Title: CORRUPTION IN THE REVENUE SERVICE: THE CASE OF VAT REFUNDS IN BOLIVIA
1CORRUPTION IN THE REVENUE SERVICE THE CASE OF
VAT REFUNDS IN BOLIVIA
- I. INTRODUCTION
- II. THE ANATOMY OF CORRUPTION IN THE REVENUE
SERVICE - III. THE POLICY ENVIRONMENT
- IV. THE TECHNICAL BLACK BOX OF THE MAIN
PROCESSES IN THE REVENUE SERVICE - V. THE INSTITUTIONAL UNDERPINNING OF REFORMS
- VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA - VII. CONCLUSIONS
2I. INTRODUCTION
- FIGHTING CORRUPTION lt-gt LINK WITH TAX
COLLECTION. - AT LEAST 1/2 OF REVENUE LOST DUE TO CORRUPTION
AND TAX EVASION (FJELSTAD, 2005). - CORRUPTION OCCURS WHEN AGENTS (TAX OFFICERS)
ENJOY MONOPOLY POWER OVER CLIENTS (TAXPAYERS),
HAVE DISCRETIONARY CONTROL OVER PROVISION OF
SERVICES AND OPERATE UNDER LOW LEVELS OF
ACCOUNTABILITY AND TRANSPARENCY (KLITGAARD,
1988). - EXPECTED GAINS gt EXPECTED COSTS -gtAGENT CORRUPT
AND VICE VERSA
3I. INTRODUCTION (CONT)
- PAPER ILLUSTRATES A SUCCESSFUL ANTI-CORRUPTION
STRATEGY IN VAT REFUNDS BY THE NATIONAL REVENUE
SERVICE OF BOLIVIA BEGGINNING 2003. - VAT REFUNDS RESULT FROM COMPLEX CHAIN OF CREDIT
REGIMES GENERATED BY VAT IN WHICH DIFFERENT
STAKEHOLDERS PARTICIPATE. - VAT REFUNDING ?SERIOUS PROBLEMS OF IMPLEMENTATION
(OPPORTUNITIES FOR FRAUD AND CORRUPTION AND
DENIAL OF REFUNDS BY GOVERNMENTS WITH CASH
SHORTAGES).
4I. INTRODUCTION (CONT)
- CASE STUDY SHOWS
- (1) HOW TAX OFFICERS ALLOWED UNLAWFUL REFUNDS
TO EXPORTERS IN EXCHANGE FOR MILLIONAIRE
BRIBES D -
- (2) HOW THE INSTITUTIONAL REFORM OF THE BOLIVIAN
REVENUE SERVICE , INCLUDING IMPROVED PROCESSES
AND PROCEDURES ? LESS TAX REFUNDS TO EXPORTERS
AND HENCE A DECREASED NET OUTFLOW OF PUBLIC
FUNDS FROM THE TREASURY TO TRANSGRESSORS. - (3) THE USEFULNESS OF EARLY WARNING INDICATORS
FOR BENCHMARKING AND MONITORING PROGRESS OF
REFORMS, FOLLOWING A MAPPING OF VULNERABILITIES
OF CORRUPTION CORRESPONDING TO EACH STAGE OF
THE PROCESS FLOW AS WELL AS THE POSSIBLE
REMEDIAL/REFORM MEASURES TO EACH OF THESE
VULNERABILITIES IN REFUNDING VAT TO EXPORTERS.
5II. THE ANATOMY OF CORRUPTION IN THE REVENUE
SERVICE
-
- TAX EVASION IS CONFINED TO TAXPAYERS, WHEREAS THE
VARIOUS TYPES OF CORRUPTION ARE RELATED TO
DIFFERENT COMBINATIONS OF STAKEHOLDERS (INCLUDING
ALWAYS TAX OFFICERS AND SOMETIMES PATRIMONIAL
NETWORKS). - IN ADDITION, TWO BROAD MANIFESTATIONS OF
CORRUPTION ARE SHOWN (I) COLLLUSION BETWEEN
REVENUE OFFICERS AND TAXPAYERS AND (II)
CORRUPTION WITHOUT THE INVOLVEMENT OF TAXPAYERS
BUT IN SOME CASES INCLUDING PATRIMONIAL NETWORKS. - POLITICIANS PARTICIPATE IN TWO TYPES OF
CORRUPTION TAX EXEMPTIONS AND EXTORTION. -
6II. THE ANATOMY OF CORRUPTION IN THE REVENUE
SERVICE
- THE PAPER DESCRIBES THE MOST IMPORTANT FACTORS
AFFECTING STAKEHOLDERSAND PATRIMONIAL
NETWORKSBEHAVIOR IN CORRUPTION. - PROBLEM IS COMPLEX AS REFLECTED BY VARIETY OF
FACTORS AFFECTING THE DIFFERENT STAKEHOLDERS AND
PATRIMONIAL NETWORKS AS WELL AS THE SEVERAL
INTERACTIONS AMONG THEM.
