1

Collection of Social Contributions: Current

Practice and Critical Issues

Stanford G. RossInternational Monetary Fund

ConsultantFormerly U.S. Commissioner of

Social Security and U.S. Tax Policy Official

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Collection Models Vary Full service social security institutions

Collection as one function of benefit payment agency

Examples: France, Germany Tax Administration

Integrated collection of contributions with taxes Separate benefit payment agency Examples: U.S., Canada

Fund managers collect contributions Directly or through centralized agency Private sector or public sector Examples: Chile, Australia

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In Practice, Every Country Has Distinctive Arrangements

Influence of historical developments Hybrid character of many systems

US example: Tax administration; public benefit agency; private fund managers

France example: Social insurance organizations; private fund managers

Importance of evaluation by objective criteria (e.g., evasion rates)

Administrative costs and efficiency ratios Private collection arrangements tend to be more

costly, e.g., 20% cost to collection ratios Well-run public systems like U.S. operate at ratios of

less than 1%

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Stakes in Collection Performance and Strategies

Coverage of persons by system Adequacy of benefits paid to participants Financial solvency of system Fiscal sustainability of system

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Commonalties and Differences in Tax and Social

Security Administrations

Common processes Registration and identification numbers Collection by employer withholding Compliance/enforcement mechanisms

Differences in administrative arrangements Record maintenance Management of funds Use of data and payment of funds

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Priority World-Wide to Increase Coordination of Tax

and Social Contribution Collection

Government wide effort needed in all circumstances Response to fiscal pressures Way to surmount revenue collection difficulties

Common numbering systems and registries Information exchange and data matching Joint audits and enforcement

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Trend to Integrate Tax and Social Contribution

Collections Within a Unified Revenue Administration

EU: Sweden; Norway; UK; Ireland; Italy Central/Eastern Europe: Albania; Bulgaria; Croatia;

Estonia; Hungary; Latvia; Montenegro; Romania; Russia; Serbia; Uzbekistan

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Rationale for Unification of Collections

Commonality of core processes Efficient use of resources: lowering government

administrative costs Core competencies of tax and social organizations

enhanced Lowering taxpayer (contributor) compliance costs Improved inter-governmental coordination ensured

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Key Implementation Issues and Risks

Establishing the appropriate environment: timing and commitments

Policy and legislation development: harmonization of rates; definition of income; coverage of persons; appeals and judicial proceedings

Modern design of administrative arrangements: scope; numbering systems; accountability; reporting

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Critical Success Factors

Strong project management and change management systems

Performance standards set and adhered to Adequate funding sustained Modernization projects for tax administration and

social organization carried out efficiently Appropriate personnel recruited and trained Building culture of fair administration by government

and compliance by public