IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-41900) ON A CREDIT IN THE AMOUNT OF SDR 8.5 MILLION (US$ 12 MILLION EQIVALENT) TO THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-41900) ON A CREDIT IN THE AMOUNT OF SDR 8.5 MILLION (US$ 12 MILLION EQIVALENT) TO THE UNITED REPUBLIC OF TANZANIA FOR A TAX MODERNIZATION PROJECT March 30, 2012 Financial and Private Sector Development Department East/Southern Africa Africa Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective as of December 30, 2010) Currency Unit = Tanzania Shillings Tanzania Shillings 1504 = US$ 1 US$ = SDR 1 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS ASYCUDA AWPB BFDPs CAS CED CFAA CMVRS DSM DANIDA DFID DPs DRD EFDs FY GDP GKMS GOT GTZ IBRD ICR ICT IDA IMF IFR ISR IT ITA ITAX JSC KPI LTD M&E MDGs Automated System for Customs Data Annual Work Plan and Budget Basket-Funding Development Partners Country Assistance Strategy Customs and Excise Department Country Financial Accountability Assessment Central Motor Vehicle Registration System Dar es Salaam Danish International Development Agency Department For International Development Development Partners Domestic Revenue Department Electronic Fiscal Devices Fiscal Year Gross Domestic Product Gemba Kaizen Management System Government of Tanzania German Agency for Technical Assistance International Bank for Reconstruction and Development Implementation Completion and Results Information and Communications Technology International Development Association International Monetary Fund Interim Financial Report Implementation Status Report Information Technology Institute of Tax Administration Integrated Tax Administration System Joint Steering Committee Key Performance Indicators Large Taxpayer Department Monitoring & Evaluation Millennium Development Goals

3 MKUKUTA MoFEA MOU MSC MTR NCB NSGRP PCU PDO PEFAR PFMRP PP PRSC-9 QCBS TAP TIN TMP TRA VAT ZRB National Strategy for Growth and Reduction of Poverty Ministry of Finance and Economic Affairs Memorandum of Understanding Modernization Steering Committee Mid-Term Review National Competitive Bidding National Strategy for Growth and Reduction o f Poverty Program Coordinating Unit Project Development Objective Public Expenditure and Financial Accountability Review Public Financial Management Reform Program Procurement Plan The Ninth Poverty Reduction and Support Credit Quality and Cost Based Selection Tax Administration Project Tax Identification Number Tax Modernization Project Tanzania Revenue Authority Value Added Tax Zanzibar Revenue Board Vice President: Obiageli Katryn Ezekwesili Country Director: Philippe Dongier Sector Manager: Irina Astrakhan Project Team Leader: Sherri Ellen Archondo ICR Team Leader: Douglas Zhihua Zeng

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5 Tanzania Tax Modernization Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAP 48

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7 A. Basic Information Country: Tanzania Project Name: Tax Modernization Project Project ID: P L/C/TF Number(s): IDA ICR Date: 06/29/2011 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: XDR 8.30M Environmental Category: C UNITED REPUBLIC OF TANZANIA XDR 8.30M Disbursed Amount: XDR 8.30M Implementing Agencies: Tanzania Revenue Authority Cofinanciers and Other External Partners: IDA, BORR, DANI, DFID B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 04/12/2006 Effectiveness: 11/28/ /28/2006 Appraisal: 04/19/2006 Restructuring(s): 03/23/ /28/2011 Approval: 06/15/2006 Mid-term Review: Closing: 07/31/ /30/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Moderate Moderately Satisfactory Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Moderately Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance: Performance: Moderately Satisfactory

8 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Moderately Satisfactory D. Sector and Theme Codes Sector Code (as % of total Bank financing) Quality at Entry (QEA): Quality of Supervision (QSA): Original Central government administration 100 None None Rating Actual Theme Code (as % of total Bank financing) Administrative and civil service reform 25 Law reform 25 Tax policy and administration 50 E. Bank Staff Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Gobind T. Nankani Country Director: Philippe Dongier Judy M. O'Connor Sector Manager: Irina Astrakhan Antony Thompson Project Team Leader: Sherri Ellen Archondo Ravi Ruparel ICR Team Leader: ICR Primary Author: Douglas Zhihua Zeng Douglas Zhihua Zeng F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The PDO for TMP is to promote an effective and efficient tax administration that provides high quality customer services with fairness and integrity. The PDO is designed to reflect TRA s s mission statement, which is: "to be an effective and efficient Tax Administration, which promotes voluntary tax compliance by providing high quality service with fairness and integrity through competent and motivated staff."

9 Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Indicator Indicator 1 Value (quantitative or qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Total tax revenue collected by TRA (for domestic revenue) as a percentage of its annual revenue target 107% 100% 94% Date achieved 07/01/ /30/ /30/2011 The baseline value was the achievement in 2008 (tax collected as a ratio Comments of that year s target). The project target was marginally missed, but the tax (incl. % collection for the first quarter of FY2012 (July-September 2011) has achievement) 100% met the target. Indicator 2 Average time taken to clear goods at (a) DSM Port; and (b) Airports (a) At DSM Port: 14 (a) At DSM Port: (a) At DSM Port: Value days min.; 12 days; 12 days; (quantitative (b) At Airports: 6 days. (b) At Airports: 5 (b) At Airports: 5 or qualitative) days days Date achieved 06/30/ /30/ /30/2011 Comments (incl. % achievement) Targets were 100% met. Indicator 3 Value (quantitative or qualitative) Increased percentage of taxpayers awareness on tax education programs 46% 60% 94% Date achieved 06/30/ /30/ /30/2011 Comments (incl. % The target was exceeded by 34 percentage points. achievement) Increase in percentage of written enquiries attended to within seven Indicator 4 days Value (quantitative 46% 90% 79% or qualitative) Date achieved 06/30/ /30/ /30/2011 Comments (incl. % The achievement was 87.8% of the target. achievement)

10 Indicator 5 Reduced level of perceived corruption index Value (quantitative 15.1% 30% 56.3% * or qualitative) Date achieved 06/30/ /30/ /30/2011 The value of this indicator solely relies on taxpayer surveys. The baseline data is hard to understand and it should have clearly indicated that it refers Comments (incl. % to the percentage of people who think TRA is corruption free. * This value is based on a large taxpayer survey in March A smallscale small and medium taxpayer rapid assessment during the ICR mission achievement) indicates that 42% of respondents think the tax collection process is less corrupt or very clean. All these exceeded the target. (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 Value (quantitative or qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Average number of days to identify stop-filers (Domestic Revenue Dept): (i) direct taxes; (ii) indirect taxes (i)14 days; (ii) 5 days (i)10 days; (ii) 5 days (i)10 days; (ii) 5 days Date achieved 06/30/ /30/ /31/2011 Comments (incl. % Both targets were 100% met. achievement) Indicator 2 (i) Number of TIN registered taxpayers; (ii) Number of VAT registered taxpayers Value (quantitative or qualitative) (i) 288,680; (ii) 6,154 (i) 674,442; (ii) 14,797 (i) 845,737; (ii) 16,848 Date achieved 06/30/ /30/ /30/2011 Comments (incl. % Both targets were significantly exceeded: (i) 125%; (ii) 114% achievement) Indicator 3 Percentage of VAT refunds made within one month (DRD) Value (quantitative 62% 90% 80% or qualitative) Date achieved 06/30/ /30/ /30/2011 Comments (incl. % The achievement was 11% short of the target. achievement)

