Administración Tributaria

Management Lessons Learned from Tax Administration

Carolina Roca

Weatherhead Fellow 2009

This interview with Mrs. Carolina Roca, former Tax and Customs Commissioner of Guatemala, is part of the first seminar of the PAL Initiative carried out during the spring of 2009 at Harvard, in Cambridge, MA.

1. Could you describe the national and institutional context for the organizational change process you implemented at SAT?

Guatemala is the largest economy in Central America, where foreign trade accounts for an important part of the national production, with its main exports being vegetables, bananas, coffee and more recently, services and mining products. It is a country with a great ethnic and cultural diversity, with 50% of the population being descendants of the Mayas. In this group, one finds the highest concentration of poverty and inequality indexes. The government spending accounts for approximately 15% of the Gross Domestic Product, and thus, an extremely limited amount of resources to be invested in the provision of basic public services is one of the major national challenges.

The country underwent a lengthy armed conflict between the Army and the Guerrillas, which ended in 1996 with the signing of the Peace Accords, where important commitments were established to strengthen the foundations of democracy, distribution of wealth, the economy and basic social services. Democratically elected governments, slight improvement in the economic standard of living, as well as some progress in the social and political arenas have been an outcome of the peace process. Among the major economic goals was that of achieving 50% increase in the tax burden in a 5-year term, from 8 to 12%. (One of the lowest in Latin America). A Fiscal Pact between representatives of the civil society and the Government was later agreed, including the creation of an independent entity, exclusively devoted to the Tax Administration.

The Superintendence of Tax Administration –SAT- was created in 1998 to de-politicize and transparent the decision making of tax and customs, and to create an effective and professional entity exclusively dedicated to such task. Its law grants it technical and administrative independence. It can establish its own regulations to manage human resources and the regulations to contract specialized services; it receives 2% of the revenues it collects and its budget is approved by its own Board of Directors and not by Congress, as is the case for all other public institutions. It is audited externally through both, private auditors and by the Government Comptroller. The Board of Directors is chosen by the President from a list of professionals proposed by the Presidents and Deans of the public and private universities, its members are permanent and are not changed with each government administration.

Early in 2005, despite having a good institutional frame, SAT had not proactively taken advantage of its institutional independence to achieve its public purpose. It had approximately 3,000 employees and was facing the following challenges:

A. The Commissioner of the previous government and other former officials related to him, including his own son had committed acts of corruption and had been recently indicted by SAT. A very high profile case in the press and entrepreneurial associations and civil society demanding exemplary sentence.

B. Legislation, policies and tax and customs practices:

• Complex tax laws with too many exemptions,

• Weak law enforcement, excessive discretionary practices

• Extremely difficult processes to apply sanctions for tax evasion,

• Limited legal capacity to impose administrative (prior to judicial cases) sanctions

• Judicial System with no capacity to render unbiased judgement on tax and customs matters.

• Tax culture that favors evasion.

C. Institutional Management:

• Processes, systems and technologies mostly undocumented, disintegrated and obsolete.

• Partial and only formal planning processes, nonexistent systematic management indicators used as a Management tool.

• Human resources managed arbitrarily.

• Slow, complex and non effective procurement processes, generally appealed by suppliers.

• Scarce, fragmented and obsolete ITC applications

• Excessive centralization of administrative and technical decision making.

• Little attention to facilitate compliance for taxpayers.

• A “laisser faire , laisser passer” and “wait until others take corrective action” culture and attitude (don’t be an agent of change, it may put too much attention towards you)

• Lack of effective mechanisms of transparency and anti-corruption.

2. What were the major accomplishments of your administration?

• An increase of more than 1% in the tax burden, which by 2007 reached 12.5% This was achieved by improving the tax administration with NO increase of tax rates; reducing the evasion rate in 34.4% in 2004 to 26.1% in 2007.

• A substantial improvement in tax and customs performance indicators. Among them: reduction of customs clearance times, reduction in the rate of physical customs inspections by applying the risk management concept and technology, increase in the rate of compliance for tax electronic filing and electronic customs manifests and declarations, increase in fiscalization effectiveness (compliance problems detected per visit) reduction of time for VAT returns for exporters and reduction in the discretionary practices and increasing the transparency of the processes.

• Approval of the Anti-Evasion Law, which close important loopholes in the tax and Customs legislation, established the VAT withholdings and gave new administrative powers to SAT, typified new tax and customs crimes, hardened the penalties and sentences and simplify and provided certainty to taxpayers about their obligations.

• Implementation of a comprehensive process of institutional reforms, including major progress in the systematization of planning, modernization of the main tax, customs and internal management processes, widespread use of ITC applications, use of performance measurement and incentives to bring about new work behaviours and attitudes, programs to improve taxpayer satisfaction, innovation of products to facilitate tax compliance, redesign of HR, financial and procurement systems and creation of instruments to promote ethics and transparency.

• Implementation of an extensive an innovative program to promote a positive tax culture, particularly among children and youths.

• Convictions

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