals.
(Continued)

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19. Poland The Ministry of Finance is Next to revenue analysis, the Tax It is reported that there are no Tax legislation can be initiated by All draft tax law need to be
responsible for tax policy System Department formulates independent structures which government, a minimum number circulated for comment by
design, which is compiled on policies for most of the revenue consistently monitor the tax system, of parliamentarians (15), or the sending these to trade unions,
a cooperative basis across instruments, leads the international or present extensive analytical president. In practice, taxation employer associations, tax
different tax departments tax policy development by negotiating perspectives on future tax system amendment laws mainly originate advisors and practitioners.
(for example, Income Tax or DTAs, and it formulates and changes. However, tax experts and in government. The Government Comments and proposals
VAT Departments), many of executes tax anti-evasion policies academia are actively involved in tax Center of Legislation coordinates the received back are reviewed
which have their separate (including the application of GAAR). analytical work of parliament and the drafting of all laws and regulations, by the sponsoring department
quantitative analysis capacity. In its operations, the Tax System government. Their research feeds including tax laws, but the first in coordination with the Tax
In most cases, the Tax System Department cooperates closely into tax debates and their expertise drafts of tax laws are prepared in System Department and Legal
(previously Policy) Department with the Macroeconomic Policy is also being utilized in legal drafting. the Ministry by tax departments (per Department. At the parliamentary
is leading this process however, Department which develops macro- Yet, their inputs are not binding on function) in coordination with the reading debate stage, after a

by preparing policies for the fiscal policies, forecasts revenues parliament. This can take the form of Legal Department. The Tax System tax bill has been submitted to
separate tax instruments within and supports preparation of the special committees or commissions. Department per se is not responsible parliament, external experts
the overall taxation strategy of annual state budget. The Tax System There are other interest groups for legal drafting and implementation preparing an independent
the government. It cooperates Department, together with the Tax outside government that prompt of respective tax laws. opinion are also used. Again,
on taxation policies globally Admin Department, also oversees the tax policy decisions: (1) The this review procedure and its
with the EU, the OECD and other local tax offices. Other Departments’ National Chamber of Tax Advisors; recommendations are not binding
multilateral organizations. tax expertise that need to be coopted (2) the Polish Confederation of on parliament.
for policy development are: Customs; Private Employers; (3) Polish Craft
Excise Duty; Goods and Services Association; and (4) the Business
Tax; Personal and Corp. Income Tax; Center Club—all influencing tax
Sectoral, Local and Gambling Taxes. legislation through the process of
public consultations. Also, these
associations participate in the
Entrepreneurship Council that
influences economic development
strategies, public finance and
regulatory reforms.
Arrangements
20. Russia The Ministry of Finance (MOF) MOF formulates tax policy based Since 1996 the Federal Ministry of According to the Russian The initiators of draft federal
is the federal executive body on the revenue analysis of existing Finance, the Administration of the Constitution, the following organs tax laws involve the public
responsible, among other things, taxes, and by comparing the President and the State Duma used of state can initiate tax laws: the and business associations in
for tax policy formulation, Russian tax trends against other a number of external experts to President, Council of the Russian the preparatory discussions.
including customs duties and global comparators. Other line “elaborate” and refine the Russian Federation, members of the Higher MOF organizes its tax reform
associated valuation. The ministries review the tax system Federation’s Tax Code. Each draft Chamber of the Federal Parliament, discussions with business
Department of Tax Policy and independently from the MOF and was circulated for comment, and the members of the Lower Chamber and academia through the
Customs is advancing tax influence it materially in line with second part of the tax code, most of the Parliament (the Duma), Consultative Council of the
policy design. The MOF has no other perspectives such as its notably, is the product of extensive federal government, and regional Ministry and participation of
veto power over tax proposals impact on economic growth and consultations. Many research parliaments. The direction of tax experts and academics in
originating in other ministries. development (Ministry of Economic institutes and experts (domestic reforms is in the public domain as parliamentary hearings (a total
However, given that the MOF Development), its impact on Russia’s and international) contributed to per official web pages of the State of three) in the meetings of the
is principally tasked with tax fiscal federalism framework (Ministry the review of the federal tax code. Duma. The person submitting draft Committee on the Budget and
formulation other ministries of Regional Development). Finally, The Deputy Minister of Finance tax legislation is responsible for its Taxes in the federal parliament.
can only object and make the Administration (the Office) of the coordinated the 1996 tax reform preparation and may use inputs from Many of the suggested
counter-proposals that would Russian President also evaluates process. Academia, the media, academia and business associations. amendments to tax laws are
mitigate adverse social impacts closely the tax system’s revenue business and employer associations, It is common cause that draft tax made by members of parliament
stemming from proposed tax law potential as it assists him to trade unions through conferences laws, that most frequently are and there are conciliation
amendments. coordinate, develop and implement and commenting on draft tax laws accepted, are those that were drafted procedures if on important tax
the federal budget cost-effectively. also seek, and have, influenced tax by the federal government. legislation the executive differs
instrument design. greatly in its approach vs. the
committee’s view. The use of
“green” and “white” papers
for policy development is not
common. In pre-paring tax
rulings, the Russian Supreme
Commercial Court also involves
expert opinions. Secondary tax
legislation such as regulations are
not publicly debated but they are
being published before adoption
which enables stakeholders to
object in writing.
(Continued)

