Taxation, Fiscal Decentralisation and Legitimacy: The Role of Semi-Autonomous Tax Agencies in Peru
Author: Christian von Haldenwang
Size: 25 pages (302 kB)
Can semi-autonomous tax agencies play a role in strengthening the effectiveness, efficiency and legitimacy of decentralised tax systems? This article analyses semi-autonomous tax agencies in nine Peruvian cities. It shows that the Servicios de Administración Tributaria (SAT) collect local taxes and non-tax revenues more effectively than conventional tax administrations. Efficiency may improve once the SAT are consolidated. Positive effects on fiscal governance will materialise when reforms cover the whole fiscal cycle, including budget formulation and execution. SAT needs to be embedded in a broader context of fiscal reform promoting transparency and accountability.
Since the 1980s, some developing countries have founded semi-autonomous tax agencies to deal with the problems of revenue generation. These agencies are autonomous in their budget decisions, internal organisational structure and human resources management. Their main source of finance is a commission on the taxes and non-tax revenues they collect.
Financing tax administration through a commission gives strong incentives to collect tax. In Peru, the SAT model incorporates basic New Public Management principles, such as the introduction of results-based management, private-sector management tools and the reform of existing incentive structures.
However, transferring tax authority to outside bodies involves certain political risks. The Peruvian example shows that in the short run the local constituency resents higher tax pressure, since citizens do not imagine that their payments will result in better service delivery.
Nevertheless, SAT have had some success in addressing the challenges of fiscal decentralisation, revenue mobilisation and good financial governance:
The SAT model broadens the tax base, improves tax justice and equity and strengthens ties between tax administrations and taxpayers. National governments need to:
von Haldenwang, C., 2010, 'Taxation, Fiscal Decentralisation and Legitimacy: The Role of Semi-Autonomous Tax Agencies in Peru', Development Policy Review, vol. 28, no. 6, pp. 643-667