Fiscal Reform for a Strong Tunisia (First)

FISCAL REFORM FOR A STRONG TUNISIA (FIRST)

INTERACTIVE FINAL REPORT DECEMBER 2020 HOW TO GET THE MOST OUT OF THIS REPORT

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CHAPTER ONE 1. OVERVIEW CHAPTER TWO I. EXPANDING THE TAX BASE Making It Easier to Pay Taxes Improving the Interaction Between Tax Payers and Tax Administration Raising Awareness About the Civic Duty to Pay Taxes 2. IMPROVING TAX COLLECTION AND COMBATING TAX EVASION Improving Tax Collection Combating Tax Evasion 3. USING FISCAL POLICY INSTRUMENTS Models Analyses 4. SUPPORTING DIGITAL TRANSFORMATION 5. ENHANCING INTERNAL AND EXTERNAL COMMUNICATIONS Internal Communications External Communications 6. OTHER ACTIVITIES CHAPTER THREE 1. LESSONS LEARNED 2. THE WAY FORWARD

1 | FIRST | INTERACTIVE FINAL REPORT ACRONYMS

ACL Audit Command Language CGE Computable General Equilibrium CIT Corporate Income Tax CIMF Centre Informatique du Ministère des Finances – Ministry of Finance Data Center DGAFF Direction Générale des Avantages Financiers et Fiscaux DGCPR Direction Générale de la Comptabilité Publique et du Recouvrement- National Tax Collection Department DGD Direction Générale des Douanes- National Customs Department DGE Direction des Grandes Entreprises – Large Taxpayers Office DGELF Direction Générale des Etudes et de la Législation Fiscales- National Tax Legislation Department DGI Direction Générale des Impôts- National Tax Administration Department DGRE Direction Générale des Ressources et de l’Equilibre DME Direction des Moyennes Entreprises – Medium Enterprises Tax Office FATCA Foreign Account Tax Compliance Act FAU Fiscal Analysis Unit – Unité d’Analyses Fiscales FIRST Fiscal Reform for a Strong Tunisia FIS Fiscal System Upgrade GBO Gestion du Budget par Objectifs-Budget Management by Objectives GOT Government of Tunisia HPMFM High Performance Macro-Economic Forecasting Model ISMS Information Security Management System METR Marginal Effective Tax Rate MOF Ministère des Finances-Ministry of Finance MSM Micro Simulation Model MTFF Medium-Term Fiscal Framework PEA Plan d'Epargne en Actions (or Equity Saving Plan) PIT Personal Income Tax TADAT Tax Administration Diagnostic Assessment Tool UCNEF Unité de Contrôle National et des Enquêtes Fiscales- National Tax Control and Investigation Unit UXP User Experience Platform VAT Value-Added Tax

2 | FIRST | INTERACTIVE FINAL REPORT 3 | FIRST | INTERACTIVE FINAL REPORT CHAPTER ONE

OVERVIEW

Tunisia’s Dec. 17, 2010 civil uprising opened an extraordinary chapter in its history and launched the Arab Spring – widespread anti- government civilian-led protests and uprisings across Middle Eastern and North African countries. A vibrant democracy has since emerged in Tunisia that has produced successful transitions of power via free and fair elections. However, Tunisia faces economic and fiscal challenges, due to both internal and external factors (i.e., the “The Ministry of Finance and USAID Tunisia tourism sector was affected by terrorist FIRST did a great job that reflects very high attacks in 2015; political upheaval in Libya levels of cooperation and efficiency, and was has affected demand for Tunisian goods and very concrete and pragmatic. This is what we services; economic slowdowns in France and need. All of what we produced is based on the Italy have affected Tunisian exports; and Ministry Data Center's strategy and represent labor unrest in the South has contracted the latest technologies, which I’m hoping will revenues from extractive industries). The help us go faster and further. Importantly, current COVID-19 pandemic has while we are cooperating with USAID, a exacerbated these challenges. transfer of knowledge is occurring. This is very important and as we were working together, I Plagued by budgetary balance issues, know the ownership and know-how has been Tunisia’s historically high rate of tax evasion transferred to the Ministry of Finance." has caused persistent revenue and budget deficits – incoming tax revenues have not been able to meet government spending Former MOF Minister, Mr. Nazar Yaiche August 2020 needs on social services and productive public investments, i.e., infrastructure, education, and health care. In September 2017, the United States Agency for International Development (USAID) launched the Fiscal Reform for a Strong Tunisia (FIRST) project, a $18.8 million, 3- year plus (Sept-2017-Dec 2020) initiative aimed at assisting Tunisia’s Ministry of Finance (MOF) to rationalize tax policy, modernize tax administration, and undertake other fiscal reforms. The goal: to secure a sound fiscal foundation for economic stability and long- term growth by helping the Tunisian government improve revenue collection, reduce taxpayer compliance costs, improve Video: Interview with Mario Kerby the budgeting and expenditure process, and FIRST Chief of Party enhance public accountability.

4 | FIRST | INTERACTIVE FINAL REPORT Working closely with the MOF, FIRST achieved dramatic results by focusing on the following objectives:

Improve efficiency, transparency, and cost of tax administration compliance Enhance capacity to develop and manage tax policy Enhance capacity to address other fiscal reform priorities as they emerge Improve communication, engagement, and consultation on priority reforms

FIRST successfully accomplished these objectives and importantly, helped the MOF to increase revenues without incurring more debt by organizing project activities within the following five workstreams:

1. Increase voluntary compliance with fiscal obligations by: a) making it easier for taxpayers to pay by promoting electronic filing and customer service; and b) increasing taxpayer awareness and outreach regarding their duty as citizens to pay taxes 2. Improve tax collection through better audit procedures, and combat tax evasion by using improved tools and processes to collect outstanding debt 3. Enhance the MOF’s capacity to conduct proactive fiscal policy-making and support a more orderly budget process by using models and methods to assess the tax gap, project the potential impacts of fiscal policy measures, and assess the effectiveness of tax expenditures 4. Implement concrete IT solutions and tools to support improved tax administration processes, proactive fiscal policy making, and more efficient communications 5. Support improvement of MOF internal and external communications to foster better interactions between tax administration and taxpayers and improve internal efficiency