11 Indicator 4 Value (quantitative or qualitative) Percentage of customs clearances made within 24 hours at: (i) DSM Port; (ii) Airport. (i) DSM Port (i) DSM Port (i) DSM Port 95%; 70%;* 45%; (ii) Airport 88% (ii) Airport 95% (ii) Airport 76% Date achieved 06/30/ /30/2013** 12/31/2011 Both targets were significantly missed, indicating deterioration in customs clearance in both port and airport. One explanation from the Customs was the rapidly increasing cargo volumes due to increased economic activities. This explanation is supported by the rationale for target setting on this indicator: * The DSM port target was set below the baseline due to foreseeable port Comments congestions incurred from increased cargo volumes as a result of (incl. % increased economic activities. Based on the government statistics, from achievement) , the DSM port cargo volume, measured by dollar values, increased from US$ billion, which was a 31.3% increase. If measured by weight, it increased from million tons, which was a 27.3% increase. ** The end target was for the end of the whole tax modernization program (June 30 13), and should have been revised in due course. Indicator 5 Value (quantitative or qualitative) Amount of previous year s arrears collected to total amount of tax arrears at beginning of the year (Domestic Revenue Dept.) 116% * 65% 48% Date achieved 06/30/ /30/ /31/2011 The achievement was 74% of the target. One reason is that since the project implementation, the system encourages taxpayers to file lawsuits more freely through the Tax Revenue Appeals Board (TRAB) and Tax Revenue Appeals Tribunal (TRAT) to enhance transparency; thereby more taxpayers seem to delay their arrear payment by filing a complaint. From , TRAB handled over 103 cases and TRAT handled over 12 cases on average. Comments (incl. % achievement) Indicator 6 Arrears refer to the taxes due but uncollected on time. The arrears are estimated to be about 5% of total domestic tax revenue. * Under normal circumstances the highest achievement ever should be 100%. However, during the year ending June 2006, a special campaign to clear backlog of arrears was carried out and some arrears that were considered uncollectable were collected hence the performance of 116%. This was a one-off performance, for the previous and succeeding years, the target was set based on best practice and actual performance accordingly. Average number of days to identify stop-filers (Large Taxpayers

12 Dept) Value (quantitative 5 days 3 days 3 days or qualitative) Date achieved 06/30/ /30/2011 6/30/2011 Comments (incl. % achievement) The target was 100% met. Indicator 7 Value (quantitative or qualitative) Total revenue realized from audits as a percentage of revenue collected (domestic revenue department) 17% 10% 10% Date achieved 06/30/ /30/ /31/2011 Comments (incl. % achievement) The target was 100% met. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 10/05/2006 Satisfactory Satisfactory /20/2007 Satisfactory Satisfactory /21/2007 Satisfactory Satisfactory /29/2008 Moderately Satisfactory Satisfactory /29/2008 Moderately Satisfactory Satisfactory /19/2009 Moderately Satisfactory Satisfactory /27/2009 Moderately Satisfactory Satisfactory /31/2010 Moderately Satisfactory Satisfactory /26/2011 Moderately Satisfactory Satisfactory H. Restructuring (if any) Level two approved on March 28, 2011.

13 I. Disbursement Profile

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15 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal The proposed IDA-funded Tax Modernization Project (TMP-IDA) was a follow-up of the US$40 million IDA-unded Tax Administration Project (TAP), 1 which was approved in March 1999 and closed on December 31, The TMP-IDA was used to fund part of the US$33.6 million Tax Modernization Program (TMP) designed to continue support to the Government of Tanzania (GOT) and the Tanzania Revenue Authority (TRA), especially for the implementation of the TRA s second five-year corporate plan (FY03 - FY08) through a multi development partner basket funding approach. The TMP was also intended to support the Zanzibar Revenue Board (ZRB). Two development partners, DFID and DANIDA, contributed US$19.6 million to the TMP through a basket funding arrangement leaving a financing gap of US$14 million. This was met by the proposed IDA credit of US$12.0 million and GOT contribution of US$2.0 million. The TMP was approved on June 15, 2006, became effective on November 28, 2006, and was initially expected to close on July 31, Country and sector background. During the 1990s, the Government of Tanzania faced serious fiscal problems arising from the gap between stagnant revenues and public expenditures swollen by large outlays on administration. The fiscal deficit, after grantss which was 5% in FY94, rose to 7.9% in FY95. Tax revenue collection was weak, reflecting both the structure of the tax system and deficiencies in tax administration. The GOT, recognizing these challenges, established the Tanzania Revenue Authority in 1996 as a quasi-autonomous executive agency. With the support of TAP, the GOT and TRA began an ambitious program of reforming the tax system and strengthening tax administration. The objective of TAP was to assist the GOT in raising its tax revenues without increasing tax rates by (i) improving the legal framework; (ii) broadening the tax base; (iii) strengthening the TRA to increase the efficiency and effectiveness of tax administration; and (iv) improving the administrative infrastructure. There had been substantial progress on the overall objective and all of the components. A major initiative of TRA, supported by TAP, had been the development of the second fiveyear Corporate Plan (2003/ /08). This plan provided strategic direction for the reforms by adopting a more integrated approach to project design and implementation over the five-year period. Implementation of the Corporate Plan was supported by TAP and the TMP. The last two years of the corporate plan (July 2006 to June 2008) included a number of key activities in the reform and TRA strengthening process. These included implementation of the customs modernization plan and the information systems strategy, 1 The Project was part of the broader multi development partner-financed US$70.2 million Tax Administration Project. 1

16 including the development and deployment of an integrated tax administration system. IDA support for the TMP would enable the corporate plan to be adequately financed and implemented. The Zanzibar Revenue Board (ZRB) also developed a Corporate Plan (2005/ /10) which spelled out its corporate objectives and outlined the strategic direction to achieve the objectives. The funding under TMP also supported the activities for three years of the ZRB corporate plan. The rationale for Bank involvement in TAP included (i) the GOT S desire to benefit from the Bank s international experience in tax administration; (ii) the Bank s role in helping the GOT develop the framework for multi-donor financing; and (iii) the Bank s ability to play a catalytic role in initiating and supporting the reforms, which involved wide-ranging organizational changes. This rationale remained valid for TMP-IDA. While other development partners were willing to support TRA and ZRB, the Bank was best placed to continue its coordination and harmonization efforts such as leading the multi development partner implementation support missions. Furthermore, the Bank s financial support also provided the GOT with the credibility to leverage other partners resources. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The PDO for the Tax Modernization Project (TMP) was to promote an effective and efficient tax administration that provides high quality customer services with fairness and integrity. The PDO was designed to reflect TRA's mission statement, to be an effective and efficient Tax Administration, which promotes voluntary tax compliance by providing high quality customer service with fairness and integrity through competent and motivated staff. TRA had also defined a set of outcome indicators to reflect the mission statement and the PDO. These were: total tax revenue collected by TRA in relation to its annual revenue target average time taken to clear goods at sea ports, border posts and airports percentage of taxpayers awareness on tax education programs percentage of written enquiries attended within seven days level of perceived corruption index One of the achievements of TAP was assisting TRA to develop its own list of Key Performance Indicators to be used by TRA for its own management purposes. These were also intermediate outcome indicators for TMP (see table 1). These indicators were listed by department LTD (large taxpayer department), DRD (domestic revenue department) and Customs. Table 1. Intermediate outcome indicators for TMP Intermediate Outcomes Intermediate Outcome Indicators 1. Improved effectiveness and efficiency of tax administration Amount o f previous year s arrears collected in relation to total amount of tax arrears at the beginning of the year 2

17 Average number of days to identify stop-filers (LTD and DRD) Number of TIN registered taxpayers Number of VAT registered taxpayers 2. Improved quality of customer Percentage of VAT refunds made within one month (DRD) service delivered with fairness and integrity Proportion of customs clearances made within 24 hours (ports and airports) Total revenue realized from audits as a percentage of revenue collected (DRD) Source: World Bank, Tanzania Tax Modernization, PAD, May 19, Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO and key indicators were not revised. 1.4 Main Beneficiaries The primary beneficiaries of the project were the Government of Tanzania and the taxpayers of Tanzania, as the main objective was to promote an effective and efficient tax administration that provides high quality customer service. In pursuance of this objective, the project helped increase the tax revenues for the government through better services with respect to transparency, efficacy, assistance and fairness to taxpayers, providing benefits to all. Within the government, the TRA and its staff especially benefited from this project, since significant investments were made to strengthen the organization and infrastructure of the revenue authority and to enhance the skills and competency of the TRA staff at various levels. The project also helped increase tax compliance and enforcement through a fair, equitable and transparent application of tax laws and contributing to reduced fiscal deficits. 1.5 Original Components (as approved) The TMP project was built on the previously completed TAP project and was designed to reflect the five strategic goals of the corporate plan of the Tanzania Revenue Authority (TRA). The activities related to these goals are summarized below. Strategic Goal 1 - Improve revenue collection in a cost effective way - Narrow the revenue gap, improve the tax structure, and deepen the modernization of customs arrangements. Strategic Goal 2 - Fully integrate TRA operations - Integrate processes and procedures, strengthen the Large Taxpayer's Department, provide additional information technology infrastructure, introduce e-filing, roll out the Asycuda++ system for customs, and strengthen the Domestic Revenue Department. Strategic Goal 3 - Provision of high quality and responsive customer service - Develop taxpayer education programs, roll out district-level one-stop centers, promulgate a taxpayer s charter, establish a quality management system and a customs client services unit. Strategic Goal 4 - Promote tax compliance through a fair, equitable and transparent application of tax laws - Unify taxpayer identification, introduce risk management for 3

