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7/30/2019 Gtz2006 en Croatia Tax Brief Report Ex Post Evaluierung
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Ex-post Evaluation 2006
Advice on Developing Croatias TaxSystem, Croatia
Brief Report
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Produced by: Forschungsstelle fr Internationale Agrar-
und Wirtschaftsentwicklung, Im Neuenheimer Feld 330,
D-69120 Heidelberg
This report was produced by independent external experts.
It reflects only their opinion and assessment.
Published by:Deutsche Gesellschaft frTechnische Zusammenarbeit (GTZ) GmbH
Evaluation Unit
Dag-Hammarskjld-Weg 1-565760 EschbornGermanyInternet: http://www.gtz.de
Eschborn, December 15, 2006
http://www.gtz.de/http://www.gtz.de/7/30/2019 Gtz2006 en Croatia Tax Brief Report Ex Post Evaluierung
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ContentsPage
1. Tabular overview 22. Description of the project/programme 3
2.1 Project/programme title, project objective, indicators, contribution tooverarching objectives/ intended results 3
2.2 Problem situation (sector), framework conditions in the country(political / economic / social / environmental) 3
2.3 Concept and advisory approach of the project/programme(target groups, partners, levels, regions, modes of delivery) 4
3. Results of the evaluation 53.1 Overall rating 53.2 Performance measurement in line with the 5 international evaluation criteria
(with brief explanations) 53.3 Performance measurement of MDG /poverty / gender 63.4 Conclusions and recommendations 7
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1. Tabular overview
Project/programme title Advice on Developing Croatias Tax System
Project/programme number 1992.4817.0
Overall term 01.09.1993 30.06.1999
Overall costs German contribution: 1.233.706,--Partner contribution: provided by the Ministry ofFinance (lead executing agency) with its generalactivities; there were no budget appropriations for theproject;
Contribution of a third party: there were no budgetappropriations for the project input provided by theMinistry of Finance of Baden-Wrttemberg.
Objective of the project/programme Implementation of a working, market-economyoriented tax system in the fields of tax law and taxadministration. Implementation of an academy offinance intended for the systematical professionaltraining of the tax administrations staff.
Lead executing agency Ministry of Finance of the Republic of Croatia
Implementing organisations Tax department of the Ministry of Finance headed bythe General Tax Director
Other organisations and donorsinvolved
None
Target groups Target group of the project is the total population ofCroatia
Institute performing evaluation Forschungsstelle fr Internationale Agrar- undWirtschaftsentwicklung, Im Neuenheimer Feld 330, D-69120 Heidelberg
Evaluation period J uly 2006 to December 2006
Overall ratingOn a scale of 1 (very good, significantlybetter than expected) to 6 (theproject/program is useless, or thesituation has deteriorated on balance)
1
Individual rating Relevance: 1Effectiveness: 1Impact: 2Efficiency: 1Sustainability: 2
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2. Descrip tion of the project/programme
2.1 Project/programme title, project objective, indicators, contr ibution to
overarching objectives/ intended results
The advising activities on the introduction of a new tax system in Croatia aimed to implement
an effective, market-economy oriented public financial system based on the three
components of tax law, tax administration and institutionalized professional training in the
form of an academy of finance.
The target indicators named refer to the two components tax law and tax administration:
Drafts have been submitted to Parliament. The description of tasks as well as the attribution of powers to the Ministry of Finance
and the subordinate authorities have been defined in a binding and transparent
manner on all levels.
All functional levels of tax administrations staff are well informed on the objectives
and contents of the reform measures.
Information on the different taxes and taxation procedures is available.
The intended (indirect) results are described by the main objective according to whichCroatias public financial system is to be geared to a system of social market-economy within
a democratic state1. The social market-economy model is interpreted by the experts as
defined by Ludwig Erhard, in other words positive social effects are expected from an
effective and employment-generating economy, with the social security system playing a
subsidiary part.