5 | FIRST | INTERACTIVE FINAL REPORT 6 | FIRST | INTERACTIVE FINAL REPORT CHAPTER TWO

I. EXPANDING THE TAX BASE

The first step to raising tax revenues is to increase voluntary taxpayer compliance with their fiscal obligations. The more taxpayers file and pay what they owe on time, the better the performance of the tax administration. IMFNew TAX ADMINISTRATIONTargeted Audit DIAGNOSTIC Strategy ASSESSMENT Increases TOOL Tax (TADAT) Collection MEASURING THE TAX GAP No one likes the idea of being audited. Just hearing the word brings angst for many, FIRST-developed To support the MOF’s goal to increase fiscal citizenship even those who keep good books and are confident they have paid the correct amount of tax.by In bringing Tunisia, theawareness chance of taxpayersto the civic being responsibility audited to ensure of theypaying are Totargeted give the MOF audit a better understanding of potential correctly declaringtaxes, and explain paying whattheir taxes those is extremelytaxes pay low, for, hence and many make simply it choose revenuesprocess that boosts can be generated through better tax administration processes, FIRSTnot toused declare a easiermicrosimulation their taxesto pay, at all. FIRST When began audits areits conducted,efforts by they using are thevery arduous and collection rates, can take anywhere from one to two years as auditors dig through up to five years- model to assist the Ministry to estimatestandard the respective Tax Administration Diagnostic Tool (TADAT). lessen taxpayer worth of a givenTADAT company’s assessed books thewhil erelative the company strengths languishes and waiting weaknesses for the verdict taxburdens, gaps – the costsdifference between of this intensepotential examination. tax revenues and actual revenues – of Tunisia’s threeof main Tunisia’s taxes: tax 1) administration of its “core” taxes: 1) Highly ineffective, these “deep audits” usually result in extremely large tax bills that Corporateless to Incomeperform, Tax (CIT); 2) PersonalCorporate Income IncomeTax Tax (CIT); 2) Personal Income Tax and lowers risk of only work to(PIT); incentivize 3) Value-added businesses to findTax off (VAT);-the-record and “accommodations” Pay-As-You-Earn. with (PIT); and 3) Value-added Tax auditors. (VAT). As By a consequence,analyzing the Tunisia maintains a high rate of tax evasion resulting in less levelcorruption of compliance with a givenmoney tax flowing andDuring identifying into government the assessment coffers and process, leaving the FIRST country trained plagued over by consistent 70 tax administration staff on international best practices compliancy levels of sub-populationsbudget deficits and andthe limited various resources to pay for much-needed social services, strategic infrastructure,and and the public TADAT investments. methodology,Video: Interview which with produced Mohamed several Ben source of both compliancy and non-compliancy, the tax recommendations. Abdalah, Tax Policy Specialist gap analyses revealed an estimatedEnter USAID’s 43 percent Fiscal Reform of for a Stronger Tunisia (FIRST) project, which, together with potential VAT liabilities are notthe Ministrypaid, with of Finance professionals (MOF), developed paying onlya new a audit fraction strategy of – what the targeted they owe. auditing FISCALFor exampl CITIZENSHIPe: doctors only COMPLIANCE paidprocess 60 percent – and created ofSTRATEGY taxes a National due, Tax and Audit architects Programming and attorneysUnit. Formally paid introduced 26 and in the Tunisia’s 2020 Finance Law, targeted audits hone in on specific issues such as a 37 percent, respectively. For single taxpayers tax type, under tax aspect, the “regimeor tax period. forfetaire” Instead of (lump-sum looking at years payment), of books thein a taxTargeted gap audits was take an much estimated less time than 82 percent – only 8 percent paid what was owed. The tax gap analyses more comprehensives ones lengthy and traumatic process for taxpayers, target auditors examine one month’s helped inform the development worth of ofa transactionstax compliance and focus strategy on a few aimed key taxes at increasingthat are owed. tax collection FIRST, together with the Ministry revenues. Using this process, good auditors can quickly ascertain if a company’s book are being of Finance, developed a new audit strategy – the targeted kept correctly and transparently, or if certain things are not right. Once a auditing process – and created a determination is made, a tax bill – smaller than those resulting from a deep audit – is issued. These modest tax bills, added to the simplified audit process, provide Chief amongNational the Tax TADATAudit assessment recommendations, a 3-year Fiscal Good Citizen Compliance Programming Unit. Formally companies with a greater incentive to pay outstanding taxes, and at the same time, Strategy was developed thanks to a FIRST-MOF team effort. Aimed at increasing taxpayer introduced in the Tunisia’s 2020 release them from the harsh scrutiny they would receive under a more comprehensive compliance, improving the relationshipaudit. In addition between to result taxpayersing in higher and collection tax administration rates, targeted personnel;audits also lower and the Finance Law, targeted audits simultaneouslyhone in on specific modernizing issues such taxrisk administration of corruption, lessen processes taxpayer by burdens, using andnew cost technologies less to perform and than making the more themas afair single and tax transparent,type, tax aspect, andexhaustive improving deep taxpayer audits. services, the strategy focused on five areas of or tax period. Instead of looking To prepare MOF tax administrators and auditors to perform targeted audits, FIRST improvement:at years of books 1) in voluntary a lengthy filing via automatically-sent emails and texts messages to taxpayers; 2) targetedand traumaticaudits toprocess improve for taxpayerdeveloped registration, and conducted compliance, a series of trainings and VAT-of trainers, refund seminars, issues; and 3) presentations,tax as well as trainings on modern tax audit organization and related risk-analysis collectiontaxpayers, integration target auditors into the overall tax administration processes; 4) taxpayer services via programming. The first presentation – The Modern VAT (Value-added Tax) – focused segmentationexamine one month’s of taxpayer worth of categories by creating compliance indicators; and 5) legislation- FIRST transactions and focus on a few on the characteristics of the easily-administered tax, which is assessed incrementally on workedkey withtaxes thatDGELF are owed. on the Code goods ofand Fiscal services Procedures, at each stage andof production, recommended distribution, the orimplementation sale to the end of a modernIn addition VAT to resulting system. in higher customer, and presents the best field of application for the targeted audit. collection rates, targeted audits Highly successful, this presentation led to the development of the Principles of Modern MEASURINGalso lower the risk ofTHE corruption, TAX GAPVAT e-Learning training course, now available via the FIRST-developed Virtual Resource lessen taxpayer burdens, and Library. Intranet-based and accessible via a dedicated server at the MOF Data Center, cost less to perform than the To give the MOF a better understanding of potential revenues this library contains a virtual wealth of information, including all the reports, tools, more exhaustive deep audits. models,that trainings, can be self generated-teaching modules, through methodological better tax notes,administration and user-guides on the modelsprocesses, and tools FIRST FIRST generated used aover microsimulation the course of the model project. to assist the Ministry to estimate the respective tax gaps – the difference between potential tax revenues and actual revenues – of Tunisia’s three main taxes. CLICK TO SEE MORE U.S. Agency for International Development www.usaid.gov 06.4.20

7 | FIRST | INTERACTIVE FINAL REPORT RAISING AWARENESS ABOUT THE CIVIC DUTY TO PAY TAXES TUNMAN AND AMAL COMIC BOOK Developed by FIRST in support of the MOF's enhanced public outreach efforts and aimed at raising fiscal citizenship awareness among schoolchildren, the Tunman and Amal Comic Book has been distributed widely to primary schools nationwide and has become very popular among school-age children. Following the adventures of Amal, a young girl and her robot friend Tuman, young readers are provided an entertaining education and awareness of the principles of citizenship, basic tax concepts, and how paying taxes supports both their country’s growth and their own futures.

MAKING IT EASIER TO PAY TAXES

SUPPORT FOR E-FILING TAXPAYER GUIDE

Tunisia has a 2-part e-Filing system: 1) Tele- declaration, which allows the filing and Tunisia’s 23-page Taxpayer Guide, developed paying of taxes online and is voluntary for in a highly successful collaboration between small and medium taxpayers, but mandatory FIRST and the MOF’s Communication team, for larger ones grossing over 1 million TND provides a soup-to-nuts array of easy-to- annually; and 2) Tele-liquidation, which understand definitions, as well as allows taxpayers to file online and then pay explanations of taxpayer rights and at the tax office, either themselves or via obligations. Distributed to tax offices authorized tax preparers who complete the throughout the country, topics covered appropriate form. FIRST worked with the include: the different types of taxes and tax MOF to promote the use of e-Filing via an rates, how to make installment payments, online, multi-platform awareness campaign the importance of keeping receipts, digital highlighting the benefits of filing services and how to file taxes online, and electronically and how to do so. In addition, different ways to access additional FIRST trained 60 accountants and tax information, including the location of preparers of small and medium taxpayers on regional offices and customer service how to use the software to file for their numbers. The Guide is topped off with a clients electronically. The result saw fiscal calendar highlighting monthly deadline Tunisia’s electronic filing numbers triple dates and a Contributions Charter that from 21,000 taxpayers in 2017 (representing outlines both government and taxpayer 86 to 90 percent of that year’s tax revenue) responsibilities. to 62,000 by the project’s end in 2020.