18 audit based taxes, further strengthen the Tax Investigation Department and improve tax enforcement. Strategic Goal 5 - Improve staff competence, motivation, integrity and accountability - Strengthen management controls, promulgate a staff charter, strengthen training capacity, and implement the anti-corruption strategy. It also provided support to the Zanzibar Revenue Board (ZRB) for improving efficient collection of taxes; promotion of voluntary compliance; provision of quality service to taxpayers; and improvement of working environment, staff skills, competence and motivation. The expected costs and funding sources of the TMP are indicated in the table below. Because the IDA funding was provided through a basket fund arrangement with DFID and DANIDA, it was not allocated by component. The basket fund supported consultancy services, goods, equipment, and training but excluded civil works. The cost of any remaining civil works under TRA s corporate plan was funded by the GOT. The basket fund arrangement on one hand enhanced the efficiency of Project management and coordination, while on the other hand it also created some delay in the disbursement of IDA funds due to the borrower s preference for using other donors grants first, as well as some inflexibility to change when needed. 2 Table 2. Expected costs and financing of TMP 1.6 Revised Components 2 One example was the difficulty of adjusting the M&E framework, detailed in section

19 There was no revision to the components. 1.7 Other significant changes The project has been extended twice. The first occasion was from July 31, 2009 to March 31, 2011, to allow additional time for the borrower to complete its second- and third-year activities in their Third Corporate Plan, a collaboration with development partners. The second extension was from March 31, 2011 to September 30, 2011, in order to facilitate a procurement which had faced contracting delays. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The TMP was a repeater of the TAP project which was completed in 2006, and complied with all the requirements for repeater projects in the Bank guidelines in terms of recipient ownership and interests; project status report ratings; impact; fiduciary, environment, social and safeguard issues; and funds availability from other agencies. The design of the TMP drew on lessons from TAP and other basket funding arrangements in Africa. The design was also in full accordance with the Paris Declaration on Harmonization. Ownership and framework: There was complete ownership of the TMP within the GOT, TRA and ZRB. The framework for the TMP were the Corporate Plans of both the TRA and ZRB, which had been developed with the full endorsement of the respective managements and boards as well as the GOT. Harmonization: Under TAP, the development partners made significant progress in harmonizing their procedures and requirements in line with GOT s overall aims of reducing transaction costs. The final step of the harmonization process was the creation of the basket fund to facilitate donor contributions for the project. Mainstreaming: During the implementation of TAP, the Bank team strongly encouraged and supported the creation of capacity in order to have project coordination mainstreamed within TRA. This was completed and ever since, TAP coordination and procurement has been conducted by TRA staff. This arrangement was also adopted by TMP while ZRB established a Modernization Department to implement its plan. Use of country systems: The Bank team advocated the use of TRA s own systems and reports for TAP and TMP in order to streamline the implementation process. Consequently, procurement was done using national procedures and the reports provided to development partners were the same reports provided to the TRA management. The annual financial reporting requirements were simplified to have one combined set of financial statements and audit report for TRA, TAP and TMP. The project team identified moderate risks and mitigation measures for the project, which are listed below. Table 3. Project risks and mitigation measures 5

20 The risk mitigation measures were properly implemented and the risks were adequately avoided or minimized. By the end of the project, great emphasis was placed on the government s commitment to the asset replacement fund. 2.2 Implementation The implementation of the project was slower than expected and was extended for 20 months in June As of May 25, 2009, US$6.0 equivalent had been disbursed, about 50% of the total commitment. This was due to two reasons: (1) the TRA and the GOT chose to use the DFID and DANIDA grant funds first from the basket fund; and (2) there had been some delays in procurement. 3 In March 2011, the project was extended for another 6 months. Despite these issues, during the project period, the TRA had implemented a significant number of reforms. The revised TRA Corporate Plan (2008/ /13) had a total of 98 major initiatives and during the period under review, a total of 60 initiatives had been completed with a performance rate of 61%. The remaining 38 initiatives would be completed during the remaining two-year period of the Plan. Overall the implementation process was smooth and the project was never in Problem Project status during its lifetime. The Mid-Term Review (MTR) took place in October-November, 2008, to review project progress and to provide implementation support. The review was an important event in the project s implementation process, as it identified several key issues and made some important recommendations: 3 World Bank, Tanzania: Tax Modernization Project (Cr.4190-TA) Extension of Closing Date, Office Memorandum, June 1,

21 a) Revenue target. There was a concern that the drive to increase revenues might surpass the capacity of the TRA to put in place the required systems to ensure revenue is collected and accounted for in a responsible and ethical way. This concern later proved to be true. It was agreed that TRA would further enhance its compliance gap analysis work and revenue estimation activities. b) Customs clearance time. This measure of efficiency actually deteriorated since Given this, the Bank had urged the TRA to complete by April 2009 the Time Release Study, which was intended to identify the main factors affecting customs performance. c) M&E framework. The review discovered that the cost of tax collection was an appropriate way to analyze efficiency trends in revenue collection, and TRA had already been monitoring collection costs on a regular basis. It was agreed between the project team and TRA that the cost of collection would be added to the list of key performance indicators of TRA and to the outcome indicators of the TMP project, although the latter was never realized, partially due to the lack of consensus among the development partners. d) Project duration. Based on the implementation status then, it was agreed to extend the project duration for eighteen months (later it was actually extended for 20 months) to allow TRA to utilize fully the IDA undisbursed balance of $6.0 million. These funds were expected to be used for some key activities in customs modernization and information systems, the start of which had been delayed and which could not be completed until An important result of the mid-term review was the implementation of the recommendations 5 from the Time Release Study completed in 2009, which helped improve the customs clearance time significantly. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The M&E framework was overall adequate, and was directly linked with the government s key performance indicators system. On the other hand, the basket fund arrangement also made it less flexible for change. 4 World Bank, Tanzania Tax Modernization Program Mid-Term Review, Aide Memoire, November, There were in total 50 recommendations from the Time Release Study, including changes in law to call for submission of manifests within 48 hours before arrival instead of the current requirement of reporting within 24 hours after arrival; TRA/TPA/Shipping/airline agents to put a mechanism that ensure timely and accurate submission of manifests; TRA to strengthen sanctions/penalties for late submission and/or incomplete manifests; TRA to speed up TISCAN exit strategy and implementation of new initiative of reengineering Customs processing system; introducing one-stop-shop operating environment; extending the working hours of all concerned institutions to compensate for the idle times caused by system downtimes; implementing training programs to increase the understanding and skills of operational staff from the clearing and forwarding industry; ensuring reliable supply of power to support availability of automated systems all the time; TRA to expedite implementation of automation (roll out of ASYCUDA++ and ASYSCAN) of all remaining major Customs stations for improved service delivery, improved controls and efficient electronic exchange of information including validation of transit data, etc. For details, please see TRA, Tanzania Time Release Study, December 2009, Dar es Salaam. 7

