The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) Tax Administration Reform Project in Uzbekistan (P173001) EUROPE AND CENTRAL ASIA | Uzbekistan | Governance Global Practice | IBRD/IDA | Investment Project Financing | FY 2021 | Seq No: 3 | ARCHIVED on 29-Nov-2022 | ISR52056 | Implementing Agencies: Republic of Uzbekistan, State Tax Committee Key Dates Key Project Dates Bank Approval Date: 16-Jun-2021 Effectiveness Date: 06-Jun-2022 Planned Mid Term Review Date: 02-Oct-2023 Actual Mid-Term Review Date: Original Closing Date: 30-Jun-2026 Revised Closing Date: 30-Jun-2026 pdoTable Project Development Objectives Project Development Objective (from Project Appraisal Document) The development objective is to improve the operational efficiency and effectiveness of the State Tax Committee (STC) and increase voluntary compliance. Has the Project Development Objective been changed since Board Approval of the Project Objective? No Components Table Name Automation of core tax administration business processes:(Cost $45.00 M) Reduction of the informal economy:(Cost $9.00 M) Strengthening HR and institutional capacity for tax administration and delivery:(Cost $4.00 M) Supporting Project Management:(Cost $2.00 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Satisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Overall Risk Rating Substantial Moderate Implementation Status and Key Decisions The project has entered implementation stage following effectiveness of legal agreements on June 6, 2022. The Project Implementation Unit with core staff was established and is fully operational. Major procurement activities are launched and planned for tendering in coming months. 11/29/2022 Page 1 of 8 The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance Moderate Moderate Moderate Macroeconomic Moderate Moderate Moderate Sector Strategies and Policies Moderate Moderate Moderate Technical Design of Project or Program Moderate Moderate Moderate Institutional Capacity for Implementation and High High Moderate Sustainability Fiduciary Substantial Substantial Moderate Environment and Social Moderate Moderate Moderate Stakeholders Moderate Moderate Moderate Other Moderate -- -- Overall Substantial Substantial Moderate Results PDO Indicators by Objectives / Outcomes Improved Operational Efficiency IN01158865 ►Reduction of cost-of-collection ratio of STC (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.53 1.53 1.53 0.80 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 The ratio = total recurrent expenditure of STC (as a proxy of administrative cost) divided by total tax revenue collected by STC. This indicator measures the operational efficiency of the tax administration. Comments: Baseline = 2019. In 2019, total STC budget (minus capital expenditures) was ~ 1,283bn and revenues collected by STC was ~ 83,354bn, rendering the baseline collection ratio 1.53%. Improved Operational Effectiveness IN01158921 ►Reduction in VAT compliance gap (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.45 0.45 0.45 0.25 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 11/29/2022 Page 2 of 8 The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) This indicator measures the difference between the total observed VAT revenue collected (net of refunds) with total potential VAT revenues (net of refunds). This indicator does not include the policy gap that is related to change in tax policy (e.g., remove an incentive). Baseline = 2018. The baseline was calculated Comments: using the assumption of 75% compliance rate (average rate for LAC). The model using 2018 data estimated the VAT potential at ~ Soums 50,690bn. Collected VAT was ~27,875bn. Hence baseline is 45% or 0.45 Increased Voluntary Compliance IN01158922 ►Number of additional assessment cases resulting from tax audits to LTO taxpayers, as a percent of total LTO audit cases selected using the risk management framework (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 80.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures the effectiveness of the risk management framework used to select cases for Comments: audit in the LTO. This indicator will measure the number of additional assessment cases that resulted from tax audits to large taxpayers as a percent of total audit performed in the year by the LTO Intermediate Results Indicators by Components Automation of Core Tax Administration Business Processes IN01158923 ►IT infrastructure enhanced (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Manuals for all Value n/a n/a n/a modules of tax system developed Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator includes measures to enhance the IT infrastructure at STC starting with an overarching ICT Comments: strategic plan and include upgrading data center, introducing cyber secutiry protocols, an audit case management module, etc. Measures should account for Covid-19 to ensure business continuity. IN01158926 ►Coverage of electronic tax services (% total) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 60.00 60.00 60.00 90.