8 | FIRST | INTERACTIVE FINAL REPORT FIRST TRAININGS

9 | FIRST | INTERACTIVE FINAL REPORT DGI DASHBOARDS

FIRST assisted the MOF to re-engineer its internal business processes, develop accountability tools, and improve its systems to meet identified performance objectives by Digital Upgrade Brings Efficientcreating Online a three software-basedTax Services dashboards for DGI decision-makers. In addition to Thanks to FIRST Opening a remarkable chapter in Tunisianaggregating history, a informationcivil uprising, fueled by bycategory toxic levels of of corruption, poverty, unemployment, and political repression that began on Dec. 17, 2010, intranet co- not only ousted the country’s 23-yearindicators, old regime withinsubdivided 28 days, itaccording also launched to the structure, Arab development Spring – widespread anti-governmentsector civilian -ofled activity,protests and category uprisings across of taxpayer, the Middle tax efforts taxpayers East and Northern Africa. Although system,free and fair reporting elections held system, that October type heralded of tax audit, Tunisia’s transition to a vibrant democracy,and aggregation longstanding econ at regionalomic and fiscal and challenges national can access all remained. Chief among them, a high rate of tax evasion causing persistent revenue and levels; the dashboards also assist the MOF’s tax-related budget deficits and hampering government efforts to pay for social services and productive public investments. In addition, the heartmonitoring of Tunisia’s of tax it administration tax administration, – its Fiscal services online Information System (FIS) was run onperformance obsolete technology by andtracking riddled newwith a registrations,patchwork of and with ease siloed applications that rendered it highly inefficient. using electronic procedures, and performing In 2019, at the request of the Ministry of Finance, USAID’s Fiscal Reform for a Stronger Tunisia (Tunisia FIRST) project began highly collaborativefiscal controls. efforts that successfully modernized and strengthened the country’s antiquated FIS. Partnering with Tunisian IT company, Arab Soft, SUPPORT FOR THE CREATION TAXPAYER SELF-SERVICEknown PORTALfor designing and building FISs in Sub-Saharan countries, FIRST, as per MOF insistence, Staff OF THE MEDIUM ENTERPRISE successfully negotiated MOF ownership of Arab Soft’s pre-developed FIS source code – the FIRST UNIT (DME) A key: element of FIRST’s Fiscalstring Information of words, numbers, letters, and symbols representing a program’s foundation, which is not usually shared. Then, in a highly cooperative effort that fostered the transfer of SystemPhoto upgrade was the implementation of an knowledge and competence, a teamFIRST of FIRST assistedand Arab Soft the developers MOF in worked the creation closely with of electronic Taxpayer Self-service Portal, a one- Thanks to First’s digital upgrades, MOF developers to upgrade and tailorthe the medium FIS source enterprise code to meet unitthe precise (Direction specifications des stopTunisian shopping taxpayers canonline create online service. and Fully needs operational, of the MOF. Moyennes Entreprises) that was launched in tax accounts where they can e-File the andportal monitor will their taxbe payments, launched inThese 2021 FIRST and-guided allow upgrades resultedJanuary in the co 2019-development for the of threetax administration foundational to obtain receipts, request refunds, components of the MOF’s FIS: 1) Online Taxpayer Management Software Intranet taxpayersobtain tax- relatedto perform information and all tax-related tasks online, provide a “one stop shop” to medium includingmuch more registering and settingApplication; up an 2) account, Taxpayer Self-service Portal; and 3) Taxpayer Registry, which set the stage for an all-inclusive digital system that automatesenterprises. current FIRSTmanual processes procured and ITdrastically equipment inputting and changing their increasescontact tax information, administration efficiency.and audit software for the DME, developed a authorize withdrawal paymentsTo start from with, their the Online bank Taxpayer planManagement to improve Software taxpayerIntranet Application service, – the and FIRST-guided upgrades resulted accountsin the co -ordevelopment credit ofcards, three closefoundation their ofaccount, the FIS architecture, and mapstrained out and DME facilitates agents the endlessin best and practices. essential tax checkfoundational on their components tax obligations, of administration due dates, tasks. and These include the creation of new, and upgrading of existing taxpayer amountsthe MOF’s owed. FIS: 1) Online accounts, as well as the creation and delineation of the different obligations of individual Taxpayer Management taxpayers and businesses depending on their locations and other related information. Software Intranet Application; Next, the Taxpayer Self-service Portal eliminates current time-consuming tax filing services 2) Taxpayer Self-service Portal; by providing taxpayers with one-stop online services, which contain all tax-related IMPROVINGand 3) Taxpayer Registry, THE INTERACTION BETWEEN TAX PAYERS AND TAX ADMINISTRATION procedures thus allowing taxpayers to register remotely. Once registered, they can access which set the stage for an all- their personal online tax account and data, e-File their taxes, request Value-added Tax (VAT) inclusive digital system that refunds, obtain e-Receipts, and register for additional services. CUSTOMERautomates current SERVICE manual TRAINING processes and drastically Last, the Taxpayer Registry is a Masterfile database containing all taxpayer information within At increasesthe request tax administration of the MOF, structured FIRST fieldssuccessfully that support data entry and is easily updatable. Once implemented, this will developedefficiency and .delivered trainings eliminate the to current over information2,500 storage hodgepodge that lacks standardization – data is regional tax agents and 50 storedkey MOF in different staff systems on how integrated with silos and applications that do not communicate and make compiling a comprehensive and reliable taxpayer register impossible. to provide better customer service. Topics At present, a select team MOF tax administration staff are wrapping up “user acceptance” included: ethics and integrity;testing how of each to moduletransform and submodule of the new FIS architecture that shows all applications tax offices into user-friendlyare service-basedworking cohesively and correctly. At the same time, the FIRST / Arab Soft team, under its centers; adopting a positive,mandate service-oriented to ensure widespread use of this updated FIS, is conducting trainings of trainers, a behavioral attitude; and techniquescadre of 13 taxon administration how to staff, who starting in mid-November, will begin training “superusers” – 523 tax agents all over Tunisia – on the intricacies of the new Intranet welcome customers, deterapplication.mine their needs, provide quality telephone customer service, as U.S. Agency for International Development well as stress and crisis management, and client www.usaid.gov 06.4.20 support and coaching.

10 | FIRST | INTERACTIVE FINAL REPORT 2. IMPROVING FIRSTTAX COLLECTION Dashboards AND COMBATING TAX EVASION TAX REVENUES TAX COLLECTIONS IMPROVING TAX COLLECTION TAX COLLECTION DASHBOARDS

Shows the growth of various revenues by region. This includes the Allows MOF tax administration personnel to access and monitor regional budget, and fiscal and non-fiscal revenues; and graphic pertinent tax collection information by region, year, month, and depictions of state revenue allotments, comparisons of state and amount collected, including the amount of tax debt, amount received; fiscal revenues, and overall growth of state revenues. and different related rates, including amounts of growth recovery.

TAX PAYMENTS QUALITY OF SERVICE

TAX COLLECTION BEST PRACTICES As part of assistance requested by the MOF to re-engineer its internal business processes, With the support of international experts, develop accountability tools, and improve its AllowsFIRST tax administration developed toa accessModern information Collection regarding how systemsShows tothe meetexact daily identified (M-S) number performance of visitors to the overall many payments are due, how many have been paid, the average objectives,system; the FIRST number developed of visitors to twoeach ofsoftware-based the dashboards; the paymentStrategy per year that or month,facilitates and other delinking related filingstatistics. and number of yearly, monthly, and quarterly visits; the amount of payment obligations. This allows taxpayers dashboardstime each visitor that spenthave on improved each dashboard, DGCPR the number of visitors to report their taxes without having to pay performanceto each of the monitoring. dashboards, and The most first importantly, dashboard the customer at the same time or to pay in part, regardless enabledsatisfaction automation levels regarding of previously each dashboard time- and their overall AUDITS & TAX COLLECTION experience. of the reported amount (subject to the consuming, subject to error manual tasks; and application of penalties and interests), and the second makes possible disaggregation by removes the unnecessary "acknowledgment financial revenue, USEand aggregation OF E-FILING at regional and of debt" mechanism. In March 2019, trainings national levels. were provided to 74 participants from DGCPR, DGI, CIMF, and DGELF on this strategy, as well as trainings on: 1) a forced collection strategy for tax arrears; and 2) international tax collection best practices that included exercises simulating practical situations where participants were Showsencouraged the number ofto taxpayers, change howtheir many recovery of them have been verified, and how many have paid on time. It also shows the rate of howpractices many have behavior been audited, to prioritize as well as verified improving and includes severalvoluntary graphic breakdowns: compliance. the percentageIn addition, collected from each Provides feedback on the number of taxpayers who can use sectorrecommendations (manufacturing, communications, were made transport, and issues education, etc.), e-filing, how many actually do, how many are required to use it, as Video: Interview with Christophe Grandcolas monthlycited percentages based on of informationtaxes paid on time collected and those during verified, well as the rate of optional users; the number of taxpayers signed time responding to taxpayer audit-related comments, the number FIRSTup to Tax pay Administrationonline as well as theTeam percentage Leader who actually do; the of internationalthese trainings inquires andand relatedmeetings response with rates, and the rate overall rate of taxpayers who have filed; and the corporate tax of post-auditheadquarter adjustments. officials return rate.