22 (a) M&E design: The M&E framework for the TMP project was sufficient but there was room for improvement, especially at the PDO level. Given the project objective of promoting an effective and efficient tax administration, an efficiency measurement indicator should have been introduced at the design stage. The mid-term review tried to remedy the situation, and it was agreed to add the cost of tax collection to the TMP outcome indicators and TRA s key performance indicators. Unfortunately no actions were taken following the MTR and the ICR team had to reconstruct the necessary evidence to substantiate the PDO (see section of PDO assessment). Another indicator, reduced level of perceived corruption index, was a relevant indicator but the perception surveys for this indicator, especially the small and medium taxpayer survey, were not conducted in a timely manner and the baseline value of this indicator was poorly defined. It would have been desirable to have had a stronger survey program carried out to accompany the project, especially to establish the counterfactual. However, since the project was fully aligned with the Government program and implemented within a basket fund arrangement, even the presence of more frequent data points would not have helped in assessing a with/without project scenario. Nevertheless, project management could have drawn important information from higher frequency surveys. (b) M&E implementation: The M&E framework was appropriately implemented by the Planning and Modernization Program Unit (PMPU) of TRA and according to the TMP Operational Manual. Despite some delays on the taxpayer perception surveys, the overall data was reliable with adequate quality. On the other hand, there was still a need to further strengthen the TRA s and ZRB s capacity for research and data collection/analysis to ensure a high-quality monitoring and evaluation process. (c) M&E utilization: The M&E framework had not only been utilized by the TMP project itself, but had also been fully integrated into TRA s internal M&E key performance indicators, which had been efficiently used to evaluate its corporate plan outcomes and inform TRA s internal decision-making and resource allocation. During the ICR mission, the WB team recommended including collection cost as a new indicator and conduct some restructuring of the M&E framework based on the points made in section 2.3.(a) above, and TRA accepted this suggestion. Given that the M&E system has been actively utilized, the sustainability of the M&E arrangements can be assured. 2.4 Safeguard and Fiduciary Compliance The project was given an Environmental Assessment Category C, so no safeguard issues were identified during preparation. There were no fiduciary compliance issues. As indicated in section 5.2(b), financial management and procurement compliance have been rated as generally satisfactory. 2.5 Post-completion Operation/Next Phase Although the World Bank project financing the Tax Modernization Program (TMP) was closed at the end of September 2011, the Program continues with funding from DFID and 8

23 DANIDA 6. The procurement plan for the financial year , to be implemented under DFID and other donor funding, has 40 procurement packages with an estimated cost equivalent of US$18,268,088 including training activities with a value of US$1,511,788, 7 which will support the completion of the Third Corporate Plan and the beginning of the Fourth Corporate Plan of TRA. The TRA will continue to be the implementation agency. All these arrangements will ensure that the intended outcomes of this program will be fully achieved and maintained, and the institutional capacity built through this program will be sustained and even further strengthened. The M&E framework used for the project will continue to be fully utilized as TRA s internal M&E system with some restructuring as mentioned in the M&E section above, to monitor and evaluate the outcomes of the TRA s Corporate Plan. Based on the feedbacks during the ICR mission, all the stakeholders, including MoFEA, TRA, DFID and DANIDA, have suggested that the World Bank continue its involvement, possibly through a new project, when this program cycle is over, in order to sustain and further improve the outcomes and capacity achieved through this project. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Rating: Satisfactory. The objective of increasing tax revenues in order to generate sufficient public resources to support government programs was a high priority for Tanzania at the time of project design and it is equally relevant today. The 2000 Country Assistance Strategy (CAS) for Tanzania focused on facilitating higher growth, reducing poverty and undertaking institutional reforms to improve governance. The GOT launched its first National Strategy for Growth and Reduction of Poverty 2005/ /10 (also called MKUKUTA I) in The strategy identified three clusters of broad outcomes: (i) growth and reduction of income poverty; (ii) improvement of quality of life and social well-being; and (iii) good governance and accountability. In November 2010, the GOT finalized a new Five Year National Strategy (2010/ /15) (MKUKUTA II), which built on MKUKUTA I s three clusters but with more emphasis on growth and productivity enhancement, as well as investment in people and infrastructure development. In line with the new World Bank Africa Strategy, the CAS for Tanzania identified four objectives: (i) promoting inclusive and sustainable, private sector-led growth; (ii) building infrastructure and delivering services; (iii) strengthening human 6 DANIDA s initial financial support ended in 2008, but from September 2011, DANIDA pledged another Dkr. 15 million (about US$2.6 million) which is supposed to be disbursed by the end of 2012 (based on the interview with DANIDA during the ICR mission in Jan 2012). 7 World Bank, Tanzania Tax Modernization Project Development Partner Implementation Support Mission, Aide Memoire, September,

24 capital and social safety nets; and (iv) promoting accountability and governance. 8 The Tanzania Ninth Poverty Reduction Support Credit (PRSC-9), launched in January 2012, is also intended to support government strategy through two pillars: (i) investment climate and (ii) public finance. The latter explicitly included enhanced domestic revenue mobilization as a core focus. 9 The TMP contributed to the objectives of the MKUKUTA (both I and II) and the CAS (both the 2000 and 2012 ones) as well as the most recent PRSC-9 in a number of ways. The TMP helped improve revenue performance and increase domestic resources on a sustainable basis to finance public investments, such as infrastructure, human capital, social safety nets and poverty reduction programs, which were the priorities in the Government s strategies as well as the World Bank country assistance strategies. The TMP helped build much-needed capacity in areas critical for sound economic management, especially in TRA and ZRB. These improvements were related to the good governance agenda highlighted both in the CASs and in the MKUKUTAs. The TMP supported tax policy reforms aimed at eliminating provisions that created distortions in economic decision making, thereby helping create a better business environment to facilitate private sector development and economic growth. The design of the project fully reflected its objective, and its five components were designed to support the five strategic goals of the TRA Corporate Plan, which were intended to make TRA an effective and efficient Tax Administration. For example, Component 1 - improving revenue collection in a cost effective way through narrowing the tax gap, improving tax structure, etc. and Component 2 - full integration of TRA operations through integrating processes and procedures, and providing IT infrastructure, etc. were directly linked with the effectiveness and efficiency of the TRA administration. Component 3 - provision of high quality and responsive customer service, Component 4 promotion of tax compliance through a fair, equitable and transparent application of tax laws, and Component 5 improvement in staff competence, motivation, integrity and accountability were directly linked with the project objective of providing high quality customer service with fairness and integrity, which was also part of TRA s mission statement. All these were directly linked to the government and CAS s strategic goals of strengthening public and social sector investments and improving governance and accountability. Despite some delays in the procurement process, the overall implementation process was smooth and responsive to the country s needs. Thanks to the streamlining process adopted during the predecessor project at the request of the GOT, the basket fund arrangement (which was in strong alignment with government s strategy) made the implementation process more efficient and effective, despite some level of inflexibility associated with it. Being the only project implementation unit for all the donors, TRA s capacity was further strengthened through the targeted TA activities. 8 World Bank Group, Country Assistance Strategy for Tanzania , May World Bank, The Tanzania Ninth Poverty Reduction Support Credit (PRSC-9), program document, Africa region, January

25 3.2 Achievement of Project Development Objectives Rating: Moderately Satisfactory. The achievement of the PDO, as analyzed below, is rated Moderately Satisfactory. This rating is in line with the final Implementation Status Report (ISR). Beyond the information available for the PDO indicators when the project was closed on September 30, 2011, a further comparative analysis of the pre- and post-project situation and more evidence collected through the ICR mission all support this rating. Below is the assessment of the project achievements based on five PDO indicators, some intermediate outcome indicators and component outcomes. More details for each project component are provided in Annex 2. 1) Total tax revenue collected by TRA (for domestic revenue) as a percentage of its annual revenue target. This is a key performance indicator which measures the effectiveness of TRA performance. The annual targets for this indictor were set by Government for each fiscal year based on revenue expectations. The project s target was agreed as achieving 100% of the Government s revenue collection targets. Based on these revenue targets as set by the Government, the project marginally missed the targets, and the revenue collection performance stood at 90%, 91% and 94% for the years 2008/9, 2009/10 and 2010/11. However, this needs to be put into perspective. a. First of all, based on project supervision records and on feedback from development partners, the revenue target seemed to be overly optimistic in many ways. Table 4 shows that the revenue targets were pushed up 43.3% and 34.3% for 2008 and 2009, which were beyond the sustainable level, and after a moderate increase in 2010, the target was again increased 16.4% for According to the project records and donor feedback, the targets were not adjusted when the economic situation changed unforeseeably or planned reforms were not carried out. The actual revenue collection had been improving robustly at an average speed of 21% from FY2007/8 2010/11. The total revenue in 2010/11 (Shs 5,465 billion) was almost three times of that in 2006/7 (Shs 1,938 billion). 10 Revenue collection from July-December 2011 was fully on target (table 5). Apart from having more realistic revenue collection targets for 2011/12, some other project-related factors also contributed to this improvements: i. Strengthening of the audit capacity in the mining sector started bearing fruit, and mining companies are now paying corporate tax; ii. The pay reform for government employees resulted in good performance in PAYE; iii. Implementation of EFD for improving VAT compliance led to improvement of VAT performance; iv. The fuel levy was also performing well due to the reforms in petroleum sector which had led to an increase in diesel imports. Table 4. TRA s Revenue Targets and Performance ( ) 10 Various project Aide Memoires, and author s calculations. 11

