The importance of good administration has long been as obvious to those concerned with tax policy in Albania as has its absence in practice. Experience suggests that it is not a good idea to ignore the administrative dimension of tax reform. One cannot assume that whatever policy designers can think up can be done or that any administrative problems encountered can be easily and quickly remedied. The real tax system people and businesses face reflects not just tax law but also how that law is actually implemented in practice. Tax administration is too important to policy outcomes to be neglected by tax policy reformers.

Unfortunately, tax administration is a difficult task even at the best of times and in the best of places. Moreover, administration is inherently country specific and surprisingly hard to quantify in terms of both outputs and inputs. The best tax administration is not simply that which collects the most revenues; facilitating tax compliance is not simply a matter of adequately penalizing noncompliance; tax administration depends as much or more on private as on public actions (and reactions); and there is a complex interaction between various environmental factors, the specifics of substantive and procedural tax law, and the outcome of a given administrative effort. All this makes tax administration a complex matter.

Despite its perhaps surprising complexity, it is important for those concerned with tax policy and its effects on the economy to understand tax administration. In a very real sense, “tax administration is tax policy”. Revenue outcomes may not always be the most appropriate basis for assessing administrative performance. How revenue is raised, i.e. the effect of revenue generation effort on equity, the political fortunes of the government, and the level of economic welfare, may be equally (or more) important as how much revenue is raised. Private as well as public costs of tax administration must be taken into account, and due attention must be paid to the extent to which revenue is attributable to enforcement.

Keep it simple

One of the most important lessons emerging from experience in various countries is that an essential precondition for the reform of tax administration is to simplify the tax system in order to ensure that it can be applied effectively in the generally low-compliance contexts of Albania.

Albania exhibit a wide variety of tax compliance levels, reflecting not only the effectiveness of their tax administrations but also taxpayer attitudes toward taxation and toward government in general. Attitudes affect intentions and intentions affect behaviour. Attitudes are formed in a social context by such factors as the perceived level of evasion, the perceived fairness of the tax structure, its complexity and stability, how it is administered, the value attached to government activities, and the legitimacy of government. Government policies affecting any of these factors may influence taxpayer attitudes and hence the observed level of taxpayer compliance. The measure sometimes recommended for situation with very low compliance levels, such as massive application of administrative penalties.

It is useful to think of the problem of tax administration at three levels, i.e. architecture, informatic technologhy and management.The first level concerns the design of the general legal framework, not only the substance of the tax laws to be administered but also a wide range of important procedural features. Once this general architectural design has been determined, the engineer takes over and sets up the specific organizational structure and operating rules for the tax administration. Finally, once the critical institutional infrastructure has been erected, the tax managers charged with actually administering the tax system can do their jobs.

Complexity and its implications for tax administration is again a concern. Even the government can easily be overload tax administration with impossible tasks. The life of the tax administrator is made even more complicated by the propensity of many governments, reflecting in part the often unstable political and economic environment, to alter tax legislation annually or even more frequently.

Simple exhortations to “do better”, while cheap and with no investments, are of little use to resource-strapped administrators and can be considered as “impossibleMissions”.

Popular tax tool

A popular tax tool is to introduce widespread withholding, covering not only traditional items such as wages, interest and dividends but also extending to what is called “reverse withholding” in which purchasers (government agencies or large enterprises) “withhold” tax from sellers (small enterprises). Such widespread withholding is also no panacea. The tax administration must be able to control withholders to make sure they hand over to the Treasury the amounts withheld, and it must also be able to check whether the amounts taxpayers credit against their liabilities have in fact been withheld. The mere expansion of withholding will not improve compliance unless the administration is able to control both withholders and taxpayers subject to withholding.

In conclusion, the problem of tax administration reform is essentially how to alter the outcomes of administrative effort by appropriate investment in developing new legal and organizational frameworks, adopting new technology (computerization), and altering the allocation of managerial resources as leaderships and point of refements of tax system.

While it is difficult to conceive of a modern tax administration that can perform its tasks efficiently without using some form of computer technology, in many instances the expectation of greater effectiveness from computerization has not materialized. The more successful reforms did not merely involve computerizing antiquated processes. As much experience shows, successful computerization requires a fundamental reorganization in both systems and procedures and cannot be used to sidestep such needed reforms. Even the best computerized system will not produce useful results unless there are real incentives for tax administrators to utilize the system properly.

By: Eduart Gjokutaj