2.2 Problem situation (sector), framework condit ions in the country
(political / economic / social / environmental)
In terms of the main objective, the tax system reform needed to be adapted specifically to the
countrys constitution and its general economic constitution. In the latter basic and
fundamental principles of the market-economy system, such as the right to private property
and the freedom of trade, are enshrined in law. In fact, however, the transition process was
discredited by serious irregularities concerning the privatization of former national
enterprises.
1 The appraisers assume that democracy includes the rule of law.
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The reform of tax law needed to satisfy the multi-functionality of tax systems in market-
economy systems including more than the fiscal function (raising of revenues). In particular
the specific features aimed at economic efficiency and income distribution. The main task of
the tax administration reform consisted in avoiding division of the tax administration into two
parts one for corporate bodies and one for private individuals and in building up a united
tax administration.
From a political and historical point of view, Croatias separation from multi-national
Yugoslavia in 1991 led in a most decisive way to the development of the framework
conditions existing at the start of the project and consequently to the transition of Croatia as
former part of a socialist federal republic to an independent country adopting the Westernmodel. Initially, Croatias economic conditions were characterized by the disastrous effects
and consequences of the civil war, but also by regained monetary stability.
2.3 Concept and advisory approach of the project/programme
(target groups, partners, levels, regions, modes of delivery)
The project was not differentiated by target groups: Its target group was Croatias total
population. The project was carried out by the following organizations: a) GTZ, b) CroatiasMinistry of Finance (lead executing agency), c) Int-Fis Agency for International Fiscal
Analyses GmbH, and d) Baden-Wrttembergs Ministry of Finance. The project as a whole
was actually based on three key elements: tax law, tax administration, and an academy of
finance. With regard to the projects overall term of nearly six years it should be emphasized
that all advice was given by short-term experts. The procedure applied to perform their work
can be characterized as the shuttle-principle2. The German contribution was directed by
the GTZ headquarters and within this framework also by the German short-term experts
themselves (delegated implementation on site) as well as by a GTZ coordination office in
the Croatian Ministry of Finance. This project coordination office acted as a counterbalance,
guaranteeing continuity of the project activities, to the advising activities of the short-term
experts. The GTZ surveyed and effectively supported the project by using its planning and
regulatory instruments. Three workshops (ZOPP system, i.e. Objectives-oriented Project
Planning), one project success control, one project evaluation and one seminar discussing
the results of the evaluation took place.
2 Here one could also speak of intermittent missions.
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3. Results of the evaluation
3.1 Overall rating
As far as the projects overall rating is concerned, the five evaluation criteria are of different
significance. Sustainability is of comparatively high significance because it exerts a decisive
influence on the amount of the present value of future project benefits as an indicator of
success. As effectiveness together with sustainability is a critical factor for impact, this
criterion is also of higher than average significance. Efficiency, on the contrary, is relatively
insignificant, because, compared to the considerable effects of the tax system reform on the
total economy, the mere efficiency of the project is of minor importance.
Based on the different results the overall rating of the project and its achievement of the
development goals is very good.
3.2 Performance measurement in line with the 5 international evaluation criteria
(with brief explanations)
The performance measurement in line with the 5 international evaluation criteria leads to a
very positive impression of the projects success in the achievement of the developmentgoals.
Relevance
The project objectives correspond to a high, or extraordinarily high, degree with the needs of
the target group, the policies of the cooperating country and its institutions, the global
development goals as well as the donors principles of development policy. This is therefore
definitely a very good result. It is important to emphasize that this reform project and its
underlying model were given high priority by the cooperating country and that it was of high
relevance, especially to the poor population groups.
Effectiveness
The complete achievement of all project objectives resulted in the grade very good. The
project is not responsible for some directly negative effects (for instance: contradictions
between implementing regulations and substantive tax law); the reasons for these negative
effects are not due to the project itself.