26 (baseline) Revenue targets (Tshs billion) 1, , , , , Increase of revenue target (%) Actual revenue collection , , (Tshs billion) Revenue performance (actual as % of the target) Source: TRA reports and various project AMs. Table 5. Semi-annual Revenue Collection Performance Net of Refund by Departments for the Period July-December 2011 b. Secondly, to better measure the revenue performance of the project, the globally recognized tax revenue/gdp ratio indicator should be used, as it eliminates the impact of economic growth fluctuations on revenue collection results. Since it is relative to GDP growth, therefore, a better measurement of the actual performance. Figure 1 shows that the tax revenue/gdp ratio had been increasing very rapidly: during the predecessor project TAP, the average ratio was 12.2%, which was one percentage point higher than the average of the 5-year pre-project period (11.1%); during the TMP project, the average ratio was further increased to 14.6%, which was 2.4 percentage points higher than the TAP project period. c. There was a significant causal relationship between the impressive revenue growth and the performance of the TRA. In general, there are three factors responsible for revenue increases: (1) economic expansion; (2) successful policy reforms; and (3) more efficient and effective revenue collection. When we use the tax/gdp ratio measurement, we exclude the impact of the economic growth factor. Also, during the TMP project period, apart from some minor policy reforms, such as the reduction of the VAT rate from 20% to 18% in 2010 in response to the financial crisis (this reduction was also partially responsible for the slight retreat of the tax revenue/gdp ratio in 2009/10) 11, there were no major tax policy changes that increased revenues. 11 IMF, Revenue Mobilization in Developing Countries, Fiscal Affairs Department, March

27 Source: World Bank: ICR Report for the TAP Project (2007), and various Aide Memoires for the TMP Project. 2) Average time taken to clear goods at sea ports, border posts and airports. This is a key indicator to measure the efficiency of the TRA services at ports and border posts, and it was fully achieved. By the time the project was closed, the average clearance time (from arrival to removal) was 12 days at the Dar es Salaam (DSM) port, and 5 days at the airports, down from 14 days and 6 days respectively in The situation worsened in 2008/9, however, after the mid-term review, and at the urging of the project team, the Time Release Study was conducted and relevant recommendations from the study were adopted, which helped to achieve the project targets. 3) Percentage of taxpayer s awareness of tax education programs. This indicator measures the quality of TRA s customer services. The target value was a 60% level of awareness of those surveyed, while the actual value at project closure was 94%, which was 34 percentage points higher. Therefore this indicator was fully achieved. 4) Percentage of written enquiries attended within seven days. This is another indicator which measures the quality of TRA s customer services. The target value was 90%, and the actual value by June 2011 was 79%, which was a partial shortfall. 5) Level of perceived corruption index. This is an important PDO indicator which measures the fairness and integrity of the tax administration services. The value of this indicator solely relies on taxpayer surveys. These surveys were officially conducted by an independent consulting firm (such as Tetralink Taylor & Associates Ltd.) with adequate reliability. By the time the project was closed, two large taxpayers surveys (2006 and 2011) and one small and medium taxpayers survey (2009) were conducted. During the ICR mission in January 2012, a small-scale small and medium taxpayers rapid assessment was conducted as well. So the assessment of this indicator is based on these available data. Based on the 2011 Large Taxpayers Perception Survey, 56.3% of taxpayers agreed with the statement that TRA staff are 13

28 largely corruption free 12. The 2009 Small and Medium Taxpayer Perception Survey showed that 65.5% of taxpayers agreed that TRA staff avoid corruption practices 13. Given that this small and medium survey was a little bit too distant from the project closure date, a small-size small and medium taxpayer rapid assessment 14 was carried out during the ICR mission in January 2012 as complementary information. Based on this assessment, almost half of the respondents thought the tax collection process is less corrupt or very clean 15, such confirming the declining trend in corruption perception. The target can therefore be assessed as achieved. In addition, the efficiency and effectiveness of TRA operation has been improved significantly. This can be demonstrated by the following: During the project period, the average number of days to identify stop-filers was reduced from 5 to 3 days for Large Taxpayers Department, and from 14 to 10 days for the Domestic Revenue Department (direct taxes). The cost of tax collection had been on a declining trend. The cost of collecting taxes as a share of total tax revenues declined from 3.25 in FY2006/07 to 2.7% in FY2010/11. Figure 2 shows that during the TMP project period, except the FY2008/09, tax collection cost as percentages of tax revenue was equal to or lower than the pre-project period. Source: TRA annual reports. 12 TRA, Second Large Taxpayers and Tax Consultancy and Advisory Services Perception Survey, Dar es Salaam, March The survey involved a census of the 420 large taxpayers and tax consultancy and advisory service providers in TRA database. A total of 310 large taxpayers from various business categories participated, representing 74.5% of the large taxpayers population. 13 TRA, Small and Medium Taxpayer Perception Survey, Dar es Salaam, April This survey was conducted for 2,632 SMEs in different business sectors, spreading across different regions in Tanzania, including Dar es Salaam, Arusha, Mwanza, Tanga, Mtwara Dodoma and Mbeya for the mainland Tanzania and Mjini Magharibi for Zanzibar. 14 This assessment was conducted for small and medium taxpayers in the Kinondoni and Ilala regions in Dar es Salaam, and 19 questionnaires were received. It is statistically insignificant but helps to get a better understanding of taxpayer perceptions, and to provide a cross-check on the results for the formal surveys. 15 World Bank, Tanzania Small and Medium Taxpayer Perception Assessment, January

29 The tax gap (the difference between the actual tax revenue and the estimated potential tax revenue) reduced from 9.3% of GDP in 2005 to 5.9% in This was favorable compared with Tanzania s peer countries in EAC: in Rwanda the gap reduced from 9.9% to 8.5% in the same time period, while in Uganda the gap reduced from 7.8% in 2005 to 6.2% in 2009/ The timeliness of revenue collection was also improved through faster goods clearance at sea ports and airports (the DSM port clearance time reduced from 14 hours in 2006 to 12 days in 2011, and the airports clearance time reduced from 6 hours to 5 hours during the same period), quicker VAT refunds (percentage of VAT refunds made within a month increased from 62% in 2006 to 80% in 2011) and the enhanced ease of paying taxes. Major investments throughout the project, both in the areas of infrastructure and capacity building, had overall greatly contributed to the improvement. Details are shown below: 1) Average time taken to clear goods at sea ports and airports. The clearance time had initially worsened from , however, after the implementation of the Time Release Study recommendations, it was reduced significantly and met the Project targets in 2011, as can be seen in Table 6, below. DSM Port (hh:mm) Airports (hh:mm) Table 6. Customs clearance time 2006 (Baseline) :00 41:08 46:08 59:30 14:00 12:00 6:00 20:00 8:09 13:08 6:00 5:00 Source: TRA annual reports. 2) Tax arrears. TRA had been fairly proactive in collecting tax debt 17. However, after a strong performance from , the arrears collection amount dropped significantly in 2011 (especially the domestic revenue) 18. Table 7. Tax arrears collected (amount of previous year s arrears collected as % of total amount of tax arrears at beginning of year) 2006 (Baseline) Domestic African Development Bank, Domestic Resource Mobilization for Poverty Reduction in East Africa: Tanzania Case Study, Regional Department East Africa, November 2010; IMF, Revenue Mobilization in Developing Countries, Fiscal Affairs Department, March 2011; and author s calculations. 17 The tax arrears accounted for about 5% of the total domestic tax revenues. 18 One explanation for this was the increasing number of litigations due to improved legal system and transparency partially as a result of the project, which significantly slowed down the collection process. 15

30 revenue dept. Large taxpayer dept Source: TRA annual reports. 3) VAT payment system. The percentage of the VAT refunds made within one month had been progressing well though it dropped in 2011 compared with It is, however, still much better than in 2006 when the project commenced. % of VAT refunds made within a month Table 8. VAT refunds 2006 (Baseline) Source: TRA annual reports. 4) The ease of paying taxes was also greatly improved. The number of e- filings increased eight-fold from 2009 to 2011 (Figure 3). The assessment conducted during the ICR mission also showed that 68.4% of respondents thought the tax filing process had become better or much better (Annex 5). Figure 3. Number of returns filed through e-filing system (July 2009 August 2011) Source: TRA, Implementation Report for the Third Corporate Plan for the Period 2008/ /11, December Deployment of ICT in TRA operations had played a vital role during the implementation of the Corporate Plan. It had enabled the authority to transform its business processes from manual to automated operations which had led to efficiency gains and improved service delivery. So far, the automated systems of ITAX (e-filing system), DWH (data warehouse), CMVRS (central motor vehicle registration system) 16

