The World Bank Tax Administration and Statistical System Modernization Project (P163711) Appraisal Environmental and Social Review Summary Appraisal Stage (ESRS Appraisal Stage) Public Disclosure Date Prepared/Updated: 12/30/2019 | Report No: ESRSA00377 Dec 30, 2019 Page 1 of 8 The World Bank Tax Administration and Statistical System Modernization Project (P163711) BASIC INFORMATION A. Basic Project Data Country Region Project ID Parent Project ID (if any) Kyrgyz Republic EUROPE AND CENTRAL ASIA P163711 Project Name Tax Administration and Statistical System Modernization Project Practice Area (Lead) Financing Instrument Estimated Appraisal Date Estimated Board Date Governance Investment Project 1/20/2020 2/28/2020 Financing Borrower(s) Implementing Agency(ies) Ministry of Finance State Tax Service, National Statistical Committee Proposed Development Objective(s) To improve effectiveness of tax collection and the national statistical systems. Public Disclosure Financing (in USD Million) Amount Total Project Cost 35.00 B. Is the project being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No C. Summary Description of Proposed Project [including overview of Country, Sectoral & Institutional Contexts and Relationship to CPF] The project contributes to the Government's objectives of improving effectiveness of tax collection and reducing compliance burden for taxpayers as well as informing policy making based on evidence relying on the quality and timely statistical data. Areas of project support on tax administration will involve creating a taxpayer friendly tax administration that provides high quality online services and relying on ICT-enabled risk-based enforcement of tax compliance, enabling the STS to improve effectiveness of tax collection. Areas of support on statistics will focus on the national statistical system’s progress toward digitalization, greater utilization of administrative data based on the government systems interoperability, streamlining of the system’s institutional relations and settings, and improvements in statistical education. Dec 30, 2019 Page 2 of 8 The World Bank Tax Administration and Statistical System Modernization Project (P163711) D. Environmental and Social Overview D.1. Project location(s) and salient characteristics relevant to the ES assessment [geographic, environmental, social] As part of the Vision 2040, the GoKR aims to reduce the share of a shadow economy and improve domestic resource mobilization to finance social and economic priorities. To achieve this objective, the GoKR’s Medium-Term Development Program “Unity, Trust, Creation” for 2018-2022, underpinning the Vision 2040, seeks to comprehensively reform the country’s tax administration with a view to increasing the effectiveness of tax collection and lowering the compliance burden for taxpayers. Similarly, the Vision 2040 emphasizes the pivotal role of digital transformation in the reform processes and sets out the compulsory inclusion of a digital agenda in all conceptual and strategic frameworks. Ineffective tax administration operations hamper the STS’ efforts in tackling the informal economy. The estimates of the country’s shadow economy are in range of 24.5 - 39 percent of GDP. Due to weak tax administration, the burden of taxation rests disproportionately on a small number of formal firms, while also creating disincentives for small firms and producers to formalize their businesses and constraining their growth potential. While the STS has improved some aspects of the interface with taxpayers, its predominantly outdated business processes continue to create excessive compliance burden for individual and business taxpayers. Through STS and NSC, the project expected to introduce improvements country-wide. Since the project aims to support an institutional reform to improve tax administration and compliance issues, it will not have changes in existing physical footprints of infrastructure or new construction. D. 2. Borrower’s Institutional Capacity Public Disclosure The Project aims to improve Borrower institutional capacity for tax administration and compliance through capacity building and improved data development and management. The STS and the NSC will be responsible for the management and implementation of the TASSMP. The project implementation arrangements will include a Project Management Unit (PMU) at each implementing agency -- the STS and the NSC. Both the STS and the NSC will initiate mechanisms for coordination across the government as needed to support implementation of TASSMP activities that require collaboration with ministries and other government agencies. The PMUs do not have prior experience in the Bank’s environmental and social safeguards policies. Since the project