11 | FIRST | INTERACTIVE FINAL REPORT COMBATING TAX EVASION TARGETED AUDIT

FIRST, together with the MOF’s DGELF and the

DGI, developed a new audit strategy, which includes the introduction of issue-oriented tax auditNew and the Targeted creation of a NationalAudit Tax Strategy Audit Increases Tax Collection Programming Unit. Formally introduced in the No one likes the idea of being audited. Just hearing the word brings angst for many, Tunisia’sFIRST 2020-developed Finance Law, targeted audits hone even those who keep good books and are confident they have paid the correct in on specific issues such as aamount single of tax tax. type, In Tunisia, tax the chance of taxpayers being audited to ensure they are targeted audit aspect,process or tax boosts period. Insteadcorrectly of looking declaring at yearsand paying their taxes is extremely low, hence many simply choose not to declare their taxes at all. When audits are conducted, they are very arduous and of bookscollection in a lengthy rates, and traumatic process for taxpayers, auditors examine canone take month’s anywhere worth from one to two years as auditors dig through up to five years- lessen taxpayer worth of a given company’s books while the company languishes waiting for the verdict of transactions and focus on a few key taxes that burdens, costs of this intense examination. are owed. Costing less to perform than the more Highly ineffective, these “deep audits” usually result in extremely large tax bills that exhaustiveless to deep perform, audits, targeted audits lower and lowers risk of only work to incentivize businesses to find off-the-record “accommodations” with corruption risks, lessen taxpayer auditors. burdens, As a consequence, and Tunisia maintains a high rate of tax Targetedevasion resulting Comprehensive in less resultcorruption in higher collection rates. money To flowing prepare into governmentMOF coffers and leaving the country plagued by consistent 1 Week 6 Months tax administrators and auditorsbudget to deficitsperform and limited resources to payAudit for duration much-needed social services, strategic infrastructure, and public investments. targeted audits, FIRST developed and conducted % collection after audit High Low Enter USAID’s Fiscal Reform for a Stronger Tunisia (FIRST) project, which, together with a series of trainings-of trainers and presentations Cost Low High on this topic, as well as trainingsthe Ministry on modern of Finance tax (MOF), developed a new audit strategy – the targeted auditing process – and created a National Tax AuditRisk Programming of corruption Unit. FormallyLow introducedHigh in audit organization and relatedthe risk-analysis Tunisia’s 2020 Finance Law, targeted audits hone in on specific issues such as a programming. single tax type, tax aspect, or tax period. RateInstead of auditingof looking at yearsHigh of books in Lowa Targeted audits take much less time than more comprehensives ones lengthy and traumatic process for taxpayers, target auditors examine one month’s worth of transactions and focus on a few Burdenkey taxes on thatTaxpayer are owed.Low High FIRST, together with the Ministry Using this process, good auditors can quickly ascertain if a company’s book are being of Finance, developed a new audit strategy – the targeted kept correctly and transparently, or if certain things are not right. Once a auditing process – and created a determination is made, a tax bill –FISCAL smaller than CONTROL those resulting fromDASHBOARD a deep audit – is National Tax Audit issued. These modest tax bills, added to the simplified audit process, provide Programming Unit. Formally companies with a greater incentive to pay outstanding taxes, and at the same time, introduced in the Tunisia’s 2020 release them from the harsh scrutiny they would receive under a more comprehensive audit. In addition to resulting in higher collection rates, targeted audits also lower the Finance Law, targeted audits hone in on specific issues such risk of corruption, lessen taxpayer burdens, and cost less to perform than the more as a single tax type, tax aspect, exhaustive deep audits. or tax period. Instead of looking To prepare MOF tax administrators and auditors to perform targeted audits, FIRST at years of books in a lengthy and traumatic process for developed and conducted a series of trainings-of trainers, seminars, and presentations, The first presentation on the as Modern well as trainings VAT on modern tax audit organization and related risk-analysis taxpayers, target auditors (Value-addedexamine one month’s Tax), worth focused of onprogramming. the characteristics The first presentation – The Modern VAT (Value-added Tax) – focused of thetransactions easily-administered and focus on a few tax, on whichthe characteristics is assessed of the easily-administered tax, which is assessed incrementally on incrementallykey taxes that on are goods owed. and servicesgoods and atservices each at stage each stage of production, distribution, or sale to the end In addition to resulting in higher customer, and presents the best field of application for the targeted audit. of collectionproduction, rates, targeted distribution, audits or sale to the end FIRST developed a software dashboard for customer, and presents the bestHighly field successful, of this presentation led to the development of the Principles of Modern also lower the risk of corruption, VAT e-Learning training course, nowDGI available to measure via the FIRST the-developed efficiency Virtual of fiscal Resource lessen taxpayer burdens, and application for the targeted audit.Library. Highly Intranet-based and accessible via a dedicated server at the MOF Data Center, cost less to perform than the controls. The dashboard includes indicators successful, this presentation thisled libraryto the contains a virtual wealth of information, including all the reports, tools, more exhaustive deep audits. such as the number of verifications by type development of the Principlesmodels, of Modern trainings, VAT self-teaching e- modules,of verifications methodological (targeted notes, and or user comprehensive),-guides on the models and tools FIRST generated over the course of the project. Learning training course, now available via the the number and value of additional taxes FIRST-developed Virtual Library of Resources owed to the MOF, the proportion of [for more information, see pg. 18]. Thanks to this controls by economic activity sector, and the aspect of FIRST’s work with DGELF and the DGI, response time of taxpayers to the results of U.S. Agency for International Development Article 36 of the CDPF is slated to be amended. an audit. www.usaid.gov 06.4.20

12 | FIRST | INTERACTIVE FINAL REPORT The MOF has the highest number of women in decision-making WOMEN IN positions among GoT ministries. Here they discuss their successes FINANCE and challenges.

MRS. OLFA SHAMMARI MRS. KAWTHER BABEYA MRS. NAJIBA FATH ALLAH Manager, Budget Management Director General, Public Debt Archive Manager by Objective, MoF and Financial Cooperation

"I’m a woman who seeks challenges. As "The challenge is to make the "The most important challenge a mother, a wife and a woman holding a for me as a woman in charge of right decisions at the right time, position with responsibilities, the and coordinate with multiple making decisions is to prove that challenge is in balancing between work I am worthy, and at least 90 parties, since it is not usually the and personal life. Women were lucky decision of one person. Our daily percent of the time the decision successive Ministers believed in us. must be right. Why? Because challenge is to successfully Besides, we imposed ourselves and have coordinate, make timely decisions, when a woman is responsible for the capacity to face problems and make something, she must be up to it and act on constant decisions in a timely manner. Most of the developments." and can be pressured more than DGs in the MOF are women." men."

MRS. SONIA ZOGHLEMI MRS. AISHA NAFFATI MRS. AMEL ALFEKHI Director General, Funding Director General, Human Director General, Central Unit for Resources Budgeting by Objectives

"As women, we want to be "The key factors are hard work, "I love challenges and I love overcoming successful, whether on a professional professional commitment, and them. Women have to be empowered or personal level. Women succeed self-confidence – to believe in through daily knowledge and when it comes to projects that aim and prove myself. There should experience and we should empower to bring change. Being convinced of be no difference between me ourselves to face problems, and support what she is doing and seeking and my colleagues, there should our work. I believe that every woman success to the fullest, a woman be equal opportunities, and we will be empowered in this field." conveys that passion to her shall all progress together.” colleagues."

13 | FIRST | INTERACTIVE FINAL REPORT 3. USING FISCAL POLICY INSTRUMENTS

In response to the MOF's request for assistance in developing tools to help it better implement fiscal policies and be on equal footing in discussions with international donors, FIRST worked closely with Ministry staff to successfully co-develop a series of models and analyses. These tools, used in the 2020 and current 2021 budget preparations, allow the MOF to simulate the impacts of proposedNew and Fiscal ongoing fiscal Policy policies, Tools and provide Aid the refinedBudget analyses Law (based Planningon scientifically sound