31 and CDLS (computerized driver s license system) have been installed and are operational in all TRA Regional Offices (see Annex 2 component 2 for details). TRA became an ISO 9001:2000 certified organization in October 2008, which was the first year of implementation of the Third Corporate Plan, and continued to maintain the Quality Management System (QMS) thereafter. Overall findings of both internal and external audits demonstrated that the QMS was maintained satisfactorily (see Annex 2 component 3 for details). Electronic fiscal devices (EFDs) were introduced with the objective of enhancing compliance management and reducing the risk of tax evasion. By project closure, 17,462 EFDs had been issued for VAT registered traders. Two Digital Forensic Laboratories had been established to enhance the capacity of the tax investigation department (TID). From November 2010 to November 2011, the TID using computer forensic tools managed to conduct 11 investigation cases whereby a total of Shs billion was identified as additional tax owed, out of which Shs 2.8 billion was collected. The TRA-wide risk management policy was approved and implementation of the policy started. The Electronic Cargo Tracking System (ECTS) had also been installed and become operational. The system would help deter tax evasion and reduce dumping of goods into the local market (see Annex 2 component 4 for details). To improve staff competency and efficiency, various management systems were implemented over the years. These included Strategic Planning and Management, Balanced Score Card and Quality Management System and the current introduction of the Gemba Kaizen Management System (GKMS) 19. In November 2010, TRA won the AAPAM Gold Award for innovation 20. TRA also designed and developed the TRA Monitoring and Evaluation System (TRAMED) in 2008 for monitoring and evaluation of TRA Corporate Plan implementation. The system allows key users from various departments to input data for the plan period, and is now fully operational. In addition, staff sensitization on the anti-corruption policy was carried out, and the operation of the regional ethics committees had improved considerably (see Annex 2 component 5 for details). 19 Kaizen training program incorporated various Kaizen Philosophy and Kaizen Management System models that include the 5S good housekeeping principles of Sorting, Straighten, Scrub, Standardize and Sustain. 20 AAPAM is a continental professional organization for high level Public Sector Administrations and Management in Africa. The Association s main business is to promote best practices, excellence and professionalism in public administration and management. The AAPAM Gold Medal is awarded as a mark of distinction and exceptional achievement to a person/institution who has shown distinctive leadership in advancing Public Administration and Management in Africa. According to the Department of Public Service and Administration of South Africa, The AAPAM Gold Award is the most prestigious award given in recognition of organizational excellence in creative managerial initiatives in public administration and management in the African Continent. 17

32 In addition, the sustainability of tax collection has been greatly strengthened. Through Project support, the number of registered taxpayers increased substantially (Table 9), greatly strengthening and helping to sustain the country s revenue base in the long run. Domestic revenue Large taxpayers TIN registered VAT registered Table 9. Increase of taxpayers (Baseline) 288, , , , , ,737 6,154 7,342 9,036 10,844 13,253 16, Source: TRA annual reports. In conclusion, achievement of the Project s objective to promote an effective and efficient tax administration that provides high quality customer services with fairness and integrity is assessed as moderately satisfactory as evidenced by the robust pace of tax revenue growth, improved customs clearance, better TRA customer service quality (as reflected by the increased awareness of tax education program and reduced corruption), the reduced cost of tax collection, enhanced ease of paying taxes, and improved TRA staff competence as well as a stronger M&E framework, somewhat offset by the partial achievement on the targets for the percentage of written inquiries attended within seven days, and the tax arrears collection. This rating is also in line with the assessment by other donors contributing to the basket fund (see annex 8). 3.3 Efficiency As this was a TA operation, the Project Appraisal Document did not include an Economic Analysis. Therefore, the ICR mission undertook alternate measures to substantiate the different aspects of project efficiency: a) Efficiency of project execution Project implementation was fully mainstreamed into regular, already existing government operations. Following the signing of the TMP MoU and adoption of the Operational Manual, activities for project coordination were integrated into TRA operations. The Planning and Modernization Programme Unit includes development partner coordination as one responsibility amongst others (such as corporate planning, quality auditing, corporate M&E, etc.). The staff handling the Project account are also involved in other TRA activities in the Finance Department not related to the Project, which is also true for the procurement staff under the Human Resources and Administration Department. TRA management also sits to deliberate on issues, some of which are not related to the Project. These structures were in existence even 18

33 before the signing the MoU, so it is not feasible to apportion costs solely based on the handling of the project. Overall, however, this arrangement speaks to the efficient implementation of the project as no extra resources were needed to support a separate PIU. Due to The complete integration of implementation arrangements, the efficiency in tax collection and TRA s overall performance (the Project s objective) also speak to overall Project efficiency. The implementation of the Project through a basket fund arrangement significantly reduced the transaction costs to government otherwise associated with donor coordination by reducing aid fragmentation requiring consultative meetings, separate reporting arrangements and disparate fiduciary requirements for multiple donors. Channeling resources through such a modality confirms a commitment towards a more effective and efficient use of aid resources that is in line with both the Paris Declaration and the aspirations of the Tanzanian Government as elaborated in the Joint Assistance Strategy. The single implementing agency arrangement made the process much simpler and more efficient. The total actual project implementation cost was in line with the estimated cost at appraisal and was only a slight (8%) over the original estimation (see Annex 1 for details), which was quite reasonable. The major spending increases were in the areas of staff competence, motivation, integrity and accountability, which were crucial to build TRA s long-term sustainable capacity. It consumed about half of the total budget. However, it is important to note that the number of tax staff available for every 1,000 persons is only This tax staff per population ratio is very low compared to the world average of 0.82, but a bit higher than the Sub-Saharan Africa (SSA) average of In terms of performance, Tanzania has a smaller tax gap than its peer countries in EAC, Uganda and Rwanda. 22 (See details in Section 3.2 on Achievement). This shows a quite favorable technical efficiency of the TRA staff. Even though the Project was extended for two years 23, project supervision was carried out with efficient use of resources. Total Bank administrative costs for project supervision over the five-year project span were $397,000 (85.5 staff weeks), which was below the Africa region average 24. b) Contribution to efficiency gains in TRA performance Since TRA was the main target of this project, its efficiency gains were a direct reflection of project efficiency as well. 21 Fiscal Reform and Economic Governance: funded by the USAID, The SSA average tax gap figure is not available. 23 One of the reasons for the extension was the relatively slower disbursement of IDA fund due to the mixed basket fund approach, compared with an IDA-fund-only approach. 24 The average allocation for project supervision was from $90,000 to $100,000 per year for a typical project in the Africa region, but for a more complex project, the allocation could be higher. 19

34 Cost of tax collection. While tax revenue has increased rapidly (182%) over the project period, the operating cost associated with tax collection has been in decline, with an average level of 3.16% (as a share of total tax revenue). (See section 3.2 on Achievement for details.) Ease of paying taxes. Through investment in both hardware and capacity building, the tax-paying process seemed to be more efficient. As already mentioned in section 3.2, from July, 2009, through August, 2011, the number of returns filed through the e-filing system increased eight-fold. A small-scale small and medium taxpayer assessment conducted by the World Bank in January, 2012, indicated that 68.4% of the respondents thought the tax filing process had become better or much better (Annex 5). On the other hand, the World Bank s Doing Business indicators showed that from 2006 to 2011, the number of tax payments a year had not changed, and the time taken to comply with the major tax types persistently remained at 172 hours after an initial drop from 248 hours to 172 hours from 2006 to 2007 (Table 10). However, the average time taken to comply with major tax types was still much lower than the SSA average of 318 hours in Table 10. Doing Business indicators on tax burden (Tanzania) Indicator Year Number of tax payments a year Time taken to comply with the major tax types Source: World Bank, Doing Business indicators, various years. c) Efficiency gains through the least cost approach. The project heavily invested in the infrastructure important for an efficient tax administration system. Such investment included an electronic tax filing and payment systems (including EFDs and mobile payment system), TRA data warehouse, central motor vehicle registration system (CMVRS), computerized drivers license system (CDLS), customs valuation database, ASYCUDA ++ and ASYBANK 26, customs automated cargo management system, new customs clearance system, etc. Evidence collected during the ICR mission and workshops with the beneficiaries indicated that all this equipment was in full use most of the time, except when power was down. On the other hand, some of the equipment, such as the central servers, seemed not to be able to accommodate the rapid increase of electronic data volume and number of transaction. This might to some extent have reduced the machines life cycles as they had to be replaced or upgraded sooner than expected. 25 World Bank Group, Doing Business 2012, Washington, D.C. 26 ASYCUDA++ is a web-enabled electronic tax management system for customs which has been rolled out in 30 major customs stations in Tanzania. ASYBANK is a module of ASYCUDA++ that allows the system to be linked with commercial banks to speed up the payment of taxes. 20