7III. THE POLICY ENVIRONMENT
- COMPLEX TAX CODES DISCRETIONARY POWER OF
POLITICIANS AND TAX OFFICERS TO GRANT EXEMPTIONS
? CORRUPTION AMONG TAXPAYERS. - HIGH TAXES ? TAXPAYERS EVADE OR ENGAGE IN
CORRUPTION. - COMPLEXITY OF TAX STRUCTURE AND LEGISLATIN
?DISCRETIONARY POWER OF TAX OFFICERS TO INTERPRET
TAX LAWS AND ALLOW OR DISALLOW EXPENSES OR
CHARGES. - CORRUPTION IS UPHELD VIA WEAK LEGAL SANCTIONS TO
TAXPAYERS OR TAX COLLECTORS WHO INFRINGE THE LAW.
8IV. THE TECHNICAL BLACK BOX OF THE MAIN
PROCESSES IN THE REVENUE SERVICE
- NEW METHODOLOGY PROPOSED IS APPLIED TO 3
CORE-BUSINESS PROCESSES CHARACTERIZING A MODERN
TAX ADM - (1) TAXPAYER SERVICE AND VOLUNTARY COMPLIANCE
- (2) REVENUE SERVICE CONTROL AND
- (3) TAX REFUTATION, RECUPERATION AND CHARGING.
9IV. THE TECHNICAL BLACK BOX OF THE MAIN
PROCESSES IN THE REVENUE SERVICE
- MAIN CONCLUSION IS (A) PROCESS (1) REQUIRES
ORG.AND REGULATORY MEASURES RANGING FROM
STREAMLINING OF PROCED. TO SIMPLIFYING SPECIFIC
SUBPROCESSES VIA AUTOMATION ? MOTIVES
(INCENTIVES) FOR CORRUPTION. - (B) PROCESS (2) REQUIRES REFORMS IN HHRR MGMT ?
OPPORTUNITIES FOR CORRUPTION.
10V. INSTITUTIONAL UNDERPINNING OF REFORMS
- POLITICAL ECONOMY IS KEY TO UNDERSTAND
INTRODUCTION AND IMPLEMENTATION OF REFORMS. - BROAD-BASED REFORMS ARE POSSIBLE UNDER A
PERCEPTION OF CRISIS (KOROMZAY, 2004). - OTHER FACTORS INFLUENCING A REFORM TO COMBAT
CORRUPTION ARE - (1) RULE OF LAW TO SANCTION CORRUPT BEHAVIOR
- (2) MGMT AND HHRR ? SEMI-AUTONOMOUS REVENUE
AUTHORITY (SARA) - (3) CAPACITY CONSTRAINTS SKILLS AND LEADERSHIP
PROCESS RE-ENGINEERING EFFECTIVE VIGILANCE
SYSTEMS ORG. CHANGES AND ICT AND - (4) OVERSIGHT OF SARA BY SOME SUPERIOR BODY.
11VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA
- 1. THE NATIONAL INTEGRITY PLAN CONSISTED OF
- (A) JUDICIAL REFORM
- (B) STATE MODERNIZATION ? IRP
- (C) ANTI-CORRUPTION
- 2. THE INSTITUTIONAL REFORM OF THE NATIONAL TAX
SERVICE WAS CARRIED OUT THROUGH THE IRP.
12VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA
- REFORM STRATEGY WAS FOCUSED ON
- (A) HHRR DEVELOPMENT
- (B) STREAMLINING OF NORMS AND PROCEDURES AND
- (C) IMPROVEMENT OF INSPECTION AND CONTROL
PROCESSES AND FISCAL INTELLIGENCE. - ? EXTRAORDINARY RESULTS OF REFORM AS REFLECTED
BY COLLECTION OF ALL TAXES EXCEPT FOR
COMPLEMENTARY REGIME OF VAT AND TRANSITORY
PROGRAM (BAILOUT?).
13VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA
- 3. THE RATIONALE FOR VAT REFUNDING
- (A) FINAL LOCALITY OR DESTINATION? TAXES
APPLIED TO FINAL CONSUMERS - (B) TAX NEUTRALITY ? AVOID DOUBLE TAXATION ON
CAPITAL GOODS, INPUTS, SERVICES, ETC,MADE BY
EXPORTERS AND - (C) COMPETITIVENESS ? TAXES A COMPONENT OF COST
OF MERCHANDISE - IN BOLIVIA, 3 TAXES ARE SUBJECT TO REFUNDS VAT,
SPECIFIC CONSUMPTION TAX AND CUSTOM DUTY.
14VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA
- 4. INSPECTION/AUDITING AND CONTROL PROCESSES AND
PROCEDURES BEFORE THE REFORM CHARACTERIZED BY - (A) EXTREME COMPLEXITY
- (B) RELIANCE ON PROGRAMMING MECHANISMS AND
- (C) DISCRETIONARY METHODS OF VERIFICATION.
- PRONE TO CORRUPTION AND DEPENDANT ON 2 LARGE
PROCESSES AND 2 TAX OFFICERS (1) REFUNDING AND
(2) INSPECTION. - BOTH ENJOYED ENORMOUS DEGREEE OF DISCRETION IN
THEIR ACTIONS. -
-
15VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA
- 5. CORRUPTION CHAIN AND NEW INSPECTION/AUDITING
AND CONTROL PROCESSES AND PROCEDURES AFTER THE
REFORM - (A) NORMATIVE FORCES EXPORTERS TO
SUBMIT FISCAL INVOICES - (B) INVOICES CAN BE FALSE AND CLONED,
AUTHORIZED FROM FICTITIOUS SUPPLIERS,
AUTHORIZED FROM FALSE OR NON-EXISTENT
SUPPLIERS, AND AUTHORIZED FROM REGISTERED
SUPPLIERS. - (C) THREE TYPES OF FRAUD AND CORRUPTION
MATERIALIZED WITH THE ASSISTANCE OF UNSCRUPULOUS
TAX OFFICERS THAT AUTHORIZE A FRAUDULENT TAX
REFUND - (D) NEW PROCEDURE HAS LESS VULNERABLE POINTS.
-
16VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA
- 6. THE TECHNICAL BOX OF VAT REFUND PROCESS
- METHODODOLOGY DEVELOPED IN SECTION IV IS
REPLICATED TO COME UP WITH SOME REMEDIAL MEASURES
AND WARNING INDICATORS FOR THE RISK LEVELS
(VULNERABILITIES) IDENTIFIED IN THE NEW
PROCEDURE. - 7. EXPORTS, TAX COLLECTION AND VAT REFUNDS
-
- VAT REFUNDS AS OF EXPORTS GROWTH OF VAT
REFUNDS AS OF EXPORTS PRESENT CLEAR DOWNWARD
TREND
17VI. CONDENSING REFORM STRATEGIES THE CASE OF
VAT REFUNDS IN BOLIVIA
- 8. CONSTRAINTS, WEAKNESSES AND THREATS AS WELL
AS SUSTAINABILITY OF THE ANTICORRUPTION
STRATEGY - CONSTRAINTS DEFICIENCIES OF EXISTING
REGULATORY FRAMEWORK - WEAKNESSES PRECARIOUS COORDINATION BETWEEN NTS
AND CUSTOMS - THREATS EVENTUAL REVERSAL OF REFORM IN THE
FACE OF CHANGE OF GOVERNMENT - SUSTAINABILITY ANTICORRUPTION STRATEGY WILL BE
SUSTAINABLE IF CWT ARE OVERCOME. -
18VII. CONCLUSIONS
- INSTITUTIONAL REFORM TOGETHER WITH CHANGES IN
INSPECTION/AUDITING AND CONTROL PROCESSES AND
PROCEDURES ? REDUCED AMOUNTS OF VAT REFUNDS AND
OUTFLOW OF FFRR FROM TREASURY TO TRANSGRESSORS. - SUCCESSFUL ANTICORRUPTION STRATEGY WAS ONLY
POSSIBLE AFETER A COMPREHENSIVE INSTITUTIONAL
REFORM. - IMPROVEMENTS IN VAT REFUNDISN PROCEDURES IMPLIED
INTENSIVE USE OF TECHNOLOGY WHEREBY HUMAN
DISCRETIONARY ACTIVITIES WERE REPLACED BY A
SYSTEM.