methodologies)Annual real required time in the Tunisia’s preparation Dec. 17, 2010 of yearlycivil uprising finance – fueled laws by corruption, that set poverty,the State unemployment, budget. FIRST and alsobudget trained andlaw conducted workshops political repression on fiscal – opened policy an extraordinary tools for 95chapter (54 thatfemale saw a /42vibrant male) democracy key MOF emerge personnel and analysts. after the ousting of the country’s 23-year regime ousted. The decade since has produced preparations now two successful transitions of power via free and fair elections and held court to a national supported thanks dialogue that has helped to keep the peace. However, ongoing economic and fiscal challenges, exacerbated by the current COVID-19 pandemic, have left citizens hungry for to FIRST meaningful policies aimed at improving their lives, and the government in need of fiscal collaborative instruments to grow the economy and gain equal footing with the international community Click the link iconMEDIUM-TERM to read FISCALand donors. FRAMEWORK (MTFF) more about eachefforts COMPUTABLEmodel. with GENERAL EQUILIBRIUM50 (CGE) Ministry of In 2017, at the request of the Ministry of Finance (MOF), USAID’s Fiscal Reform for a Stronger Tunisia (FIRST) project began a collaborative effort with the Ministry resulting in the LargerFinance in scope than the microsimulators, development of a set the of fiscalMTFF policy software tools and40 models that currently aid Tunisia’s simulates 3-5 year revenue andannual expenditure budget law preparations in real time. “Indeed, this kind of work can’t be just given or MICROSIMULATIONtransmitted,” says FIRST Tax Policy Specialist, Ms. Emna Gueddiche. “We worked as a team and budgetary policy impacts, taking into consideration 30 built many tools together.” externalStaff factors, such as unemployment numbers, as Each year, tax administrators calculate a new budget law containing the next year’s FIRSTFIRST INTERSECTORAL developed analytical projection INPUT-OUTPUT tools focused on internal MODEL (micro)20 factors, used to estimate well: as using an algorithm of interdependence MACRO-FISCALprovisions TRENDS and present MODEL it to Parliament, along with strong rationales as to why the different the respective tax gaps – revenue vs expenditures – of three main types of Tunisian taxes, each betweenPhoto variables. The MOF’s use of this model The intersectoral input-outputtax rates should model be increasedprovides or a decreased. detailed Before “map” these of tools a national were developed, economy. tax levelsof Thiswhich the trends has playing a modeldifferent field delivers in rate: negotiationsadministrators 1)“big Corporate picture” with lacked donorseconomicIncome the ability Tax to views explain, (CIT); that based 2) enable Personalon solid10 comprehensivecalculations, Income why Tax they (PIT); made anda FIRST’s 2020 model forecast for the MOF was composed of 21 industries/sectors and 3) Value-added Tax (VAT). Thesecertain taxare rate, now what used its effect by fiscalon the economypolicymakers would be, and the analystsbudget’s income, to test or eventhe if such“macro”Delivery estimatedas ofthe software presentationsInternational toolsinterindustry to support Monetaryof maintransactions, economic Fund (IMF) along developments and with several that other provide economic a framework components, for and new fiscal policy tools developed via a the figures were realistic or not. Answers to Parliament members’ questions would take themainfurther World impacts analytical Bank and (WB) complexities work that to also ultimately of use proposed this0 deliver model. policy20 an This evidence changes40 60baseon the for revenues policy0 formulation. of these taxes. The For collaborative was used team effort to betweentest three weeksdifferent to produce, scenarios many timesregarding arriving the after economic the budget law and deadline. budget impacts of example,FIRST and Ministry by changing of Finance the tax rate of a specific tax, the model automatically calculates the effect frameworkmain the conclusion COVID-19 gives Tunisian from pandemic. the tax analysis administrators Each scenarioshowed theawas need produced for radical by usingchanges three in Tunisia’sdifferent macro- thisdevelopers, change will have on the Now,general thanks budget to FIRST and/MOF related-developed law. instruments What usedand related to take trainings weeks provided can to now abilityfiscalgovernment to policymaking. make projections intervention ofrelevant wherelevels MOF –to Low,staff, take such Medium, the questions and can Highbe answered – to ontackle the spot, the with COVID-19- numbers and be done on the spot. This allows for cogent discussions between fiscal policyMEDIUM-TERM makers and taxFISCAL economySimilartriggeredMODELS while to theeconomic preserving MTFF, crisis.the fiscal projections CGE Based equilibrium. modelMICROSIMULATION enteredon theis viaa FIRSTresults,short-term laptop and FIRST resulting projection recommended calculations tool shown withFRAMEWORK several on ascreens matrix policy for all to(MTFF) see. administratorsFIRST collaborative who efforts use with the Chiefsimulations among them to areboth a set estimate of Microsimulations proposed Models budgets that focus and on provide internal factors strong and workedtheorganizational interventionsMinistry with of Financethe DGRE structureresultedto help to the compile that government links the the MTFF economy combat the and crisis. budget balances. CGE is used by databaserationales and to backcontinued them, development completegenerate withimpact of solidprojectionsthe MTFF projections of proposed based policy onchanges proven by estimating numbers. the respective inpolicy the development analysts of ato set predict of revenue how thevs. expenditure economy gaps will of reactTunisia’s to three or mainbe impacted taxes: 1) Cor byporate a given Income Tax (CIT); modelfiscalexternal policyvia participatory software factor tools or and other workshops 2)external Personal where Incomeshocks. DGRE Tax Used (PIT); andby 3)the Value MOF-added to Tax make (VAT). preliminary forecasts staff modelsactively that contributedcurrently aid and established 125 Tunisia’sfor both annual the budget 2020 law and 2021Next, budget the Medium laws,-term it Fiscal has Frameworkalso been (MTFF) applied tool to simulates analyze 3-5 theyear potentialrevenue and institutional capacity to take ownership of the impactspreparations of in reducing real time. subsidiesexpenditure on electricity, budgetary policy petroleum impacts and products, considers external50 and natural factors (unemployment gas; and model.“Indeed,depreciation this kind of workof the can’t Tunisian number Dinar.s) and interdependency (oil prices impacts on other prices). Its use puts the MOF on 100 be just given or transmitted,” equal footing with donors (IMF, World Bank) during negotiations. The Computable General says FIRST Tax Policy Equilibrium (CGE), a short-term tool is used by policy40 analysts predicts economic impacts of Specialist, Ms. Emna external factors (technology, oil prices, COVID-19); and the Marginal Effective Tax Rate 75 Gueddiche. “We worked as a (METR), an indicator showing the fiscal burdens of investing30 in Tunisia used by investors and team and built many tools policymakers to assess tax policy impacts on investment in different sectors and show tax

50 together. Information gleaned distortions and tax competitiveness. Another important tool, the Inter-sectoral from these tools can be used Input/Output (I-O), used in 2020 to tackle the COVID20- 19-triggered economic crisis by economists, analysts, and provides a detailed “map” of national economy. 25 academics to better explain to Together, these and other FIRST/MOF-developed fiscal10 policy tools will help Tunisia produce citizens the importance of more accurate budgets, grow public and private investment, boost employment, and allow paying their taxes, why certain the government to adjust to sudden economic shifts or crisis situations. Most importantly, 0 spending decisions were made, 0 Itemsays 6 Ms. Guedicche, “Information gleaned from these tools canItem be 1 used Item by 2 economists, Item 3 Item analysts, 4 Item 5 and the different ways in which and academics to better explain to citizens the importance of paying their taxes, why certain their tax dollars are being spending decisions were made, and the different ways in which their tax dollars are being spent to spent to grow their country.” COMPUTABLE GENERAL grow their country.”INTERSECTORAL MACRO-FISCAL EQUILIBRIUM (CGE) INPUT-OUTPUT MODEL TRENDS MODEL

U.S. Agency for International Development www.usaid.gov 06.4.20

14 | FIRST | INTERACTIVE FINAL REPORT ANALYSES In addition to providing the MOF with the modeling tools presented above, FIRST also conducted a number of fiscal policy analyses with the MOF and shared the methodologies so that the Ministry can update and replicate these analyses in the future. The table below summarizes the policy analyses conducted by FIRST and transferred to the MOF. Emergency COVID-19 IT Support Aids Remote Work Analysis Description FIRST Responding rapidly once Tunisia’s first COVID-19 case was identified, on March 13, 2020, Prime Minister Elyes Fakhfakh announced a wave of emergency preventative steps that strengthening includedThe tax closing expenditures borders and analysis suspending assesses most flights; the effectivenesscanceling all cultural, of various religious, tax sport, expenditures (tax exemptions, rate cuts, subsidies) that decrease revenues TaxMinistry Expenditures of and conference events; and strict quarantine and curfew measures. Recognizing the need for Finance technical urgentto stimulate action, USAID’s part of Fiscal the Reform economy. for Strong To Tunisia the extent (FIRST) thatproject tax expanded expenditures its mandate are tonot bolster efficient, Ministry they of Finance should (MOF) be reduced efforts to or address removed. the dire economic threats the virus- capacity keeps related lockdown posed. Today, thanks to FIRST support, the Tunisian government is better revenue flowing equippedThe tax to incidence successfully analysis meet ongoing determines COVID- 19which challenges. socio-economic groups bear Tax Incidence and informs Forthe starters, burden FIRST of specificprovided taxes.key MOF personnel with the technological capacity to emergency policy communicate directly with staff while working remotely from home via computer. The Marginal Effective projectThe marginalalso developed effective emergency tax ratesoftware is used applications to show that the enabled: fiscal 1) burden citizens andof

