The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) Tax Administration Modernization Project (P127734) EUROPE AND CENTRAL ASIA | Moldova | Governance Global Practice | IBRD/IDA | Investment Project Financing | FY 2016 | Seq No: 5 | ARCHIVED on 28-Feb-2019 | ISR34975 | Implementing Agencies: Republic of Moldova, Main State Tax Inspectorate Key Dates Key Project Dates Bank Approval Date: 06-Jun-2016 Effectiveness Date: 25-Jan-2017 Planned Mid Term Review Date: 30-Sep-2019 Actual Mid-Term Review Date: -- Original Closing Date: 31-Dec-2021 Revised Closing Date: 31-Dec-2021 pdoTable Project Development Objectives Project Development Objective (from Project Appraisal Document) To improve revenue collection, tax compliance and taxpayer services in the Republic of Moldova Has the Project Development Objective been changed since Board Approval of the Project Objective? No Components Table Name Tax policy reform:(Cost $1.50 M) Institutional development:(Cost $1.20 M) Operational development:(Cost $1.30 M) IT Infrastructure and system modernization:(Cost $15.00 M) Project management and change management:(Cost $1.00 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Moderately Unsatisfactory Moderately Unsatisfactory Overall Implementation Progress (IP) Moderately Unsatisfactory Moderately Unsatisfactory Overall Risk Rating Substantial Substantial Implementation Status and Key Decisions The project became effective on January 25, 2017. The project is meant to support the implementation of an automated risk-based approach to maximize revenue collection, promote open interaction with taxpayers, and develop a fair, taxpayer-friendly approach to addressing taxpayer grievances. This will allow the State Tax Service (STS) to focus on non-compliant taxpayers, including businesses that avoid paying taxes while reducing compliance costs for taxpayers. The project will also finance the acquisition of a modern revenue management IT system. The long-term vision supported by the project is the creation of client-oriented tax administration. The modernized tax administration will improve the business environment and the country's competitiveness.Implementation of the project was delayed due to insufficient project staffing and delays in decisions about how to go forward with the IT system. The STS established a designated Project Implementation Division and conducted a 2/28/2019 Page 1 of 8 The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) Feasibility Study on possible solutions for the integrated ITMS, which was positively evaluated by an independent international consultant. The project is under restructuring which is expected to be complete by the end of Q1 of 2019 calendar year. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance High Substantial Substantial Macroeconomic High Substantial High Sector Strategies and Policies Substantial Substantial Substantial Technical Design of Project or Program Substantial Substantial Substantial Institutional Capacity for Implementation and Sustainability Substantial High High Fiduciary Substantial Substantial Substantial Environment and Social Low Low Low Stakeholders Moderate High High Other -- -- -- Overall Substantial Substantial Substantial Results PDO Indicators by Objectives / Outcomes To improve revenue collection IN00589601 ►Overall efficiency of VAT collection (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 52.30 -- 49.60 54.70 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 The target value for 2018 ( 52.7%) . The result level reflected in this ISR is for 9 months of 2018. The results for 12 months 2018 will be provided as soon as the information about final consumption will be published by the National Bureau of Statistics (not earlier than March 2019). There were some legal changes which may impact the end year results: According to the changes introduced in tax legislation, the VAT rate for the following taxable objects was Comments: decreased from 20% to 10%: - for accommodation services, regardless of the category of hotel comfort, hotel, apartment, motel, tourist villa, bungalow, tourist pension, agritourism boarding house, camping, holiday village or holiday camp for economic agents consists of accommodation and catering; - in respect of foodstuffs, excluding goods subjects to exercise duty, delivered by economic operators whose business activity consists of accommodation and/or catering. 