34
35
Arrangements
21. South Africa Previously, tax policy design The Tax Policy Unit/Economic Tax The National Treasury holds regular Tax Laws are primarily drafted in- Parliament’s Portfolio Committee
was centralized in the Tax Policy Analysis unit has the following consultations with producers of house by the National Treasury in on Finance conducts post-
Unit in the National Treasury. It directorates: General tax analysis excisable products, accounting firms, close cooperation with SARS. Outside Budget tax law amendment
advised the Minister of Finance and design; revenue and economic corporate tax law practitioners, experts in the form of legal drafters reading debates during which
on tax policy measures to meet impact analyses and forecasting; business community, labor unions, in academia and tax practitioners the annual tax proposals are
the annual revenue targets. This whereas the Legal Tax Design other line ministries on tax risks are roped in, as are international tax debated with relevant private
function is now split between the unit focuses on legal drafting and (avoidance) and structural tax experts (for example, in the case and public stakeholders.
Economic Tax Analysis and Legal international tax treaty negotiations. adjustments (for example, the of introducing worldwide taxation The National Treasury, SARS,
Tax Design Chief Directorates The discussions on annual budget extractive industry tax review, taxing and capital gains tax reforms). The and the Portfolio Committee
in the Tax and Financial Sector tax proposals are carried out in financial instruments, taxation and government drafts a Green Paper, invite outside stakeholders to
Policy Division. The Minister of close cooperation with the South retirement, green taxes). During setting out new tax proposals (for comment on policy proposals
Finance advances tax policy African Revenue Service (SARS: the past 50 years, respective example, green tax initiatives) in the Green Paper and draft