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures the percentage of services (e.g., registration, filing, VAT refunds) provided by STC in electronic form - already implemented - as percentage of total services. The ICT assessments carried out in 2019 helped to provide a best guess on the baseline coverage estimated at 60%. Currently, Comments: the system offers many e-services to taxpayers. Taxpayers can access a variety of information through the on-line portal http://my.soliq.uz and can interact with STC to complete various on-line requests, including filing tax declarations, submitting refund requests, requesting information and tracking replies. However, there is little support for peripheral services, such as complaints, arrears, audits, legal, etc. IN01158929 11/29/2022 Page 3 of 8 The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) ►Coverage of automated business processes (% total) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 50.00 50.00 50.00 90.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures the percentage of business processes that are automated under the new ICT system. Currently, there are no process maps to identify the percentage that are automated. ICT assessments \ showed that audit process was partially automated, the legal process is not automated. Comments: STC has limited business intelligence support and refund management is done partially on paper. The systems provide little support for Workflow Management, the taxpayer registry is incomplete, and there is little support for risk management. These facts can be translated into a baseline of 50% (at most) of processes that are automated. IN01158932 ►ICT customers (i.e., STC staff satisfaction rate) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 90.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator is a proxy of the quality of the service provided by the new ICT system. It is calculated as Comments: the satisfaction rate (%) of the STC employees – the users of the ICT system. It will be measured via surveys. IN01158935 ►Reduction in time to process VAT refunds (Days, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 60.00 60.00 60.00 30.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 Number of days to process a complete VAT refund request – from claim submission to disbursement/rejection. STC does not have a case management system to derive the data and compute the average time to process a refund. However, the Decree #489 (August 2020) stipulates that VAT refunds must be processed in 60 days (Accelerated cases need to be processed in 7 days). Prior to this Comments: decree, only exporters were allowed to submit a VAT refund claim. The baseline is assumed to be 60 days or the maximum amount permitted by law. This is a plausible assumption since it will take time for STC to process the expected surge in claims. All claims, including the ones that go to audit, are included in the calculations. The target is set at 30, which is in-line with best practice observed in OECD. Address Tax Barriers to Reduce the Informal Economy IN01158924 ►Total stock of arrears as percentage of domestic tax revenues collected (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 4.00 4.00 4.00 5.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures the ratio of arrears (i.e., outstanding taxes generated from PIT, CIT, VAT) as a Comments: percent of tax revenues collected on domestic transactions (i.e., revenues from PIT, CIT, and VAT, but excluding custom duties). The total stock is calcuclated at the end of calendar year (baseline is December 11/29/2022 Page 4 of 8 The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) 31, 2019). If data is provided by taxpayer segment, the same ratio can be monitored for large and non- large taxpayers. Until audit operations are resumed (moratorium lifted), it is difficult to assess the true stock of arrears. In 2019, STC data showed a total stock of arrears as percent of domestic revenues at 4% (it was 12.3% in 2017). This is a low ratio and better than most OECD countries. Once audit is resumed, it is expected that the stock of arrears to increase.The target thus is for this indicator not to exceed 5%. IN01158927 ►Increase number of cases selected for audit using the risk-assessment framework (as a % of total audits/inspections) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 0.95 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures the percentage of audits that use a risk-based approach in the case selection over the total number of audits. It will be monitored from Year 2 when the risk-based audit approach is expected to be fully implemented. There is no baseline since as of September 2020, audit is not being Comments: carried out due to the moratorium. The final target is 95% as tax administrations need to allocate some cases to be randomly selected for audit (i.e., outside the automated tool). There could be also potential inaccuracy in the selection algorithm that warrant manual intervention and correction. This explains not setting the target at 100% . IN01158930 ►Reduction in hours to prepare, file and pay tax - paying taxes indicator - doing business (Hours, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 181.00 181.00 181.00 159.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator will be updated/revised through the project restructuring due to the discontinuation of Doing Comments: Business. IN01158933 ►Voluntary Compliance Enhanced (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Multi-channel service Value n/a n/a n/a delivery in full operation. Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator covers measures to enhance voluntary compliance and broadening the tax base. Measures include an overarching strategy, an anti-corruption strategy, as well as mechanisms and tools to attract Comments: new taxpayers. The strategy ought to include measures that aim to contain initial loss due to Covid as well as plans to ensure business continuity and recovery. IN01158936 ►Number of registered and active VAT taxpayers (o/w large taxpayers) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 81,112.00 81,112.00 81,112.00 97,335.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measure new taxpayers that are registered with VAT (i.e., have a tax ID). Active is defined Comments: as a taxpayer who has filed at least once in the current fiscal year. Baseline = 2019. The The target is an increase of 20% for total and large taxpayers that are registered and active. 11/29/2022 Page 5 of 8 The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) IN01158938 ►Overall taxpayers satisfaction with STC services, operations, and engagement (focusing on satisfaction rate on engagement) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 80.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures the taxpayers’ satisfaction with STC’s services, operations, and engagement. The services may include the call center, the website, e-services, complaint desk, etc. The survey will include Comments: questions that will gauge the satisfaction of taxpayers particular focus on the level of engagement. Questions may include the views of taxpayers and citizens solicited, and taking into account in the design of policies or services. IN01158940 ►Increase in tax revenues collected by STC (cummulative, bn som) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 83,354.00 83,354.00 83,354.00 100,858.00 Date 30-Apr-2021 31-Mar-2022 30-Oct-2022 30-Jun-2026 This indicator reflects actual tax revenue collected by STC. Baseline = 2019. The objective is to monitor Comments: compliance with the aim of containing revenue loss and restoring pre-covid collections level by year 3. Strengthen HR and Institutional Capacity and Delivery IN01158925 ►HR infrastructure enhanced (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Staff performance Value n/a n/a n/a evaluation framework adopted. Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator entails measures taken to revise the HR infrastructure at STC by conducting a strategic Comments: plans, introducing staff satisdaction surveys and a new performance management framework. The new plans ought to include flexible and innovative work arrangement in light of Covid. IN01158928 ►Share of women in managerial positions at STC in headquarters and the regional offices (% total managerial positions) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.40 1.40 1.40 7.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures the reduction of the gender gap of staff in management positions at STC. As of Comments: September 2020, there were 3 women (or 1.4%) in top management positions. For non-mangerial positions, the share of women was 10.7% IN01158931 ►Capacity building program institutionalized (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target 11/29/2022 Page 6 of 8 The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) Capacity building Value n/a n/a n/a program piloted. Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator entails to take stock of measures to institutionalize training of staff (training needs, courses Comments: developed, etc.) with the aim of supporting the future set-up of the Fiscal Institute by STC. Flexible and differentiated training modalities ought to be considered. IN01158934 ►Staff just-in-time trained on tax functions (e.g., audit, arrear management, registration) and disaster risk management and business continuity - cummulative, 50% of which are female (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 120.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator measures capacity building tasks carried out under the project. It will be expressed in Comments: cumulative numbers and will target a 50% female participation. IN01158937 50% of which are female staff just-in-time trained on tax functions (Number, Custom Breakdown) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 60.00 Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 IN01158939 ►Tax Analysis Enhanced (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Core team – composed of men and Value n/a n/a n/a women - trained and entrusted permanently with tax analysis. Date 30-Apr-2021 31-Mar-2022 31-Oct-2022 30-Jun-2026 This indicator covers measures taken to enhance the analytical capacity to measure tax gap and tax Comments: expenditures. The ultimate objective is to have a core team – later to be part of the fiscal institute - entrusted with this function. Performance-Based Conditions Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P173001 IDA-69120 Effective USD 60.00 60.00 0.00 0.10 59.90 0.2% Key Dates (by loan) 11/29/2022 Page 7 of 8 The World Bank Implementation Status & Results Report Tax Administration Reform Project in Uzbekistan (P173001) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P173001 IDA-69120 Effective 16-Jun-2021 18-Apr-2022 06-Jun-2022 30-Jun-2026 30-Jun-2026 Cumulative Disbursements Restructuring History There has been no restructuring to date. Related Project(s) There are no related projects. 11/29/2022 Page 8 of 8