35 From the above analysis, it can be seen that there were significant efficiency gains during the project period achieved through the improvement in project execution, in TRA performance and the efficiency gains through the least cost approach. Based on these factors, the project has been rated as Moderately Satisfactory in terms of its efficiency. 3.4 Justification of Overall Outcome Rating The overall outcome is rated Moderately Satisfactory. This takes into account the relevance of objectives, design and implementation, which was rated Satisfactory (section 3.1), the achievement of the project development objectives, which was rated Moderately Satisfactory (section 3.2) and project efficiency, which was also rated Moderately Satisfactory (section 3.3). The overall rating is, to an extent, a reflection of the commitment and achievements of TRA in improving its revenue collection system, while also illustrating the room for improvement in the areas of effectiveness and efficiency. Table 11 shows the breakdown of the project outcome rating. Table 11. The breakdown of the project outcome rating Objective Relevance Efficacy Efficiency Project outcome rating To promote an effective and efficient tax administration that provides high quality customer services with fairness and integrity Satisfactory Moderately Satisfactory 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects and Social Development Moderately Satisfactory Moderately Satisfactory The project was gender neutral. Its impact on poverty and social development is hard to assess directly but can be attempted indirectly through the increased spending on broad and pro-poor social programs, partially as a result of the increased tax revenues through the tax modernization project. Figure 4 shows that government expenditure in agriculture and other key social sectors increased more than three times from 2005/06 (TShs 1861 billion) to 2010/11 (TShs 6058 billion), except for a drop in HIV/AIDS spending in 2010/11. Figure 5 shows that government expenditure in agriculture and major social sectors as a share of GDP consistently increased since 2006/07 (from 12.4% in 2006/06 to 18% in 2010/11). However, these increases can only partially be attributed to the increased tax revenues, because the government expenditure data also includes the donor funds, which cannot be disaggregated from the total numbers 27. Figure 4. Domestic revenue and government expenditure (TShs. Billion) 27 Despite of several requests by the author, the Ministry of Finance and Economic Affairs was unable to provide the disaggregated data. 21

36 Tax revenue Education Health Water Agriculture Infrastructure HIV/AIDS Source: TRA implementation reports and Ministry of Finance and Economic Affairs, Figure 5. Government expenditure in agriculture and major social sectors as a percentage of GDP / / / / / / / /11 Source: Ministry of Finance and Economic Affairs, (b) Institutional Change/Strengthening Institutional strengthening has been one of the key achievements of this project. Progress in the area of institutional building includes: Improved capacity of TRA to formulate and implement its corporate plan, through better planning, coordination and execution. The project supported the implementation of its Third Corporate Plan, which lasts until 2012/13. TRA has already begun to chart out its Fourth Corporate Plan. Improved monitoring and evaluation capacity of TRA. By using/adapting the M&E framework of the TMP project, TRA was able to develop and implement its own M&E framework. Certain indicators that TRA is using, such as tax collection cost, is even a major improvement from the TMP project M&E framework. Improved staff capacity to use modern ICT technologies in the tax management system. Through the introduction of various ICT technologies/equipment in various tax management system and corresponding training and business process 22

37 re-engineering, the staff capacity in the tax management system was greatly enhanced, which was evidenced by the robust revenue increases (measured by tax revenue as a percentage of GDP) during the course of the Project. Improved procurement and financial management capacity of TRA. This was evidenced by the relatively smooth process in procurement, budgeting and financial reporting, and the constant satisfactory rating by the project team. Improved donor coordination capacity of the Ministry of Finance and Economic Affairs and TRA through extensive interaction with various development partners, such as the World Bank, IMF, DFID and DANIDA. (c) Other Unintended Outcomes and Impacts (positive or negative) One unintended outcome was the resumption of DANIDA s support of TRA s tax modernization program towards the end of the project. DANIDA was one of the initial co-financiers of the TMP project but its support was completed in Seeing the positive results of the Project, however, DANIDA resumed its support with additional funding, starting from the second half of Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Four stakeholder perception surveys were conducted in 2003 (all taxpayers), 2006 (large taxpayers), 2008 (small and medium taxpayers) and 2011 (large taxpayers). In the surveys conducted for large taxpayers, the majority who participated expressed satisfaction with TRA s performance in the areas of meeting the objectives of the Taxpayers Charter, implementation of tax reforms, taxpayer education, ethical behavior and customer responsiveness. During the ICR mission in January 2012, two small and medium taxpayer workshops/rapid assessments were held in the Ilala and Kinondoni regions of Dar es Salaam. The main purpose of these meetings was to elicit taxpayer perceptions regarding progress in improving the effectiveness, efficiency and fairness of the tax collection system in Tanzania as a result of project interventions. For that purpose, the mission team conducted a simple assessment, and following the assessment held an open forum discussion with taxpayers participating in the workshops at each site. During the discussions, participant views on areas still needing improvement were sought. The more detailed findings from the assessments and workshops are reported in Annexes 5 and 6. Here is a brief summary: 1) Overall the tax administration system has been improved and has become more efficient and less corrupt; however, the customs remains the key area for improvement. 2) The VAT tax rates could be further reduced to improve tax compliance and lower the tax burden to final customers. 3) The long-term sustainability of the IT facilities, such as the electronic fiscal devices (EFDs), may require capacity building in both usage and maintenance stages. There were also requests that the EFDs be rolled out to a wider range of groups and that the number of suppliers of the devices be increased. 23

38 4) The TRA central servers experience excessive downtime and are unable to accommodate the increasing demand. There needs to be improved demand and capacity forecasting in the future to avoid rapid depletion of the system. 5) The tax education programs should be more targeted towards specific industries and different taxpayer groups, and the delivery mode could be made more efficient by introducing on-line modules in addition to face-to-face training. 4. Assessment of Risk to Development Outcome Rating: Moderate. There are mainly two risks to the sustainability of the development outcomes of the Project: 1) The maintenance of the new ICT system which was built through Project investment. This will require a significant funding commitment from the government. At the initial stage, the GoT was contributing to the project through its Asset Replacement Fund but this contribution stopped in Once donor funds are depleted, it is crucial for the GoT to continue to contribute to this fund to sustain Project outcomes. TRA has made the appropriate recommendation to its board. 2) The sustainability of staff capacity built during the course of the Project. Currently there seems to be a generational gap between the highly experienced staff of TRA, who were heavily involved in the tax modernization program, and younger staff who are less experienced. How to pass the institutional knowledge and skills from the senior staff to more junior staff in a short time is a challenge which will require extensive training. Given these risks, the overall risk to development outcome is rated Moderate. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory. The project objective was fully aligned with the overall goal of the GoT s national development strategies (MKUKUTA) and the priority focus of the World Bank s country assistance strategy (CAS) for Tanzania. The technical analysis was adequate and provided a strong rationale for the project. The project components were properly designed to support its objectives and TRA s corporate plan. At appraisal, critical risks were identified and risk mitigation measures were adequately reflected in the design, and appropriate lessons were also drawn from its predecessor project. 24