choices with the backing of Legal Services and the LTO group). governments appointed Tax Review and which are published in the legislation if major policy changes
cabinet. He also requests Commonly, legal drafting is carried Commissions in order to map out Government Gazette for public are envisaged. There is also
inputs from external advisory out in committee format with major structural reforms (that is, comment. This is followed-up by a a consultative forum for tax
committees or commissions. participation of National Treasury and Franzsen Commission (1968–70), White Paper, also published in the practitioners and business bodies.
SARS specialist teams. Margo Commission (1984–86), Government Gazette. Then a Taxation Draft national tax legislation is
Katz Commission (1994–99) and Amendment Bill is published in made available on government’s
Davis Committee (2014–17)). The the Gazette requesting comment and the SARS’ official websites.
influence of independent institutes which is formally introduced by Both during the conceptualization
and universities is limited but the MOF in the National Assembly. phase of structural tax changes
academic tax experts are members SARS publishes simultaneously an and presentation of the annual
of the abovementioned tax reform Explanatory Memorandum which budget tax changes in parliament,
commissions. provides explanations as to the the National Treasury and SARS
planned tax changes. The bill is technical teams must explain in
referred to the Standing Portfolio hearings orally and in writing their
Committee on Finance which responses to the stakeholders’
investigates the bill and request counter-proposals.
comments. The Committee can
suggest changes. After changes to
the bill, it is presented to the National
Assembly for a second reading
debate. The bill is also debated in the
National Council of Provinces. When
the bill is passed, and on signing by
the president, it becomes a Statute.
Arrangements
22. Spain The Directorate-General for The Directorate-General conducts The Spanish Institute of Fiscal Tax Law amendments can be There are consultations with
Taxation in the Ministry of tax policy and revenue analysis; Studies, an autonomous body proposed by the government or taxpayers and business
Finance and Civil Service is develops tax proposals; prepares and attached to the Ministry of Finance parliament—but it is almost always associations before the approval
responsible for the revenue drafts national tax legislation and through the State Secretary for introduced by government. Tax law of draft taxation bills. These
analysis and tax policy design regulations; interprets tax provisions Taxation and Budgets, in collabo- provisions and amendments are hearings or consultations happen
function for all of Spain’s taxes. by publishing on a regular basis ration with other centers, institutes, drafted by senior bureaucrats, such before approval of the drafts and
Revenue forecasting and analysis guideline notes; develops Spain’s public administration schools, as tax inspectors and state attorneys infrequently draft tax legislation
is being managed cooperatively international taxation approach by universities, financial administrations, in the Ministry’s Secretaría General is published on the Ministry of
with the Directorate-General negotiating and applying double both public and private, with national Ténica. The State Tax Administration Finance’s website and State Tax
National Budgets. taxation conventions, and so on. and international support, focuses on Agency and the Minister’s counsel Administration Agency. The Large
Its subdivisions are covering key fiscal research, economic and legal influence the process. Draft Laws are Business Forum representatives
instruments of the tax system: studies and delivers advice to the sent to parliament where members can discuss tax matters with the
General tax policy; personal Ministry on issues such as taxation, can introduce changes on advice Ministry’s senior officials in an
income tax, corporate income tax, public expenditure, economic and of their own private advisors and informal manner. The drafting of
consumption taxes; financial activity social impact studies, revenue official researchers. Government’s secondary legislation in the form
taxes; property taxation; international analysis, tax statistics and revenue tax proposals and draft tax bills are of regulations does not require
taxation; local taxes. The Directorate- forecasting. The Institute regularly not amended by parliament during parliamentary debates. There
General for the Cadaster registers delivers reports—some in the public the hearings. Thus, the Ministry of is an increasing trend towards
and maintains the property cadaster domain—but others are for exclusive Finance (prepared by the Directorate- frequent use of secondary
with physical, economic, and legal use of the Ministry. Spain is using General for Taxation) is the eminent instruments, that is, regulations,
attributes per property plot in order the model of tax reform commissions organ in tax policy formulation in for stipulating key tax policy
to collect recurrent property taxes (supported by academia) and ad hoc Spain. Its preparation of proposals, changes. Secondary legislation
and capital gains tax for urban land. committees to advance particularly backstopped by the Fiscal Institute’s does not require wide public
The State Tax Administration Agency complex structural tax reforms revenue and economic impact debate as would be the case of
uses the cadastral information in such as the 2013 comparative tax analyses, is of a high standard. substantive tax changes.
life style audits of its registered study. The Comisión General de
taxpayers. Codificación is the official advisory
body for assisting with the drafting
of legislative amendments to the tax
code. Also, independent research
institutes such as political parties’
think tanks deliver inputs on desired
tax reforms, which carry more clout if
aligned with the governing party. As
to tax policy proposals, the banking
industry’s research institute and the
Spanish Federation of Municipalities
and provinces are most influential.

