HMRC has, over a number of years, worked alongside partners in the developing world to help them develop their tax systems and administrations. HMRC does this by providing technical assistance, such as transfer pricing, and also by providing guidance on governance and organisational issues. HMRC’s approach is tailored to meet the needs of the particular country. For instance, HMRC has an ongoing, senior level relationship with the Rwanda Revenue Authority, which includes mentoring, technical assistance and study visits.
HMRC recognises the value and importance of supporting developing countries to grow their tax systems and administrations and has been engaged in delivering capacity building for many years. We deliver assistance to support the UK government’s wider international development objectives and achievement of the Millennium Development Goals. Tax and customs capacity building helps to secure sustainable national revenues, stimulate growth by supporting trade facilitation, and improve governance and security by reducing corruption and enhancing fraud detection together with anti-smuggling capabilities.
Our approach to capacity building is to work alongside partners in the developing world to support them in delivering reform and building capability. It is vital that there is political will, commitment and ownership in-country if programmes are to be successful and sustainable.
HMRC works with developing country partners not only in relation to technical areas, but also on governance and organisational issues (for example, increasing leadership skills, integrity, business planning and personnel teams) to put in place sustainable infrastructure.
HMRC works closely with the Department for International Development (DfID) to join-up our effort with the UK government’s wider international development agenda and recognise that our input can be even more effective when it is part of a wider programme of public administration reform.
HMRC also sees its capacity building within the wider international development agenda. Taxation, customs, health, security, poverty and social development cannot be seen or tackled in isolation and neither can the assistance provided by a wide range of donor organisations. HMRC therefore works closely with donors (DfID, the International Monetary Fund (IMF), the World Bank) and through multilateral fora (OECD, and the Africa Tax Forum (ATAF) to co-ordinate our efforts.
Working over a period of years with developing country partners allows not only a transfer of technical skills, but the development of longer-term relationships, mentoring and networks.
HMRC complements longer-term capacity building work with targeted, short-term technical assistance and training. One size never fits all and we tailor our work to meet the particular needs of the country in question.
Here are some illustrations of HMRC’s capacity building initiatives:
Since 2006, as part of a DfID sponsored civil service reform programme in Ethiopia, we have provided a range of technical and managerial assistance to Ethiopia Revenue and Customs Authority to support them in modernising their tax and customs systems. We have also provided a resident in-country adviser. In six years, HMRC has delivered 40 programmes involving experts from across the department. Particular achievements, supported by the programme, include the establishment of a single, unified tax and customs administration from three predecessor departments, growth in tax collection from 8.2bn birr per year in 2002/3 rising to 54bn birr in 2010/11 and 70bn birr in 2011/12 and improvements in average customs clearance times (low risk imports from seven days to ten minutes; exports from eight hours to 15 minutes).
We have an ongoing, senior-level relationship with the Rwanda Revenue Authority, which includes Permanent Secretary-level mentoring, technical assistance and study visits. We have delivered technical assistance on the taxation of the construction, telecommunications and banking sectors and a DfID funded mission on developing leadership skills, with more assistance planned for this year.
HMRC has supported CATA for over 20 years, hosting two flagship training courses every year, Achieving Management Potential and the Commonwealth Tax Inspectors’ Course. These programmes are designed to develop leadership and technical skills and are attended by senior managers and tax inspectors from Commonwealth countries, with the vast majority of attendees drawn from developing countries. The programmes receive consistently positive feedback from delegates and are viewed as a significant contributor to the improvement of tax administrations across the developing world. Those who attend the courses often go on to become tax commissioners in their home countries.
HMRC has provided close support to the Rwandan Revenue Authority for some years and the following report of a support visit brings out the challenges and rewards of this work:
Leaving London on a winter’s day wrapped in a warm overcoat seemed sensible. However, the coat was definitely not necessary in the heat of Nairobi. But Kigali, the capital of Rwanda, was a different matter altogether. Although close to the Equator, the weather and tropical rainstorms are very cold and the coat was most welcome. Why? For some years, Rwanda has been planting up to five million trees per year to change its climate to facilitate farming and the growth of cash crops. It has been hugely successful in this and now produces some of the finest tea and coffee in Africa.
