Exploring Risk Management in Developing Countries' Tax Administrations

Abstract

One of the major challenges currently facing developing countries is how to raise adequate tax revenues for development financing. The United Nations (UN), the World Bank, the International Monetary Fund (IMF), and other multilateral organisations are all making efforts to tackle this issue. This paper contributes by advocating risk management in developing countries’ tax administrations. This topic has received some practitioner attention, but is yet to receive adequate academic attention, especially as it relates to developing countries. There has been more focus on tax compliance/noncompliance research. However, this paper argues that tax noncompliance is just one of numerous problems facing tax administrations in developing countries. There is a need to identify other risks, and to build models for the assessment and management of such risks. This paper responds to such needs by using a synthesis of practitioner literature, previous research findings, and the authors’ field experiences from developing countries in Asia and Africa. The paper provides useful and practical insights by categorising the risks faced by developing countries’ tax administrations into three groups: internal, external, and collusive risks. The paper groups risks into those that are within the control of the tax administration and those that are outside of its control. The analysis suggests directions for further research and provides tax practitioners in developing countries with useful tips on risk management.

Keywords: Risk Management in Tax Administrations, Developing Countries, Internal Risks, External Risks, Collusive Risks.