Taxactions Rate businessesinvesting to in pay Tunisia owed taandxes isremotely useful viafor credit both card investors bank transfers; and policymakers. and 2) automatic vendor-to-government tax payments on transactions such as real estate or automobile purchases. These FIRST IT solutions ensure a continual inflow of revenues despite closed tax officesFIRST and conducted slowed economic a comprehensive activity, and help analysis to ease ofTunisia’s the potential already acute budget under and- Budget and Economic collection economic tax impactssituation. of the COVID-19 crisis, a major shock to the Tunisian Impact of the Next, economy. FIRST developed The burden an Economic on the andbudget Budget equilibrium Assessment ison particularly the Potential significantImpacts of COVID-19 Crisis COVID because-19, thisa crosscutting crisis resulted tax policy in tooldecreased that tracked revenues and analyzed due toCOVID lower-relat economiced economicactivity, indicator and increased reactions expenses to unemployment, by the supplyGOT andto demand,face the etc., crisis. as well as main government interventions and their effects both in Tunisia and internationally. Sharing related daily and weekly update reports with the MOF on this information from March throughoutThis analysis the end of specialof June 2020, treasury FIRST fundsthen delivered is to determine a Final Summary whether Report these that officialsfunds Special Treasury Funds haveare sincestill usbeneficialed to address for taxTunisia policy and issues. which ones could be eliminated. FIRST provided key MOF In addition, FIRST conducted a COVID-19 Response Case Study focused on Egypt (due to its personnel with the economicThe tobacco similarity taxation to Tunisia), system and tracked in Tunisia the Tunisian is very government’s complex. This response, analysis as well as technological capacity to Tobacco Taxation privatedetermines sector reactions ways in via which a multitude the system of meetings could with be private simplified sector and representatives, increase communicate directly with whererevenues FIRST orexplained be revenue measures neutral. the government had taken and related impacts on the staff while working remotely budget and economy. Condensing participants’ main concerns regarding the government’s from home via computer. The COVID-19 response, FIRST submitted the summary to the MOF along with several project also developed The analysis of the tax gap (CIT, PIT, and VAT) is essential to understand recommendations that focused on removing barriers to tax policy formulations and making emergency software the potential revenues that can be generated through improved tax Tax Gap Analysis budgetary procedures more transparent and participatory. applications that enabled: 1) administration. citizens and businesses to pay Chief among them, the removal of government “silos” – different branches and departments owed taxes remotely via credit working separately with little or no communication between each – was embraced by the card bank transfers; and 2) government and resulted in the successful merging of the Ministries of Development and automatic vendor-to- Finance into a more unified MOF. At present, discussions are taking place on how to bring government tax payments on the Central Bank “silo” into this more collaborative, team effort. Another recommendation transactions such as real currently being discussed is the use of counter-cyclical measures – steps that are quite estate or automobile opposite to normal economic and monetary policy but taken in times of crisis, such as purchases. These FIRST IT requesting assistance from the Central Bank to inject money into the economy by printing solutions ensure a continual more bills or to buy longer-term government bonds to help increase government spending. inflow of revenues despite Although specific to Tunisia’s COVID-19 response and efforts to keep people employed and closed tax offices and slowed fortify the economy throughout 2020, these and other recommendations: 1) sharing MOF economic activity, and help to statistics with labor representatives, the public, and other counterparts to create trust and ease Tunisia’s already acute mutual understanding of economic issues and policies; 2) installing a public-private under-collection tax situation. “participatory” decision-making process allowing different stakeholders to contribute input during policy design; and 3) improved management of public enterprises, now serve as a roadmap to strengthen the country’s overall tax policy. Video: Tax Administration Capacity Building Video: Tax Expenditure

U.S. Agency for International Development www.usaid.gov 06.4.20

15 | FIRST | INTERACTIVE FINAL REPORT

4. SUPPORTING DIGITAL TRANSFORMATION

FIRST provided significant support to the Tunisian MOF and other institutions to foster digital transformation. The activities in this cross-cutting work stream are in support of all the other work streams. Though IT tools and digital transformation, the MOF has an opportunity to significantly increaseDigital operational, Upgrade strategic, and Brings managerial Efficient efficiency. Online Tax Services

WEBCASTINGDEVELOPED SECURE SYSTEM DATA EXCHANGE Click the link icon to read PLATFORMThanks to FIRST (UXP) Opening a remarkable chapter in Tunisian history, a civil uprising, fueled by toxic levels of corruption, poverty, unemployment, and political repressionmore that began about on Dec. each 17, 2010,topic. intranet co- not only ousted the country’s 23-year old regime within 28 days, it also launched the Arab FIRST procured and installed a comprehensive webcastingWorkingdevelopmentBUSINESS systemclosely withfor INTELLIGENCE/DATAthe eight* MOF SpringTunisian that – currentlywidespread government anticonnects-government WAREHOUSEcivilian-led protests and uprisings across the Middle ITefforts SOLUTIONS taxpayers FRAMEWORK East and Northern Africa. Although free and fair elections held that October heralded 13institutions Ministry sites that – collaboratefive in Tunis onTunisia’s and budget eight transition andlocated taxto a vibrant democracy, longstanding economic and fiscal challenges can access all regionally,administration, including FIRST training installed centers. remained. within Launched Chief each among an in them,August a high rate of tax evasion causing persistent revenue and 2020,FISCALefficientDASHBOARDStax FIRST-related and trained secureINFORMATION MOF electronic staff budgeton data how deficits exchange to SYSTEM anduse hampering this all- government (FIS) effortsUPGRADE to pay for social services and productive inclusiveplatformservices system and conductedonline that facilitates related publicthe trainings. planninginvestments. and In addition, the heart of Tunisia’s tax administration – its Fiscal EMERGENCY DEVELOPMENT Information System (FIS) was OF run onCOVID-19 obsolete technology and riddled with a patchwork of conductingCurrentlyAsand mentioned with of operational, face-to-face ease previously the virtual platform(pgs. siloed meetings 10, applications 11,consists 12 and that oftrainings, rendered a it highly inefficient. seriesCRISIS of servers IT APPLICATIONS connected via the Unified and andcommunication 14) FIRST assisted with other DGIIn partnersand 2019, DGCPR at the viaFiscal request Information ofIn the 2018, Ministry at of the Finance, request USAID’s of Fiscalthe MOF,Reform forFIRST a Stronger began Tunisia videoconferencingINFORMATIONExchange Platform using (UXP) audio-visual SECURITY software. and Additional real-timeSystemThe tools.Foreign (FIS) Account Tax Compliance Act to develop dashboards to monitor(Tunisia FIRST) projectUpgrade beganhighly highly collaborative collaborative efforts efforts that thatsuccessfully successfully modernized and ImprovingFIRST-drivenTo assist MOF tax collectionefforts efficiency with duringand these frequencystrengthened the partner onset ofthe of2-way country’s the(FATCA), antiquated passed FIS. Partnering in the US with as Tunisian part of IT thecompany, HIRE Arab act Soft, MANAGEMENTperformance. Overall, sevenSYSTEM dashboards modernized and strengthened the country’s COVID-19 pandemic and resultingknown for preventative designing and building social FISs in Sub-Saharan countries, FIRST, as per MOF insistence, communication,institutionshaveStaff been –created despite webcasting (four the COVID-19savesfor DGCPR both pandemictime and and(effective staffantiquated March FIS. 2014), FIRST requires developers foreign worked financial closely resourcesshutdowndistancing by andrequirements eliminating limited workthe and need hours successfully subsequent to –travel resulted negotiated lockdown,to institutionsattend in MOF ownership and of certain Arab Soft’s other pre- developednon-financial FIS source foreign code – the FIRST with MOF CIMF staff to upgrade and tailor the FIRSTthree: developed for DGI) usingtwo emergencyMicrosoftstring Power ofIT words, applications: numbers, letters, 1) andVideo: symbols UXP representing and E-Services a program’s foundation, which is trainings,the developmentSecure meetings, Data ofand several seminars webnot byusually services providing shared. under Then, secure,entities FISin a sourcehighly to report cooperative code on to theeffort meet foreign that MOF’s fostered assets precise the heldtransfer by of their RemoteBusinessPhoto Payment Intelligence of Taxes; (BI) software. and 2) Automatic FIRST Tax morebothprocuredExchange effective, test and Power Platform regular,production BI licensesand environments.timelyknowledge for communicationthe MOFand competence,US specificationsaccount with a team holdersof FIRST and and or needs.Arab be Softsubject These developersWebcasting to upgrades withholding worked closely on with Withdrawal.(UXP) Once activated, these will facilitate the System the tocentralThanks run tothe officeFirst’s dashboards, digital in upgrades, Tunis. NotwhichMOF only are developers has this to resulted upgradenonwithholdableresulted and in tailor in thethe FISpayments. co-development source code To to meet meet of the FATCA three precise priority specifications electronicTunisian taxpayers payment can create of online taxes, and as needswell asof theelectronic MOF. tax regionalFIRSTcurrentlytax accounts staffalso whereprovidedconnectedfeeling they canmore etechnical-File to connected Ministry assistance data and valued, to theinformation thecomponents security of the requirements, MOF’s FIS: 1) FIRST Online GOTwithdrawaland monitorby drafting their for tax real payments, text estate to modify purchasesThese existing FIRST and-guided other upgradescollaborated resulted with in the Tunisia’sco-development DGI of to three implement foundational an webcastbasesobtain system receipts,using requestthe has BI/datarefunds, been essential warehouse to the MOF’s abilityTaxpayer Management Software Intranet transactions, thus keeping taxcomponents revenues of flowingthe MOF’s into FIS: 1) Online Taxpayer Management Software Intranet tolegislation continuesolutionsobtain tax- related toaimed also do information implementedbusiness at enabling and in the electronic by face FIRST. of thedataThe COVID-19InformationApplication; Security 2) Taxpayer Management Self-service System Portal; (ISMS) and in governmentmuch more coffers and staveApplication; off worsening 2) Taxpayer economic Self-service Portal; and 3) Taxpayer Registry, which set the stage for slow-exchange. and lock-downs. an all-inclusive digitalcompliance system3) Taxpayerthat automates with Registry, ISO/IEC current manual which27000-series processes set the and standards,stage drastically for an conditions.dynamic use In addition,of dashboards the comprehensive will provide Internal increases tax administrationandall-inclusive co-developed efficiency. digital a high-level system thatInformation automates Security WebcastingMPOF decision-makers System, which and FIRST staff procuredwith and To start with, the OnlinePolicycurrent Taxpayer and Information Managementmanual processes Software Security Intranetand Risk drastically Application Treatment – the installedpracticalFIRST-guided for tools upgradesthe forMOF, resultedmanagement allowed MOF and staff to continue operationalin the co-development efficiency. of three All relatedfoundation of the FISPlan. architecture,increases FIRST maps provided tax out administration and thefacilitates DGI the with efficiency.endless a detailed and essential tax Video:working Interview despite on social FATCA distancing with administration Mario protocols tasks. and These the include the creation of new, and upgrading of existing taxpayer dashboardfoundational user components guides of prepared by FIRST projectOwnership plan for of the the ISMS customized implementation, source code which was it Kerby,nationwidethe FIRST MOF’s lockdown.Chief FIS: 1) ofOnline Party Staff are accounts, now asable well toas theplan creation and and delineation of the different obligations of individual submittedtransferred to the to IRSthe (September CIMF, with 2019).FIRST providing conductareFIRST availableTaxpayer virtualsupported Management through meetings the the MOF and Virtual taxpayers trainings,in the Library successfuland andbusinesses implementation depending on their oflocations a business and other intelligence related information. extensive training to CIMF, DGI, and DGCPR communicateof(BI)Software Resources. solution Intranet with thatApplication; other facilitates partners Next, the the efficientvia Taxpayer and Self -realservice time Portal use eliminates of existing current fiscal time- consumingdata in the tax filing services 2) Taxpayer Self-service Portal; by providing taxpayers withstaff one on-stop these online upgraded services, which solutions. contain all tax-related videoconferencing,preparationand 3) Taxpayer of Registry,reports, thanks monitoringto this webcasting ofIT performance Framework system. indicators, and the conductingCOVID-19 of Dashboards procedures thus allowing taxpayers to register remotely. Once registered,Applications they can access analyseswhich set the without stage for anbreaking all- theirthe personaldigital chain.online tax The account BI tools and data, enable e-File thetheir extraction taxes, request and Value-added Tax (VAT) storageinclusive digitalof relevant system that data into refunds, a data obtain warehouse e-Receipts, andeasily register accessed for additional internally services. by authorized MOFautomates staff current and connectmanual existing databases to dashboards and decision-support *Eight processesTunisian andinstitutions drastically FIRST worked Last, with:the Taxpayer 1) National Regis Taxtry Administrationis a Masterfile databaseOffice (DGI) containing via the allMOF’s taxpayer Data information Center within (CIMF);systems.increases 2) National tax administration Customs Department structured (DGD); fields 3) Nationalthat support Business data entryRegister and (CNRE); is easily 4)updatable. National Once Social implemented, Security Fund this will (CNSS); 5) Nationalefficiency Health. Insurance eliminate Fund (CNAM); the current 6) Property information Registry storage (ONPF); hodgepodge 7) Terrestrial that lacksTransport standardization Agency – data is (ATTT); and 8) National Digital Certificationstored inAgency different (Tuntrust) systems integrated with silos and applications that do not communicate and make compiling a comprehensive and reliable taxpayer register impossible.