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Impact
Together with the high effectiveness of the project its convincing models in the fields of tax
administration and tax law (the latter being exemplary) contributed significantly to the
achievement of chief development goals; thus, the grade goodis awarded. An aggravation
of the situation after the implementation of the reform is not in contradiction with this
assessment; but of course this needs to be taken into consideration when assessing
sustainability.
Efficiency
The project realized a) a high efficiency on the technical and organizational level, b) asufficient input level, and c) a high project output per invested DM. Because of these results
the grade very good is awarded.
Sustainability
It should have been possible to work against the observed, though not neutrally classified
system deteriorations after the implementation of the reform by starting project activities such
as information and communication campaigns. These negative effects, which result only
marginally from the project itself, did not alter the established and very importantfundamental structure in the fields of tax administration and tax law. In addition, system
deteriorations can be easily corrected within the solid fundamental structures. Therefore it
seemsappropriate to award the grade good.
3.3 Performance measurement of MDG /poverty / gender
With regard to poverty reduction two facts should be emphasized: Firstly, with the tax system
generating fiscal abundance, conditions were given to finance numerous social projects.
Secondly, it seems to be obvious that the whole system encouraged efficiency and
investments thus weakening other significant factors which exerted a negative influence on
labor demand.
The architects of the tax reform project vehemently rejected the use ofdifferent value-added
tax rates in order to correct distortions of the social system. It seems at least understandable
that the initiators of the tax reform followed a conception implying optimum division of tasks
between the fiscal and the social system, so that the system transition is not charged a priori
with a faulty design. At the beginning the tax exempt amount of the income tax system did
not sufficiently take into consideration the subsistence level. It was no problem, however, to
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realize improvements on the technical level within the framework of the reform model later
on.
MDG
From the results obtained we may conclude that the reform project can be expected to
contribute directly and substantially to the solution of problems and/or higher abilities to find
solutions to problems in the following areas3:
economic growth and increased active participation of the poor (MDG 1,8);
reduction of the fiscal deficit development finance (MDG 1,8);
guaranteeing basic social services strengthening social security (MDG 1-6 and 8).
Gender
The project is neither gender differentiated nor was any gender analysis carried out. The
project was considered gender neutral from the outset. Due to the lack of previous socio-
structural analyses it was not possible to carry out any gender analysis during the evaluation
of the project.
3.4 Conclusions and recommendations
Two results that differ significally from each other characterize the project and the changes
accomplished by Croatia subsequently. These results are:
on the one hand, the unusually high project success, and
on the other hand, system deteriorations in tax law and decreasing performance of
tax administration after conclusion of the project.
The changes introduced afterthe project was concluded and that were mainly criticized in a
negative way, were primarily the result of a normal political process. Donor institutions such
as the GTZ or the World Bank are in a dilemma: On the one hand it is possible to achieve a
considerable degree of transition, that cannot be achieved otherwise, by introducing a good
tax system and implementing it well, on the other hand tax law especially tends to be
susceptible to discretionary political influences. Nevertheless it should be noted that the
Croatian tax reform was not established on a broad political basis. In addition, according to
the project scheme, popular communication and information campaigns were not planned
within the projects framework. Both can be regarded as missed opportunities to stabilize the
tax system.
3 On this, cf. the ten priority areas of the German Governments Programme of Action (see GermanGovernments 12
thDevelopment Policy Report).
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The donor institution should at least try to find ways to lead a broad political dialogue with the
partner country. It does not seem possible, however, to stabilize the tax system without
finding compromises as far as concrete measures are concerned. In the case of Croatia, it
would have been worthwile to take steps symbolizing distribution justice (for instance,
reduced value-added tax rates on basic food), because distribution problems dominated the
political tax discussion. A choice has to be made between limited economic inefficencies that
need to be accepted, on the one hand, and enormous potential stabilization effects, on the
other. The experience gained from this project shows that all projects dealing with the
implementation of complex system reforms and, in addition, directly touching the interests of
most members of a society, should include information and communication campaigns.