environmental and social risks are generally low, the Bank’s environmental and social specialists will guide the PMUs in assessing and mitigating potential environmental and social risks and impacts. II. SUMMARY OF ENVIRONMENTAL AND SOCIAL (ES) RISKS AND IMPACTS A. Environmental and Social Risk Classification (ESRC) Low Environmental Risk Rating Low The Project supports improvements in tax management and compliance through institutional strengthening and capacity building. It does not involve any physical infrastructure improvements or works of any kind; therefore, the environment risk rating is Low. Social Risk Rating Low Dec 30, 2019 Page 3 of 8 The World Bank Tax Administration and Statistical System Modernization Project (P163711) This Project focuses on capacity building and efficiency improvements. Although there will be changes in staffing, it is expected that there will be no job losses as there will be training opportunities and skills upgrade for staff to remain within current employment. The project will not finance civil works, require any land acquisition or restriction on land use. The software updates are expected to be within the footprint of the state- owned facilities. The households living below the poverty line are considered among the most vulnerable. There tends to be a rural-urban divide with those living in rural areas are more likely to be among the poorest. Once statistical system is operational, the government will have accurate data that allows for calculating a multidimensional poverty index and use the data for targeting the most vulnerable segment of population. The data will be dis-aggregated by gender, age, and territory. This information will inform the government in making policies that are based on evidence and improve the allocation of public spending with can target the most vulnerable. It is expected that improvements in the tax system will promote private investment and lead to increased employment opportunities which can lead to more households moving out of poverty. B. Environment and Social Standards (ESSs) that Apply to the Activities Being Considered B.1. General Assessment ESS1 Assessment and Management of Environmental and Social Risks and Impacts Overview of the relevance of the Standard for the Project: Based on the information available at the PCN stage, there are limited negative environmental or social impacts expected from the proposed Project. It is not expected that the project will finance civil works, although there is a chance that some civil works of minor scale, such as repair of existing buildings, may be found to be necessary. The Public Disclosure project social impact is overall positive, as the project is expected to reduce informal economy and reduce the excessive compliance burden that currently fall for individual and business taxpayers. While no reductions in staff are anticipated, during preparation, the Borrower will assess and report on any anticipated staff changes in the tax administration agencies. The Borrower will also confirm that no works, however minor, are expected to be financed as a result of this project. ESS10 Stakeholder Engagement and Information Disclosure Direct project beneficiaries/affected people are staff of STS and NCS who will undergo training in new efficiency mechanisms. Students and universities are also direct beneficiaries as there will be targeted effort to encourage students to study in the fields of statistics with development of statistical programs of study. The public will be informed through external communication with relevant stakeholders, including taxpayer outreach activities. Key changes in tax administration affecting taxpayers are announced on the website of the State Tax Service and also on TV. B.2. Specific Risks and Impacts A brief description of the potential environmental and social risks and impacts relevant to the Project. ESS2 Labor and Working Conditions The project will have two Project Management Units (PMUs)—at the STS and at the NSC. It is expected that some of the staff in charge of project implementation are civil servants, but others are employed by STS and NCS without civil Dec 30, 2019 Page 4 of 8 The World Bank Tax Administration and Statistical System Modernization Project (P163711) servant status. Labor Management Procedure (LMP) will be prepared during project preparation including grievance redress mechanism available to them. Although the project will be improving efficiency, it is expected that current staff will remain, and be trained as needed to improve employment skills. World Bank Group Environmental Health and Safety Guidelines are applicable for Project Staff. There is no planned civil works and therefore no influx of labor. Project activities will be expected