2/28/2019 Page 2 of 8 The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) Proposed to be excluded during the project's restructuring. The support will be provided by the IMF’s ongoing program. TAMP will have no direct impact to achieve this indicator. This is a new development in comparison to the time of the project preparation. IN00589610 Efficiency of VAT collection by STS (Percentage, Custom Supplement) Baseline Actual (Previous) Actual (Current) End Target Value 11.06 -- 43.00 12.54 To improve tax compliance IN00589606 ►Share of active taxpayers filing income declarations in total registered taxpayer (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 19.35 -- 0.00 24.00 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 The value of the indicator cannot be determined since the deadline for submission of the income statement has not expired. According to the Fiscal Code's provisions, taxpayers (legal entities, individuals who carry out entrepreneurial activity, self-employed persons) have the obligation to submit the income tax return until 25 March of 2019 year for tax period 2018. Thus, the results for 2018 could be provide not sooner than April 2019. To make the description clearer and to increase annual target levels based on achieved results in 2017 during the project restructuring: Share of active taxpayers (legal entities) filing income declarations in total active taxpayer (legal entities) (Percentage). Comments: The STS aims to increase the number of submissions by economic agents that are active and are about to file tax returns. The indicator will be measured: Ratio of active taxpayers-economic agents (legal entities) filing income taxes to all active taxpayers (legal entities). The STS cannot obtain reliable information related to individual entrepreneurs who are required to file income declarations before the system that could generate such a data is in place. Due to that fact, the STS has understood since the time of project preparation that this indicator aims to measure legal entities only. Therefore, the STS requested to clarify the indicator’s description, as well as to increase annual target levels to reflect recent development. IN00589607 ►Increase in additional tax assessed per audit (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 -- 8.70 34.00 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 The target level for 2018 year ( +15%) was not achieved ( actual was +8.7%) due to legal changes. The Law no. 180 of 26.07.2018 On Voluntary Declaration and Tax Incentive significantly limited audits on the correctness of the calculation, declaration and payment of taxes, duties and other payments related to NPB. Those audits are not allowed anymore for tax periods until 1 January 2018. Comments: To adjust annual target levels, except the end target level. during the project's restructuring. Proposed adjustment is needed considering the delay with the implementation of the ITMS and recent legal changes. Also, to clarify that the annual targets are measured as % increase against the baseline (not year on year increases). To improve taxpayer services IN00589600 2/28/2019 Page 3 of 8 The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) ►Time required to comply with taxes (Hours, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 186.00 -- 181.00 165.00 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 The target level for 2018 year was achieved. To adjust the annual target levels during the project's restructuring to reflect the extension of the Comments: project's closing date. Overall Comments PDO The Project’s Development Objectives (PDO) will remain relevant after the restructuring. Accordingly, the PDO will not be revised. However, some changes of TAMP indicators to reflect proposed restructuring and recent developments are necessary and have been agreed. Proposed changes to the originally planned results framework are reflected in this ISR for each relevant indicator. In addition, Disbursement Linked Indicators (DLIs) have been identified. The choice of DLIs considers the practical aspects of measuring, monitoring and verifying achievement of the TAMP’s results. There are two DLIs which will reflect the MoF’s achievements in tax policy reform and three DLIs to measure the progress achieved by the STS in strengthening tax administration and institutional development. The DLIs related to the tax policy reforms are: (i) increased excise rates by minimum 15 percent for tobacco products for the year 2021; and (ii) supplies of goods by insolvent subjects taxed with VAT on the reverse charge principle. These are expected to contribute to the part of the PDO related to improving tax collection. DLIs which will reflect the result of the STS’s activities aimed at improving taxpayer services, compliance and strengthening the STS’s institutional and staff capacity are: (i) improving the usability of the STS’s website; (ii) strengthening the capacity of STS staff to deliver taxpayer services; and (iii) introducing an Electronic Taxpayer Survey Tool. All proposed DLIs are scalable and verifiable. The MoF will provide appropriate draft laws, final laws approved by the Parliament and links on the official publications of those documents to the Bank for verification. The STS will share adopted Orders and develop specific reports, which will then be reviewed and verified by the Bank team. If need be, the Bank at its discretion may engage an external reviewer to support in the verification process. Intermediate Results Indicators by Components Tax policy reform IN00589603 2/28/2019 Page 4 of 8 The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) ►Decrease in tax arrears (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 8.50 -- 6.14 7.00 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 The target level for 2018 