Tax Administration

The main modality used by the Financing for Sustainable Development Office (FSDO) to advance its work in this area has been a Development Account project, undertaken jointly with the Inter-American Center of Tax Administrations, aimed at strengthening the capacity of national tax administrations (NTAs) in developing countries in Latin America to measure tax transaction costs (TTCs) in small and medium enterprises. Undertaking reforms aimed at reducing these costs with a view to fostering greater tax compliance could lead to more effective and efficient tax systems supporting the desired level of investment, and result in sustainable increase in government revenues available to fund countries’ development goals.

During its first phase, the project focused on the development of an empirical methodology to assess TTCs for taxpayers and tax institutions, which could assist in identifying possible reforms aimed at reducing these costs. Following extensive discussions with representatives of NTAs of 10 Latin American countries, the methodology was revised and fine-tuned to take into account the feedback received.

During the second phase of the project, the methodology was pilot-tested in Costa Rica and Uruguay, with the support of local teams of officials from the respective NTAs.

The project raised significant interest in Latin America. In addition to the pilot countries, the Brazilian NTA engaged with the project and pilot tested the methodology in its own system on a self-funded basis. In follow up, the NTAs of Ecuador, Dominican Republic, Guatemala and Panama expressed their interest in making use of the methodology. Moreover, in a later development, the NTA of Chile planned to use the methodology to conduct measurements of TTCs, with partial financial support from the Institutional Cooperation Programme between European Union and Latin American Administrations (Eurosocial II – Promotion of Social Cohesion in Latin America).

In order to further disseminate the results of the project, a summary publication entitled “Measuring Tax Transaction Costs in Small and Medium Enterprises” was issued in English and Spanish.