to follow all WB guidelines including Labor, Environmental Health, and Safety. It is hoped that the improved system will lead to business investments which will increase employment opportunities in the long term. It is expected that new businesses would hire local persons. ESS3 Resource Efficiency and Pollution Prevention and Management Based on the screening against ESS 3, this ESS is not considered relevant to the project. ESS4 Community Health and Safety No civil works are expected to be financed under the project which will impact the community's health or safety; therefore, based on the screening against ESS 4, this ESS is not considered relevant to the project. Public Disclosure ESS5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement As this project is focused on institutional capacity building and improvements in the systems, there is no need for civil works requiring land acquisition, restriction on land use or displacement. This standard is not considered relevant to the project. ESS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources Based on the screening against ESS 6, this ESS is not considered relevant to the project. ESS7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities Based on the screening against ESS 7, this ESS is not considered relevant to the project. ESS8 Cultural Heritage Based on the screening against ESS 8, this ESS is not considered relevant to the project. ESS9 Financial Intermediaries Based on the screening against ESS 9, this ESS is not considered relevant to the project. Dec 30, 2019 Page 5 of 8 The World Bank Tax Administration and Statistical System Modernization Project (P163711) B.3 Other Relevant Project Risks No other environmental or social risks are note. C. Legal Operational Policies that Apply OP 7.50 Projects on International Waterways No OP 7.60 Projects in Disputed Areas No III. BORROWER’S ENVIRONMENTAL AND SOCIAL COMMITMENT PLAN (ESCP) DELIVERABLES against MEASURES AND ACTIONs IDENTIFIED TIMELINE ESS 1 Assessment and Management of Environmental and Social Risks and Impacts Ensure that the project complies with requirements of the relevant ESSes throughout project 06/2026 implementation. ESS 10 Stakeholder Engagement and Information Disclosure STAKEHOLDER ENGAGEMENT PLAN PREPARATION AND IMPLEMENTATION - Public Disclosure Update and adopt Stakeholder Engagement Plan (SEP) prior to project appraisal. Ensure SEP is 06/2026 implemented throughout the life of the project. PROJECT GRIEVANCE MECHANISM - Prepare, adopt, maintain and operate a grievance mechanism, as 06/2026 described in the SEP for the life of the project. ESS 2 Labor and Working Conditions LABOR MANAGEMENT PROCEDURES - Update, adopt, and implement the Labor Management Procedures (LMP) that have been developed for the Project and maintained throughout Project 06/2026 implementation. GRIEVANCE MECHANISM FOR PROJECT WORKERS - Establish, maintain, and operate a grievance 06/2026 mechanism for Project workers, as described in the LMP and consistent with ESS2. ESS 3 Resource Efficiency and Pollution Prevention and Management ESS 4 Community Health and Safety ESS 5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement ESS 6 Biodiversity Conservation and Sustainable Management of Living Natural Resources ESS 7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities Dec 30, 2019 Page 6 of 8 The World Bank Tax Administration and Statistical System Modernization Project (P163711) ESS 8 Cultural Heritage ESS 9 Financial Intermediaries B.3. Reliance on Borrower’s policy, legal and institutional framework, relevant to the Project risks and impacts Is this project being prepared for use of Borrower Framework? No Areas where “Use of Borrower Framework” is being considered: The use of Borrower Framework for addressing environmental and social issues is not anticipated. IV. CONTACT POINTS World Bank Contact: Saida Ismailakhunova Title: Senior Economist Telephone No: 5763+239 / 9 Email: sismailakhunova@worldbank.org Contact: Nataliya Biletska Title: Senior Public Sector Specialist Public Disclosure Telephone No: 473-3595 Email: nbiletska@worldbank.org Borrower/Client/Recipient Borrower: Ministry of Finance Implementing Agency(ies) Implementing Agency: State Tax Service Implementing Agency: National Statistical Committee V. FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects VI. APPROVAL Task Team Leader(s): Saida Ismailakhunova, Nataliya Biletska Dec 30, 2019 Page 7 of 8 The World Bank Tax Administration and Statistical System Modernization Project (P163711) Practice Manager (ENR/Social) Kevin A Tomlinson Cleared on 04-Dec-2019 at 19:17:3 EST Safeguards Advisor ESSA Surhid P. Gautam (SAESSA) Concurred on 30-Dec-2020 at 13:03:26 EST Public Disclosure Dec 30, 2019 Page 8 of 8