(Continued)
36
37
Arrangements
23. Sweden The Minister of Finance (MOF) The Tax and Customs Department An Independent Group of Experts The Parliamentary Committee for White and green papers are made
leads the tax policy design in the MOF is responsible for has been created by the Swedish Fiscal Affairs has important analytical public and widely distributed as
process, and is supported by formulating policies and proposals government to review and research functions as to the justification for, they are digitally available on
his technocrats in the Tax and for legislation on all taxes and social public finances and the impact of effectiveness, efficiency and fairness the ministry and Tax Agency’s
Customs Department. This effort security contributions, as well as tax reforms with the emphasis of the of newly proposed tax legislation. Its websites. Before referring tax law
is further supported by the customs. overall impact of fiscal policies on the work is supported by own research drafts to the Law Commission
Ministry’s Department of Public socio-economic situation of Swedes. and economic analysis capacities. to verify their constitutionality,
Administration (Statistics); the Also, the National Audit Office can But the committee can also rely on the drafts are circulated to
Budget Department (coordinates present independent views on public extensive briefings by MOF officials the Swedish Tax Agency, law
the work on central govt. budget, finances. Sweden utilizes the model of and it can also request further faculties, the Swedish Association
budget policy); and the Economic tax review and reform commissions— research input by the MOF, before of Local Authorities and Regions,
Affairs Department (analyzes the latest example being a specially ratifying tax law changes. the Confederation of Swedish