At present, a select team MOF tax administration staff are wrapping up “user acceptance” testing of each module and submodule of the new FIS architecture that shows all applications are working cohesively and correctly. At the same time, the FIRST / Arab Soft team, under its Informationmandate Security to ensure widespread use of thisBusiness updated FIS,Intelligence is conducting trainings of trainers, a Managementcadre System of 13 tax administration staff, who starting inData mid-November, will begin training (ISMS)“superusers” – 523 tax agents all over TunisiaWarehouse – on the intricacies of the new Intranet application. U.S. Agency for International Development www.usaid.gov 06.4.20

16 | FIRST | INTERACTIVE FINAL REPORT 5. SUPPORT FOR MOF INTERNAL AND EXTERNAL COMMUNICATIONS Appropriate and authentic communication is crucial when enacting change and developing strategies on how to make needed improvements, support the actual roll-out of improvements, and bring onboard those whose lives will be positively affected. This requires spreading the message – the how, why, and benefits of these changes – to those making them, as well as to those being affected.

INTERNAL COMMUNICATIONS INTERNAL WEBCASTING SYSTEM

INTERNAL COMMUNICATIONS STRATEGY

In 2018, FIRST launched an audit of MOF’s then-internal communications. Recommendations from the audit included: 1) development of clear, powerful, and consistent messaging aimed at all employees helping them to make sense of the ongoing changes; and 2) Communicate the MOF’s As discussed in the previous section, FIRST vision and strategy and explain how it will all procured and installed a comprehensive come together in a way that will ensure staff webcasting system for the MOF that virtually feel they are an important and valued part of and in real time connects 13 Ministry sites a team process. Guided by these throughout Tunisia. This all-inclusive system recommendations, an Internal has already significantly improved internal Communications Strategy was co-developed communications capabilities and is that guided FIRST/MOF achievements particularly useful in the current COVID-19 highlighted below. period with its ongoing restrictions of movements between regions, and limitations on in-presence meetings and training events.

17 | FIRST | INTERACTIVE FINAL REPORT FOUNDATION LAID FOR MOF COMMUNICATIONS UNIT Using a capacity building approach that would allow complete self-reliance and the ability to plan and implement activities regardless of donor presence, FIRST designed a comprehensive roadmap to support the establishment of a full-fledged Communications Unit within the MOF.

This Unit will follow the 360-degree strategy co-developed by FIRST and the MOF and enable the Ministry to improve public and stakeholder engagement, enhance transparency in communicating reforms, strengthen internal communications across all departments and regions, and implement targeted media campaigns.

In addition to conducting trainings on Strategic Video: Media and Public Speaking Training Communications (Strategic Planning, Strategic Communications, Institutional Relations and Stakeholder Engagement, and Internal VIRTUAL LIBRARY OF RESOURCES Communications) FIRST also provided a series of social media trainings (Social Media Community Management, Graphic Design, Creating Online Learning Courses, Internal Communications, Public Speaking and Media Relations, Strategic Planning, and Institutional Relations). FIRST developed the MOF Virtual Library of Resources. Intranet-based and accessible via a dedicated server at the MOF Data Center, this library contains a virtual wealth of information, including all items generated by FIRST, including reports, tools, models, trainings, self-teaching modules, methodological notes, and user-guides on the models and tools.

18 | FIRST | INTERACTIVE FINAL REPORT EXTERNAL COMMUNICATIONS As part of its overall strategy to improve voluntary tax compliance, in 2019, FIRST turned its attention to external communications and launched an annual survey that queried small and medium taxpayers on issues related to the ease of paying taxes. Results from this survey guided FIRST/MOF co-development of an External Communications Strategy that guided the achievements highlighted below: MOF WEBSITE COMMUNICATION CAMPAIGNS AND SOCIAL MEDIA FIRST developed a series of mass media campaigns for radio, TV, online and print outlets that increased public awareness and provided transparency on MOF and tax administration reforms.