39 The weaknesses at entry were linked to the M&E results framework, which was in general consistent with the project objective, but had some rooms for improvement, as mentioned in the M&E section (2.3). (b) Quality of Supervision Rating: Moderately Satisfactory. There was a change of the project Task Team Leader (TTL) in April, 2009, due to the departure of the previous TTL. The new TTL had been involved in the Project since 2008, ensuring the continuity of the Project. The Bank s supervision missions were adequately used to review Project progress and provide necessary guidance. Reporting and compliance with covenants were generally adequate. There was an excellent relationship between TRA and development partners, including the Bank. The records show that the supervision teams had a clear understanding of the issues and provided practical and useful recommendations on how to move forward. The action items emanating from the supervision documents could at times have been more forceful, especially when the revenue targets were constantly over-inflated between 2009 and 2011, and certain measures could have been taken to bring them back on track. ISR ratings were reasonable, but in some instances IP ratings were too generous, especially when the revenue targets were a priority issue, and this may have reduced the incentive for taking it seriously. The Mid-Term Review was a missed opportunity to take action to restructure the M&E framework. Despite the agreement to include the cost of revenue collection in the outcome indicators for TMP and in the key performance indicators for TRA, the Bank was largely ineffective in bringing about the improvement. Certain immeasurable indicator(s) could have been dropped at that time. There was also dissatisfaction among various parties about the Bank s slow procurement process in general. There was also an indication from TRA and ZRB that the Bank was less responsive during the non-mission times. (c) Justification of Rating for Overall Bank Performance Based on the moderately satisfactory quality at entry and moderately satisfactory quality of supervision, overall Bank performance is rated Moderately Satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory. There was a high level of ownership and commitment to the Project, especially on the part of MoFEA. Other government stakeholders, such as the Bank of Tanzania and Ports Authority, were also cooperative and supportive in the project implementation process. A major drawback was ineffectiveness in fixing the revenue targets at a more realistic level, as the consistently overly ambitious targets increased the reputational risks for the Project. 25

40 Despite the persistent concerns raised by the project team 28, the revenue targets were not properly adjusted even when the projected economic growth or policy reforms were not realized. Although the targets were set through a consultative process with relevant stakeholders, the MoFEA had a leading role in this process and could have been more forceful in setting more realistic targets. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The TRA was the main implementing agency. Given the direct linkage of this project with TRA s Corporate Plan, the agency was highly committed and proactive in achieving the development objectives. With strong institutional capacity developed through the TAP project, the agency demonstrated high-level competence in implementing and monitoring TMP project activities and donor coordination. Performance in financial management and procurement was generally good, with satisfactory IFRs submitted regularly in a timely manner, and with effective internal controls. The quality bidding documents, request for proposals, and evaluation reports prepared by Project staff was considered satisfactory. The implementation of M&E was adequate overall. On the other hand, TRA also had a stake in the revenue target-setting process and could have taken stronger measures to bring the targets to a more realistic level. The implementation of the IT strategy could have been more systemic and forward-looking to ensure better integration of different systems. The implementation of the SME taxpayer perception survey had been slow, with no current information available by the time the project was closed. In addition, there were some undocumented or vaguely defined amounts in the TMP basket-fund balances by the end of the project, for which the development partners had to pursue further clarification 29. (c) Justification of Rating for Overall Borrower Performance Based on the moderately satisfactory government performance and moderately satisfactory implementing agency performance, overall Borrower performance is rated Moderately Satisfactory. 6. Lessons Learned There are both general and project-specific lessons that can be drawn from the Project. a) A basket-fund approach helps to harmonize donor assistance and combine the different funding resources into a single package. This simplifies the coordination process, makes project implementation more efficient and maximize the 28 The revenue target was flagged in each project Aide Memoire since the mid-term review in By the request of the Bank and other development partners, the amounts in question were clarified by TRA. 26

41 development impact. The prerequisite for such an approach to work is that there are multiple development partners and they share a common goal, regardless of the sector or country where an operation is carried out. The downside is that it could increase the inflexibility of the project in the event structural changes are needed. b) In order to achieve the best results in a sector/subsector, an operation needs to target both the operational side as well as the policy side. In the TMP project, the main target was TRA, but tax policies were actually set by the MoFEA. There are also other stakeholders involved in implementing the tax system reforms, such as the Bank of Tanzania and the Tanzania Planning Commission. A holistic approach will help better achieve both the operational and policy objectives. c) An operation can well maintain its relevance and effectiveness if it is aligned with the government s own reform or development programs. The TMP operation, designed to support the Corporate Plan of TRA, was not only highly owned by the Government, but also helped the Bank to provide consistent and targeted support in the tax system and institutional reforms. d) A coherent and sound M&E framework that is aligned with the PDO is crucial to adequately monitor and guide the project implementation process. Therefore, it is important to select appropriate and measurable indicators and set up realistic targets from the beginning, or to adjust them in a timely fashion once flaws are identified in the process. The baseline data also needs to be properly defined and the survey program for data collection has to be designed to provide timely information. e) If an operation substantially involves ICT infrastructure, it is important to have an overall system strategy and demand forecasting before implementation. This will help to ensure seamless integration among different parts of the system, thereby maximizing efficiency gains and avoiding rapid depletion of system capacity. In moving forward, the TMP program intends to continue to use the basket-fund arrangement for remaining and newly added donor funds and to support TRA s Corporate Plan. TRA has also agreed to refine the M&E framework and the ICT implementation strategy in the remaining operations. In the event of a follow-up Bank project in the future, the policy side intervention would also be added into the design. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies (b) Co-financiers Inputs from the development partners, i.e., DFID and DANIDA, are inserted in Annex 8. (c) Other partners and stakeholders 27

42 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Components Actual/Latest Appraisal Estimate Percentage of Estimate (USD (USD millions) Appraisal millions) Improve revenue collection in a cost effective way % Full integration of TRA operations % Provision of high quality and responsive customer service % Promote tax compliance through a fair, equitable and transparent % application of tax laws Improve staff competence, motivation, integrity and % accountability Equipment* Zanzibar Revenue Board (ZRB) % Total Baseline Cost % Physical Contingencies Price Contingencies Total Project Costs Front-end fee PPF Front-end fee IBRD Total Financing Required Notes: 1. The IDA fund (US$12 million) was disbursed through the basket fund, so the fund breakdown by component in this table is for the whole basket fund; 2. Average exchange rate during the project period: 1 USD = Tshs * The equipment was listed as a separate item during the appraisal stage though it was not an official project component, but in real accounting during the implementation stage, the cost of equipment was dispersed into other project components. (b) Financing Source of Funds Actual/Latest Appraisal Percentage Type of Estimate Estimate of Cofinancing (USD (USD millions) Appraisal millions)** Borrower % DENMARK: Danish Intl. Dev. Assistance (DANIDA) % UK: British Department for International Development (DFID) % International Development Association (IDA) % Note: ** As of December 31,

43 Annex 2. Outputs by Component The TMP project was designed mainly to support the five strategic goals of the TRA Corporate Plan, plus the Zanzibar Revenue Board (ZRB). The outputs related to these components are summarized below. Component 1 - Improve revenue collection in a cost effective way The project marginally missed the revenue targets set by the government, as revenue collection performance stood at 90%, 91% and 94% of targeted amounts for the years 2008/9, 2009/10 and 2010/11, respectively (Table A2.1). However, based on various feedback and project supervision records, the revenue targets seemed to be unrealistic and had been constantly pushed up, e.g., 34% for 2008/9, 16% for 2009/10, and 19.5% for 2010/11, and were not adjusted accordingly when projected economic expansion did not happen or planned reforms were not carried out. Actual revenue collection improved robustly at an average speed of 21% from FY2007/8 2010/11, and total revenue in 2010/11 (TShs 5,465 billion) was almost three times that of 2006/7 (Shs 1,938 billion). 30 Furthermore, revenue collection from July to December, 2011, was fully on target. The tax/gdp ratio increased considerably from 13.3% in FY 2005/06 to 15.3% in FY 2010/11. Table A2.1. Revenue performance net of refunds by department Source: TRA finance department. Despite the rapid increase in tax revenue for the project period, the operating cost of collecting the taxes have been on a decline trend. The cost of collecting taxes as a share of total tax revenue declined from 3.2% in FY 2006/07 to 2.7% in FY 2010/11. These results have been achieved through a number of reforms and improvements in the tax administration system realized under the Project. Efforts to broaden the tax net were implemented successfully, and the operation of the block management system had a positive impact on business formalization and graduation. A study on the informal sector in Tanzania has been completed and provides the basis for reform of the presumptive tax regime. A first draft of transfer pricing guidelines has also been prepared. Component 2 - Full integration of TRA operations 30 Various project Aide Memoires, and author s calculation. 29