was achieved. During the project's restructuring to adjust the annual target levels to reflect the project’s Comments: extension. Operational development IN00589602 ►Share of large taxpayer audits which includes related parties, when related parties exist (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 -- 10.30 35.00 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 A target level for 2018 was achieved (6 out of 58 audits of taxpayers that have related parties, were done). To exclude during the project's restructuring. The achievement of this indicator will be fully assisted by Comments: the IMF’s Revenue Management Project, implemented for the period 2016-2019. This is a new development in comparison to the time of the project preparation. IN00589608 ►Share of income tax returns filed electronically (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 39.60 -- 0.00 60.00 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 The value of the indicator cannot be determined since the deadline for the submission of the income statement has not yet expired. According to the Fiscal Code's provision, taxpayers (legal entities, individuals who carry out entrepreneurial activity, self-employed persons) have the obligation to submit the income tax return until 25 March of this year for tax period 2018. Thus, the results for 2018 could be provide not sooner than April Comments: 2019. Given the fact that the percentage of income tax returns filed electronically in 2018 for 2017 was 45.96, the STS expects that the target value for 2018 will be achieved. To exclude during the project's restructuring.The Subsystem for Submission of Tax Declarations already exists and is functional, so the implementation of the ITMS will not add value to the indicator. Institutional development IN00589604 ►Taxpayer satisfaction (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Satisfaction in crease - Satisfaction not 20% (compared to Value -- not measured measured baseline) 2/28/2019 Page 5 of 8 The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) Final survey conducted with data disaggregated by gender. Results and suggested actions of the STS to address weaknesses are published on the STS website. Date 31-Dec-2015 -- 31-Dec-2018 30-Oct-2021 The survey on the assessment of the taxpayers' satisfaction with the services provided by the State Tax Service will be finalized by the end of December 2018, so satisfaction assessment baseline will be determined in 2019. Comments: During the project's restructuring annual target values will be adjusted to reflect the project’s extension. IN00589605 ►The Training Center capacity in permanent training program (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target 100% of appropriate STI staff have been The identified training trained in use of The list of training Value -- programs are business functions and programs is not identified developed. new tools, data disaggregated by gender Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 Achievement of this indicator will be fully assisted by SIDA whose program includes support in improving methodologies for estimating and assessing the training needs; and the development of an automated information system in order to develop and improve the career development of e-learning platform. US Treasury Advisor provides support in development of specific courses on arrears management, taxpayer services and tax control. The identified training programs are developed by STS, including 2 training programs which were Comments: developed with US Treasury support. During the project's restructuring to change to: The distance learning system for the most important workflows developed. The ongoing SIDA Institutional Cooperation Project (2018-2021) will fully support the achievement of the initially planned indicator. However, TAMP supported the purchasing of 45video- conferencing equipment items to be used for distance learning of the STS employees across the whole country. IN00589609 ►Number of hits to the STS web-site (Number (Thousand), Custom) Baseline Actual (Previous) Actual (Current) End Target Value 3,570,004.00 -- 6,851,424.00 5,700,000.00 Date 31-Dec-2015 -- 31-Dec-2018 31-Dec-2021 The target level for 2018 was achieved. To adjust the annual target levels during the project's restructuring, including the increased end- Comments: target value. Data on Financial Performance 2/28/2019 Page 6 of 8 The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P127734 IBRD-86250 Effective USD 12.58 12.58 0.00 0.00 12.58 0% P127734 IDA-58290 Effective USD 7.42 7.42 0.00 0.81 6.57 11% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P127734 IBRD-86250 Effective 06-Jun-2016 28-Jun-2016 25-Jan-2017 31-Dec-2021 31-Dec-2021 P127734 IDA-58290 Effective 06-Jun-2016 28-Jun-2016 25-Jan-2017 31-Dec-2021 31-Dec-2021 Cumulative Disbursements Restructuring History There has been no restructuring to date. Related Project(s) 2/28/2019 Page 7 of 8 The World Bank Implementation Status & Results Report Tax Administration Modernization Project (P127734) There are no related projects. 2/28/2019 Page 8 of 8