Ex-post evaluation 2006 Advising on the new VAT Act and Excise Act, Macedonia Brief report
Prepared by: Prof. Dr. Herbert Edling, Ms Liljana Arsovska, appraisers contracted by ABI - Arnold-Bergstraesser-Institut, Freiburg This appraisal was prepared by independent external experts. It reflects solely their opinion and evaluation. Publisher: Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH Evaluation Unit Dag-Hammarskjöld-Weg 1-5 65760 Eschborn URL: http://www.gtz.de/ Eschborn, 21.05.07
Contents Page 1. Tabular overview 2 2. Description of the project/programme 3 2.1 Project/programme title, project objective, indicators, contribution to overarching objectives, intended results 3 2.2 Problem situation (sector), framework conditions in the country (political, economic, social, environmental) 4 2.3 Concept and advisory approach of the project/programme (target groups, partners, levels, regions, modes of delivery) 4 3. Results of the evaluation 5 3.1 Overall rating 5 3.2 Rating in line with the five international evaluation criteria (with brief explanations) 5 3.3 Rating with regard to MDG, poverty, gender 7 3.4 Conclusions and recommendations 7 1
1. Tabular overview Project/programme title Advising on the new VAT Act and Excise Act, Macedonia Project/programme number 1993.0088.0 Overall term 08/1997 09/2000 Overall costs EUR 398,296 Objective of the project/programme Lead executing agency Implementing organisations Other organisations and donors involved Target groups Institute performing evaluation The Macedonian finance ministry has been advised on establishing the normative basis and practical implementation of VAT and specific excise duties. Finance Ministry of the Republic of Macedonia Finance Ministry of the Republic of Macedonia and the subordinate agencies Office of Public Revenue and Office of Payment Transactions none The target group is the entire population of the Republic of Macedonia. Arnold Bergstraesser Institut, Freiburg Evaluation period July 2006 December 2006 Overall rating On a scale from 1 (very good result, well above expectations) to 6 (the project is useless and the situation has deteriorated on balance) 2 Individual rating Relevance 2, effectiveness 2, impact 2, efficiency 2, sustainability 3 2
2. Description of the project/programme 2.1 Project/programme title, project objective, indicators, contribution to overarching objectives, intended results The objective of the project "Advising on the new VAT and Excise Acts was to advise the partner organisations, and specifically the Finance Ministry in Macedonia, on the creation of a normative basis for and practical implementation of VAT and specific consumer taxes. The following services were planned to achieve the project objective: formulating drafts ready for voting for a VAT act and specific consumer tax acts in consultation with the partner; developing concepts for preparing the tax administration for practical implementation of these new tax acts; preparing staff at the tax administration for applying the reformed tax law regarding the specific consumer taxes and VAT; carrying out relevant PR. Indicators included: (1) Draft legislation is presented to Parliament at the start of 1999. (2) Draft implementing regulations are available by the 3 rd quarter of 1999. (3) Organisational concept (for preparing the tax administration for practical implementation of the new tax legislation) is available by the 2 nd quarter of 1999. (4) 50% of the tax administration staff dealing with the reformed types of tax have attended training events by the end of the 3 rd quarter. (5) A PR concept is available towards the end of the 1st quarter of 1999. Regular information events are held from 1999. Information brochures are in circulation from the 3 rd quarter of 1999. An outcome was the application of indirect taxation by the Macedonian tax authorities, very largely based on the relevant EC Directives. As a consequence of this, the project was intended to bring Macedonia a step closer to EU membership. In addition, it was intended to strengthen the economy s viability at the macroeconomic level and increase state revenues. 3
2.2 Problem situation (sector), framework conditions in the country (political, economic, social, environmental) Macedonia proclaimed its independence on 15.09.1991. In its constitution, Macedonia defines itself as a state governed by the rule of law. Economically, Macedonia has been following a balanced reform programme since 1994 aimed at accelerating the transformation from central planning to a free market orientation. The Macedonian Government has been working with the IMF for some time towards this end and to stabilise its economy. It has also reached an agreement with the IMF to replace the former sales tax by VAT. However, the partner organisation lacked consistent ideas about the function and action of VAT and the necessary conditions in the administration and the businesses affected for practical implementation of this tax. 2.3 Concept and advisory approach of the project/programme (target groups, partners, levels, regions, modes of delivery) The target group was the entire population of Macedonia. The partner organisations were the Finance Ministry of the Republic of Macedonia and the subordinate agencies Office of Public Revenue and Office of Payment Transactions. To achieve the objective, the project was intended to contribute primarily advice on drafting the VAT and Excise Acts and the first measures for implementing the VAT Act. The advice was intended to benefit primarily the two subordinate agencies, and was planned for four priority areas: Formulating implementing regulations based on the passed VAT Act, organisational, staffing and technical preparation of the tax administration, training tax administration employees (including formulating the necessary teaching and learning materials) and initiating PR work. The advice itself was planned to be provided by German short-term experts (STEs). According to the offers, training was to take place through group events and individual internships in the German administration. In the PR work, assistance was to be given with information events for the businesses affected and consumers, and the printing of information brochures. The concept was not formulated as part of higher-level Public Financial Management (PFM) by the donor community or partner, as the concept of PEFA-PFM (Public Expenditure and Financial Accountability, PEFA) was not developed until after the start of the project. This PEFA Working Group tool also concentrates on analysing the public finance system, and particularly expenditures. 4