the real development of the appointed commission on reviewing The independent Law Commission, Enterprise and other NGOs.
Swedish economy and her public the tax system for shipping and its its members being judges from With important draft legislation,
finances). replacement with a tonnage tax. Tax the Supreme Court and Supreme public hearings are being
design is managed transparently in Administrative Court, verify that organized by the parliamentary
these committees and commissions. the passing of tax laws and their Committee on Taxation. Thus,
The MOF commonly appoints the preparatory work are consistent with outside stakeholders have ample
commissions which comprise of tax the Constitution and Sweden’s legal opportunity to evaluate and
experts in the Ministry, the Swedish system. comment but there is a time
Tax Agency, members of parliament, constraint. Explicit lobbying by
international experts, academics, corporate taxpayers through
members of the Confederation of business associations exists as
Swedish Enterprise, and other topic- they are making direct inputs to
specific stakeholders. The deliberations the committees. Large corporate
and analyses are thorough but it can taxpayers and organized labor
be a protracted process, creating some have a prominent influence on
uncertainty. Independent research the tax policy debate. Secondary
institutes, universities had a very legislation like regulations are
limited influence on tax reforms. Some drafted by the Swedish Tax
non-profit institutes or organizations Agency without any public
such as the Confederation of involvement or only limited
Swedish Enterprise and the Swedish referral to specialist groups.
Taxpayer Association had major
impact on tax reforms. Lately, the
ministerial technocrats are drafting tax
provisions without the well-rounded
competencies and holistic analyses
of commissions. The Tax Agency is
authorized in limited cases to issue and
implement binding decrees without
a parliamentary decision—these
are in the form of guideline notes,
standpoints, notices and handbooks.
The Agency’s body of secondary
legislation on tax is significant.
Arrangements
24. United Kingdom Tax policy design is formally The great bulk of tax policy analysis, There is no competing tax policy Treasury decisions on tax design The bicameral legislature (House
centralized in the Treasury and costings, impact assessments and advice from outside government remain mostly unchallenged, even of Commons and House of Lords)
directed by the Chancellor of tax revenue estimates is however or from parliament to the advice though parliament’s Treasury Select have oversight over the annual
the Exchequer. The tax policy provided by HMRC’s analytical provided by HMT and HMRC. Since Committee and Public Accounts tax legislative process. The House
design process is shared by HM division. Since 2011 the HMRC June 2010 the new Tax Policy Committee have increased their of Lords has no power in relation
Treasury (HMT) and the HMRC publishes impact assessments during Making Approach entrenches oversight of tax policy but limited to tax legislation). HMRC and HMT
(Revenue and Customs). HMT periods of structural tax adjustments wide consultation on tax policies resources do not permit own consult widely with business, tax
is tasked with the broad tax or reforms. These tax information by formalizing it with outside research capacity. Most UK fiscal advisers and the NGO sector over
policy work, whereas HMRC and impact notes, in essence, stakeholders. This has become a core measures are legislated for in the tax proposals and new legislation.
is responsible for the detailed provide statements on the new tax principle for tax policy formulation in annual Finance Act. The Finance Bill The new approach in respect
technical aspects of tax policy policy, with an impact analysis on the United Kingdom. The Treasury’s (incl. revenue proposals) is subject of public participation entails
design. revenues, the economy, individuals, tax policy design function benefits to parliamentary scrutiny by the informal and formal consultations
business and civil society, as well from centralized decision making but Committee of the Whole House or the with stakeholders. Since 2011
as reflecting on matters of equality. the HMT supports and is committed Finance Bill Committee; one should HMRC and HMT publish in early
HMT has, in terms of the revenue to extensive public consultation, note that Finance Bills/Acts are December draft legislation for
analysis function, a sub-ordinated backed up by inputs of the Tax always passed. consultation at least three months
role because they are not allowed Professionals Forum and inputs The Office of Parliamentary Counsel before publication of the Finance
access to HMRC’s taxpayer data. from the Office of Tax Simplification. (OPC), being part of the cabinet Bill. Thus, stakeholders have eight
The division dealing with general tax The independent Office for Budget office, is responsible for drafting weeks to prepare and circulate
design and revenue impact analyses, Responsibility (OBR) also plays primary legislation, incl. tax laws. Its comments before revised
is supposed to look at tax design for an important role in tax policy staff of 50 are experienced solicitors legislation is published as the
all taxes comprehensively. While HMT processes, by scrutinizing HMRC’s and barristers with extensive Finance Bill. Thus, there is ample
does mainly recruit generalists with costings and impact assessments. private sector experience. HRMC opportunity for informal and
only a few economists specializing in OBR is responsible for the budget’s policy officials instruct the OPC but formal consultation with affected
tax, the Treasury do take a number economic and fiscal outlook. There some Finance Bill provisions are stakeholders as and when tax
of HMRC experts on secondment are however multiple submissions drafted by departmental lawyers changes are prepared.
into their tax policy teams. Legal from business and professional (especially those dealing with
drafting is carried out in the large bodies on draft tax legislation. indirect taxes). Secondary legislation
Office of Parliamentary Counsel Also, the United Kingdom employs (that is, regulations) are drafted by
based on guidance from the HMRC. Tax Reform Commissions to tackle departmental lawyers without OPC
Importantly, the transparency of structural tax reviews such as: the intervention and are considered
tax policy formulation processes is 2011 Mirrlees Review on Structural by parliament before enactment.
enhanced by the fact that published Tax Reforms for the 21st Century; Secondary legislation allows
fiscal data and analysis are Official the 2012 Calman Commission on detailed technical provisions to be
Statistics within the meaning of the Tax Devolution for Northern Ireland, enacted quickly without overloading
United Kingdom’s Official Statistics Scotland and Wales; the 1997 Tax parliamentary supervision but there
Act. This provides for their autonomy Law Rewrite Project to rewrite tax may be a concern that parliamentary
from political and management legislation in plain English; the 2004 supervision can be circumvented

interference. O’Donnell Review on Organizational this way.
and Institutional Restructuring of
the Tax Policy and Administration
between HMT and HMRC.
38
(Continued)
39
Arrangements
24. United Kingdom The Chancellor can also appoint short-
(continued) term independent reviews for aspects
of policy and tax administration. In
these processes, government involves
academics alongside stake-holders
from business. The United Kingdom
relies on inputs from independent
Research Institutes: for example,
the Institute for Fiscal Studies; the
Tax Law Review Committee; Oxford
University Centre for Business