HMRC helped the Rwandan government modernise its border crossing with Uganda which is on the principal road from the East Coast of Africa to the Congo. Nine departments are joined up to create a virtual and very efficient border agency with modern risk assessment tools and scanning equipment identical to that used in the UK.
The UK funded the building of the Rwandan tax headquarters. The Rwandan government are very proud of their taxation service and are acutely aware of the tension between their need for, and acceptance of aid, and wanting to plot their own destiny. DfId is held in the highest regard but other donors cause concern as they press their own agendas too hard. The tax headquarters are protected by security guards with pump-action shotguns (security guards at the Bank of Rwanda have machine guns!). Colleagues in the Rwandan Revenue Authority are determined to learn all about modern tax administration and frequently say that what happens in London today will happen in Kigali in three years time. That may strain credibility somewhat but there are signs of an emerging financial services sector and a growing export economy. In some respects, they have the equipment they need to provide a state-of-the-art tax service but often they have not received the training needed to make it work for them. So sending a tax official from London to help establish private offices to support senior tax administrators has made a huge difference to the Authority’s effectiveness and efficiency.
As with many countries, small and mid-sized businesses provide real challenges. A visit to the Mateus area of Kigali (named after the rosé wine!) revealed that almost every sale was made for cash and provided a whole new insight into department stores which in Kigali are often single rooms from which up to ten families sell the same product. The economics of these stores was difficult to understand – ten families selling identical products (for example, the same style of shoes) for completely different prices. But the reaction to tax officials was one that had been seen before – as the Rwandan tax commissioner walked through the front door, customers and traders alike ran out of the back one.
To encourage tax compliance, the Rwandan Revenue Authority hold an annual Taxpayers’ Day. Awards are given to businesses deemed to have been fully compliant throughout the tax year and the most successful in this respect receive a 3% discount on the taxes they have to pay or account for. The tax department plays a part in encouraging businesses to diversify and it seemed no coincidence that a paint manufacturer who had diversified into road building, making furniture and producing water containers, and now employs 250 people, had received a tax discount for a number of years.
Although memories of the genocide linger in the minds of most adults, hope can be seen in many places. Being with individuals who had been on opposite sides in the genocide felt very odd but they talked about how they had learnt to forgive each other for the sake of their children. A Rwandan woman with a successful international business in hotel design talked passionately about an enterprise that she runs to help women from rural communities adversely affected by the genocide to make jewellery and baskets through co-operatives. The jewellery is made from government waste paper. The women earn $2 a piece and are taught to save. Perhaps most importantly, they have won a new respect in their local communities. The jewellery is sold in Macy’s, Harrods and other prestigious international outlets.
The governance of the Rwandan Revenue Authority has something in common with HMRC but there are also differences. The Executive Committee runs the department and there is an oversight board largely made up of experienced non-executives from business. The board is chaired by the 31-year-old Permanent Secretary in the Finance Ministry enabling her to keep a close eye on tax administration, and promote the behavioural economics in which she is so interested. The Finance Minister calls or texts the Commissioner daily with seemingly endless questions about performance but they are all well formed on the back of discussions with business, their advisers and other government departments. He expressed gratitude for the support received from HMRC and looked forward to more to come. He is particularly keen for senior tax officials to spend time in HMRC as the Commissioner and Chief Counsel have done. Offers of secondment opportunities from the private sector would also be most welcome.
In the coming months, HMRC will be helping the Rwandan Revenue Authority develop its transfer pricing skills, learn more about countering tax avoidance and develop both support and compliance systems for small business. HMRC is also working with other developing countries in a number of different ways – by providing the non-executive director for the tax administration's board, by seconding specialists (not just in tax) to kick-start initiatives and by welcoming overseas colleagues to HMRC. There is also much to learn from a country like Rwanda, building on the experience of others, whose use of a national fibre-optic network to provide tax services is well ahead of many developed countries.
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