3. Results of the evaluation 3.1 Overall rating The project was rated "good (2). Measured against the indicators, the project objective was very largely achieved, although with some delays. In the process, the advice of the German experts helped reform indirect taxation in Macedonia to the point where there is extensive harmonisation with the EU VAT Directive (Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value-added tax: uniform basis of assessment) and the EU Directive on excise duties (92/12/EEC). Implementation of the Acts was also successful, with the exception of some initial difficulties, e.g. with input tax refunds. The outcomes were achieved. The impacts are positive overall, and can only partly be attributed directly to the project s advisory services. Among the factors sharing responsibility for the project success were the willingness of the partner organisations to accept these challenges (ownership), coordination between the donor organisations involved and the almost unlimited assistance to advisory services and content provided by the IMF representative. 3.2 Rating in line with the five international evaluation criteria (with brief explanations) Relevance: For the partner country, the introduction of VAT and reform of the Excise Act were high priorities. The Macedonian Government had already established a Government Commission on the Introduction of Value Added Tax in 1994, shortly after achieving statehood. Projects in the tax sector also involve important development-policy intervention in line with the basic development-policy orientation of the Federal Republic of Germany. Reforms in the public finance sector contribute to good governance, making them a prerequisite for more effective development cooperation and sustainable development. The focus of the concept was appropriate, and cooperation with the IMF, which was also advising in this sector, was positive and goal-oriented. Rating: 2. Effectiveness: The priority objective of the project, harmonising the Macedonian tax system with the tax systems of the EU member states, was achieved, although with some delay. 5
Draft legislation ready for voting on VAT and excise acts and the necessary implementing regulations were formulated in cooperation with the partner. Concepts for organisational and technical preparation of the tax administration were developed, training was carried out for tax officials, and PR work initiated. These were important foundations for implementing the acts. Rating: 2. Impact: Macedonia is now operating indirect taxation largely on the basis of tax legislation compatible with the EU and with a free market orientation. Important impacts are improved chances of Macedonia achieving full membership in the EU and associated integration into a prospering regional economic zone. Further impact which emerged, and can still be plausibly attributed to the project to some extent, include lower tax compliance costs to businesses and increased tax revenue. It was not possible to verify possible effects on the shadow economy. Rating: 2. Efficiency: Measured against the achieved outcomes, the project input was entirely appropriate. They could hardly have been achieved with less input. The reasons for the delays are many and varied, and are not the fault of the advisors. The long parliamentary deliberative process in particular makes clear that ultimately, the cultural, historical and sociopolitical characteristics of the country have been incorporated appropriately into the acts and implementing regulations. Rating: 2. Sustainability: The project outcomes achieved are sustainable in the medium term. Sustainability is further promoted by advisory services of bilateral GTZ successor projects and complementary measures by the IMF. As this sustainability did not result from the project alone, particularly with regard to adequate application of the legislation, sustainability is rated only "satisfactory. Rating: 3. 6
3.3 Rating with regard to MDG, poverty, gender The project concept was not differentiated by target groups. There was no poverty analysis available. The project neither promoted participation by the poor in economic and political processes nor improved access to resources. There were accordingly probably no positive effects from the project on combating poverty. The project concept was also not differentiated by gender, and there was no gender analysis available. The fact that genderspecific aspects were not explicitly taken into consideration in the project concept is understandable, given that the issue of gender and taxation has only received increasing attention in theory and practice in recent years. There is, however, no sign of discriminatory benefits for the two genders. 3.4 Conclusions and recommendations Projects/programmes in the field of taxation should continue to be promoted in development cooperation, as they make a major contribution to good governance in various ways. In selecting advisors, attention must be paid to their sociocultural skills in addition to their technical suitability. However, carrying out such projects solely with STEs can only be recommended if an STE with primary responsibility has not only the technical qualifications but also adequate management qualifications, and the partner fully supports the project. To ensure efficiency, effectiveness and sustainability, the GTZ sectoral division should always be involved in an advisory capacity in project implementation, regardless of whether the project is one which has been effectively outsourced and is being largely implemented by individuals or German Federal tax authorities. More emphasis should be given to the training components in the project concept, and the partner institution should at least be made aware of the need for appropriate institutionalisation of training and further training and an appropriate personnel policy. The need to conceive tax projects with a poverty dimension should be seen in context. As expenditure policy has major importance for reducing poverty, tax projects should be seen more in the context of public finance generally. When taking into account gender-specific aspects in the context of taxation, attention must be given to possible goal conflicts (e.g. with the requirement for transparency and uniformity). 7
GTZ should further initiate an exchange of experience between the states which formerly comprised Yugoslavia on problems in implementing VAT and further development of legislation. 8