Taxation; the Institute for Public Policy

Research; the Policy Exchange; the
Green Fiscal Commission and the
2020 Tax Commission.
25. United States The well-resourced US Treasury The president, working through The IRS has extensive contact Promulgation of tax legislation There are limited formal
leads tax design with lawyers the Department of the Treasury with all taxpayer cohorts and requires agreement of the House of consultations by Treasury but there
dominating the process. formulates tax proposals that are sectors and releases, next to its Representatives, the Senate, and the are many informal discussions with
The tax policy formulation is then tabled in Congress for debate. tax administration function, policy president. Because the same political taxpayer groups and practitioners
decentralized to introduce checks Treasury has a high-caliber economic documents (say on taxpayer service, party does not usually control all which influence the ultimate tax
and balances. analysis capacity supporting tax collection due processes, voluntary three branches of government, the design in varied ways. Tax policy
design on the back of economic compliance strategies, fraud process is premised on forging proposals undergo extensive
and distributional impact analyses, detection, appeals, debt collections, compromise tax positions. Congress consultations underpinned by in-
with high accuracy in revenue and so on). It also contributes to has a material influence on the depth quantitative analyses. Many
forecasting. Treasury and the Internal legislative initiatives such as the direction of tax design, backstopped tax options are prepared given the
Revenue Service (IRS) have clearly simplification of the tax code). A by its own high-quality research availability of competing tax policy
defined role and their cooperation large number of high-quality think capacity through the Joint Committee choices from within government but
is strong. The Office of Tax Policy tanks support policymakers with on Taxation and the Congressional also from tax practitioners, taxpayer
in the Treasury includes lawyers alternative tax design options. They Budget Office, with a research associations, academics from
and economists with specialist also serve in an advisory role a capacity that is unparalleled think tanks and research institutes.
knowledge and experience in tax diverse range of business interests internationally. Irrespective of this This is associated with the risk of
policy design. which lobby independently the White impressive own tax analytical fragmentation and accompanying
House, Treasury, Joint Committee on capacity, very often the integrity of complexity in taxation. It translates
Taxation, Senate Finance Committee, tax policy is eroded by rogue tax into a protracted process before tax
House Ways and Means Committee, provisions attached to non-fiscal policy decisions are promulgated.
plus individual representatives on tax legislative proposals. Both the House Political partisanship, and the many
proposals benefiting mostly narrow Ways and Means Committee and checks and balances, could lead to
sectoral interests. the Senate Finance Committee are polarized debates that may end in
very influential in the tax policy stalemates.
development.
Sources: Individual Ministry of Finance and Treasury websites; Wales and Wales 2012; Arnold 2013; and Lang and others 2016.

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7

FISCAL AFFAIRS DEPARTMENT | INTERNATIONAL MONETARY FUND

Names: Grote, Martin. | International Monetary Fund. Fiscal Affairs Department.

ISBN 978-1-48432-381-6 (paper)

Publication orders may be placed online, by fax, or through the mail:

International Monetary Fund | October 2017 2

Functions ment’s tax policy agenda. It should do so by providing

3 International Monetary Fund | October 2017

Figure 1. Percentage of Countries where Tax Expenditures Are Periodically Calculated

South and East-Asia

Europe and Central Asia

Middle East and

Latin America and

International Monetary Fund | October 2017 4

5 International Monetary Fund | October 2017

Legal Drafting be familiar with standards and guidelines developed

International Monetary Fund | October 2017 6

7 International Monetary Fund | October 2017

Box 1. The African Tax Institute

Figure 2. Example of an Integrated Tax Policy Unit

Head of Tax Policy

Manager of Manager of Manager of Revenue

Six tax policy Nine tax policy Three tax policy

International Monetary Fund | October 2017 8

Figure 3. The Tax Policy Development Life Cycle

Increasingly detailed design issues including revenue adminis-

Consultation with stakeholders affected by the tax proposals

Revenue Administration Role:

9 International Monetary Fund | October 2017

Box 2. Australian Integration Model in Tax Policy Design

International Monetary Fund | October 2017 10

­ orway, Poland, South Africa, Sweden and the United

11 International Monetary Fund | October 2017

­ arliament’s standing or select committees on pub-

The translation of these lessons into operational

International Monetary Fund | October 2017 12

13 International Monetary Fund | October 2017

International Monetary Fund | October 2017

Austrian Federal Chamber of Labor, Council, bills are deliberated in the

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

other government departments make summon Ministry of Finance officials

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

International Monetary Fund | October 2017

orway, Poland, South Africa, Sweden and the United

arliament’s standing or select committees on pub-