Working with the MOF, FIRST developed a new user-friendly website aimed at improving communications, engagement, and Topics included: budget law actions taken, consultation with the public. Available in new online payment options and web French and Arabic, the website is a services, COVID-19 information regarding crosscutting tool that offers engaging audio- state budgets and revenues, and new visual and streamlined MOF information “decashing” measures that facilitate payment regarding the different departments, finance methods to families of detainees in law, indicators, and budgets. It also has a News penitentiaries and re-education facilities. and Events section, provides useful addresses, and offers a variety of e-Services, including downloadable tax forms, a document database, and the ability to open a personal or business account, settle and pay owed taxes remotely, connect to customer service staff, and more.

LOGO AND VISUAL IDENTITY

FIRST supported the MOF in the design of the new logo and Video: Digital Communications graphic charter – rules regarding the graphic Parallel to developing the new MOF Website identity of the MOF, (mentioned above), FIRST managed the which was shared with Ministry Facebook page and produced highly CIMF and is integrated engaging audio-visual content that resulted in in the upgraded fiscal a 300 percent increase in audience information system. engagement.

19 | FIRST | INTERACTIVE FINAL REPORT 6. ADDITIONAL TECHNICAL ASSISTANCE

POST-CLEARANCE CUSTOMS AUDIT These efforts resulted in the successful development of a PCA customs system that facilitates transparent customs clearance and payment of related duties from qualified importers.

WORLD BANK'S DOING BUSINESS RANKING Since its inception in 2004, the World Bank Group’s flagship publication, Doing Business, has been presenting annual “quantitative indicators on 12 areas of business regulations and the protection of property Based on global best practices and aimed at rights that can be prepared across 190 lifting international trade barriers, the Post economies – from Afghanistan to Zimbabwe Clearance Audit (PCA) process assures that – over time.” Simply stated, the Doing declarations are completed in compliance Business survey scores and ranks the ease of with Customs’ legal requirements, as well as doing business with each of these countries. other legal import and export requirements. Due to its political transition that began in PCA helps to verify the correct declaration 2011, Tunisia’s ranking had declined. of the value, origin, and classification of However, thanks to close collaborative goods, as well as that the amount of revenue efforts between FIRST and Tunisia’s Ministry legally due has been identified and collected. of Development, Investment, and Introduced in Tunisia in 2008, PCA was International Cooperation (MDICI), Ministry rarely practiced. Although a special unit was of Finance, and the Tunisian Institute of created in 2015 to develop a PCA program Competitiveness and Quantitative Studies based on international best practices in (ITCEQ), Tunisia rose eight places and now preparation for the 2017 ratification of the ranks 80 among 190 economies as published World Trade Organization’s (WTO’s) Trade in Doing Business 2020. Efforts included Facilitation Agreement (TFA), little was development of a strategy and roadmap of accomplished. reforms, complete with recommendations on how to achieve tangible results for Working in collaboration with the MOF and Tunisia’s short-, medium-, and long-term Tunisia’s Directorate General of Customs, development FIRST: 1) assessed procedures regarding the policies. These then-existing handling and control (PCA) of recommendation goods at Port Rades in Tunis; 2) defined the s were translated necessary conditions to support a well- into concrete ac- performing PCS structure based on tions that succe- international standards; and 3) developed ssfully increased draft Business Process Map of post clearance private enterpr- processes currently used by Tunisian ise prosperity Customs. In addition, FIRST’s comparative and developed study of Tunisian vs International Best new economic Practices (regarding legal, human and activities. material prerequisites) identified gaps in the country's PCA structure.

20 | FIRST | INTERACTIVE FINAL REPORT CHAPTER THREE LESSONS LEARNED AND THE WAY FORWARD Lessons learned consists of knowledge gained through experience, which when shared, benefits the work of others. This can be especially true when one initiative ends and another begins in its place. Below we share lessons learned from the successful implementation of the FIRST project that could be useful for succeeding projects and initiatives, as well as guidance for the way forward.

LESSONS LEARNED SUPPORT CHANGE MANAGEMENT

ALLOW TIME FOR PROCESS CHANGE MANAGEMENT TO WORK When introducing changes in processes and related IT tools, time must be allotted to practice use of these new methods and their instruments. Despite significant training on best practices and IT tools, the brevity of FIRST’s 3-year timeframe combined with the difficulties key MOF staff faced incorporating all of what FIRST introduced to them while engaged in day-to-day activities, impeded full FIRST successfully: 1) assessed the MOF’s adoption of the changes. Budget Management by Objectives Performance (GBO) framework; 2) identified areas of improvement and the impacts of the new budget law on it; and 3) produced a new framework based on assessment results. The GBO assessment recommended the MOF adopt the framework in order to support effective and sustainable change management. If adopted, the FIRST-developed results framework and related performance indicators will provide the Ministry with a clear roadmap as it implements key changes aimed at improving tax administration efficiency and accountability. Central to solidifying these changes is to link the incentive structure (promotion, salary and bonuses) to EXTEND REACH BEYOND TUNIS performance indicators, and most importantly, build the management, leadership, and FIRST’s customer service trainings delegation skills of key MOF staff. At present, successfully extended beyond Tunisia’s decision-making is centralized in the hands of a capital city of Tunis to reach tax few who oversee everything, thus creating administrators throughout the country. To bottlenecks and leaving other talented staff ensure other changes FIRST initiated in under-and inefficiently utilized. The Tunis extend beyond its centralized scope combination of digital transformation, adoption such as the webcasting system, it is critical of best practices, and changes in personnel the MOF continue to train regional staff on management can significantly improve tax best practices and the adoption of digital administration efficiency, even within a hiring tools that facilitate its use. freeze.

21 | FIRST | INTERACTIVE FINAL REPORT OVERCOME CIMF AND MOF OFFICIALS' DISTRUST OF CLOUD-BASED SOLUTIONS

Despite FIRST analysis of the MOF’s current information security management system showing it to be far less secure than many modern cloud-based products that include significant layers of security, the project found that such highly appropriate solutions are not even remotely considered by the MOF. This is due to a common misconception that cloud-based storage is less secure than “hard” storage on CIMF servers. Continued MOF education regarding the pros and cons of the most modern technologies and applications is recommended.

SIGNIFICANT CHALLENGES: CIMF SIMULTANEOUSLY THE "CLIENT" WHILE DEVELOPING IT SOLUTIONS Asked to co-develop the Fiscal Information System module upgrades with CIMF, FIRST discovered a lack of sufficient capacity among current CIMF developers – a direct result of not practicing IT development on a daily basis. This, in addition to a lack of commitment from management to keep the development team members intact caused many delays and inefficiencies. Moving forward, it is recommended CIMF clearly define its needs and obtain regular technical updates of the solutions being developed so it can quickly intervene to resolve issues.

22 | FIRST | INTERACTIVE FINAL REPORT THE WAY FORWARD Tunisia’s current economic and budget crisis is likely to accelerate reforms. Both the international community and Tunisian Central Bank have indicated very little appetite for continuing budget support by increasing debt to pay for a large public wage bill and inefficient state enterprises. The tools, methodologies, and best practices implemented and advocated by FIRST can accompany the necessary tax administration reforms as long as the MOF has continued support to foster their full adoption and implementation in a ongoing process of change management. This will require strong leadership and a willingness to challenge vested interests that favor the status quo.

Video: Interview with Mario Kerby FIRST Chief of Party

To build on the project’s legacy, FIRST recommends the following: 1. A full embrace by the MOF of digital transformation and IT solutions that ensures IT solutions, while housed at CIMF, are owned by the technical directorates. 2. Adoption of the process change management schematic detailed in the FIRST-developed Budget Management by Objectives Performance (GBO) framework, which provides a clear road map for reorganizing MOF missions with clear lines of responsibility in order to achieve the best possible results. 3. Quickly identify ways to automate key bottlenecks in the budget-making process by developing targeted applications using the Agile method. 4. Fully utilize all aspects of the webcasting system to improve internal communications and train regional staff. 5. Sign MOUs to allow full implementation of UXP web services between the connected institutions. 6. Integrate the UXP platform into the GOT’s broader digital transformation initiatives. 7. Ensure the Fiscal Information System upgraded modules (Taxpayer Account Management, Taxpayer Self-service Portal, and Taxpayer Register), as well as the emergency IT applications (Automatic Tax Withdrawal and Remote Tax Payment) are activated as soon as possible. 8. Encourage the MOF to fully utilize the FIRST-developed Virtual Library of Resources to foster the adoption of best practices and avoid duplication of effort.

23 | FIRST | INTERACTIVE FINAL REPORT