Policymaker Toolkit

Governments typically use taxation as a policy tool to influence national socioeconomic development agenda. To achieve such agenda, developing an effective tax strategy is crucial; one that allows for maximum domestic revenue mobilization while still promoting investments and a smooth flow of economic activities. Policy makers therefore require expert guidance in formulating appropriate tax policies and making decisions that can improve the efficiency of a nation’s tax system and practices. In many countries, a tax policy department (TPD) or unit provides such expertise. These units/departments often consist of economic analysts and tax practitioners who are able to use empirical evidence to guide areas of tax reform. TPDs are saddled with a wide range of responsibilities and support functions. Examples include; tracking tax collection performance and identifying potential for additional revenue mobilisation to finance government budgets, evaluating if existing tax policies are resulting in the intended objectives, assessing the impact of alternative policy options to address any identified tax compliance gaps, advising on processes for drafting tax legislation and tax treaty negotiations, evaluating the costs/benefits of tax incentive schemes, and updating and strengthening tax laws.

Tax policy analysts who work in TPDs therefore need to be equipped with requisite skills to fulfil the above functions. Some of these competencies include knowledge of: tax policy principles, relationship between taxation and economic objectives, data collection and management, micro and macro-simulation models for measuring and analysing economic and social impact of policy change, revenue forecasting, tax expenditure estimation and reporting, tax gap analysis, effective communication and negotiation skills, monitoring taxpayer behaviours and trends, analysing the implications of tax incidence on income distribution, translating policy into law, international tax trends, among others.

For TPDs to succeed, access to reliable and timely data and availability of skilled personnel to analyse/interprete such data are important. However, tax policy analysts in lower income countries are often faced with data and skill constraints. Consequently, in drafting this guide, our objective is to provide a quick reference tool and brief overview of key topics for tax policy analysts working in such a context, and intending to familiarise or enhance their understanding of basic concepts and requirements for their new roles. The guide is also a response to an observed bias in tax resources and assistance being skewed mainly towards revenue administrations, with minimal focus on the tax policy angle. We have therefore selected guidance notes, research papers, databases and tools that we think would be useful. In a bid to be concise and save the reader time, this guide is not designed to be detailed, rather we have consciously kept the lists brief and pointed as core and non-core. Most of the references are available online at no cost.

The initial sections of this paper include relevant publications and tools that support improved understanding of fundamental tax policy issues covering; principles guiding design of tax policy, tax analysis and diagnostics, tax performance indices and benchmarks, and tax networks for increased collaboration for knowledge sharing. Subsequent sections highlight relevant publications on sample tax issues faced by developing countries, such as taxing of digital economy, informal sector tax systems and standard tax treaty models. Each section/chapter has several sub-headings and gives a brief overview of the topic and then lists references for further understanding of the topic. Key criteria for inclusion of referecnes are: lessons for others, salience, representative of state of thinking on tax policy and regional prespective. This guide will be updated periodically in response to user feedback and as new material becomes available. We would therefore welcome feedback on the relevance and usability from practitioners working in lower income country government ministries.