The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) Revenue Administration Reform Project (P149743) EUROPE AND CENTRAL ASIA | Montenegro | Governance Global Practice | IBRD/IDA | Investment Project Financing | FY 2018 | Seq No: 7 | ARCHIVED on 29-Jun-2021 | ISR47058 | Implementing Agencies: Montenegro, Montenegro Tax Administration Key Dates Key Project Dates Bank Approval Date: 31-Jul-2017 Effectiveness Date: 13-Mar-2018 Planned Mid Term Review Date: 29-Sep-2021 Actual Mid-Term Review Date: Original Closing Date: 31-Mar-2023 Revised Closing Date: 31-Mar-2023 pdoTable Project Development Objectives Project Development Objective (from Project Appraisal Document) The development objective of the project is to improve the effectiveness of operational functions of Montenegro’s tax administration and to reduce the compliance costs for corporate taxpayers. The project supports Montenegro’s long-term vision of a revenue administration that operates with streamlined risk-based business processes that contribute to the efficient collection of taxes and social contributions from all sources of economic activity. Increased compliance will generate a more robust revenue stream to provide essential services to citizens. Improvements in revenue administration capacity will also support the country's goal for EU accession and economic integration with EU member states. Has the Project Development Objective been changed since Board Approval of the Project Objective? No Components Table Name Electronic Fiscal Invoicing:(Cost $5.30 M) Institutional Development:(Cost $1.35 M) Business Processes:(Cost $13.85 M) Taxpayer Services:(Cost $0.23 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Moderately Satisfactory Moderately Unsatisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Unsatisfactory Overall Risk Rating Moderate Moderate Implementation Status and Key Decisions Since January 2021, the former Montenegro Tax Administration (MTA) was transformed into the new Revenue Administration (RA) that merged three entities: Tax Administration, Game of Chance, and Customs Administration. Following the appointment of the Acting Director in RA, an interim Project Implementation Committee was formed. However, the transition led to further delay in project implementation particularly of the proposed procurement of a Data Warehouse/ Business Intelligence and Integrated Revenue Management Systems solutions. With the Acting 6/29/2021 Page 1 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) Director in place and expected appointments of some Deputy Directors by the end-July, the project performance is expected to improve significantly. Notwithstanding the delay, the project continued to successfully launch the Electronic Fiscalization Invoicing (EFI) System on January 1, 2021 per the law on EFI. The successful development and timely launch of the EFI system continue to serve as a best practice example of what can be achieved when proper decision-making and implementation arrangements are in place, even in the context of a COVID-19 pandemic. As of early June, most business sectors have adopted the EFI system efficiently, and currently 52% of taxpayers are registered with the system. As of June 10, more than 16 million invoices have been processed through the system, with consumers actively checking and validating their receipts. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance Moderate Moderate Moderate Macroeconomic Substantial Moderate Moderate Sector Strategies and Policies Moderate Moderate Moderate Technical Design of Project or Program Substantial Moderate Moderate Institutional Capacity for Implementation and Substantial Substantial Substantial Sustainability Fiduciary Moderate Moderate Moderate Environment and Social Low Low Low Stakeholders Moderate Moderate Moderate Other -- Moderate Moderate Overall Substantial Moderate Moderate Results PDO Indicators by Objectives / Outcomes Improve effectiveness of operational functions of MTA IN01002962 ►Tax Gap for VAT (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target No change from previous -Training was 6% reduction in Tax No methodology for Tax - VAT Gap Methodology organized for the MTA Value Gap for VAT compared Gap for VAT estimation approved by MTA, employees to use the to 2020 value baseline set at 9.81% methodology, including 6/29/2021 Page 2 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) using 2017 data. tax gaps for 2017 and Calculation of 2018 VAT 2018. Gap initiated and -MTA'a Internal awaiting finalization and procedure for endorsement by MTA calculating the tax gap and MOF. by type of tax was prepared. - A standardized annual tax gap report has been prepared, using the example of 2018 tax gap report. Date 01-Apr-2016 01-Dec-2020 24-Jun-2021 31-Dec-2022 VAT Gap Methodology was approved by MTA and baseline value set. Comments: IN01002964 ►Percentage of tax returns filed on time (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target VAT: 84.12% (CY 2020), 88.01% (first 5 months of CY2021) CIT: 84% (CY 2019) No change from previous and 83.32% (first 5 - 82.24 for VAT (CY months of CY2021) 2019) and 90.63 for CIT Reduction in CIT is (CY 2018) - no significant due to COVID-19 and project activities yet on the fact that taxpayers Value VAT: 82; CIT: 89 the ground - actual needed to reissue tax VAT: 92; CIT: 96 values meet target levels certificates in 2020. of 82% and 90%, No significant project respectively, consistent activities yet on the with project ground - actual values implementation timeline. are below target levels of 86% and 89% for VAT and CIT, respectively, in CY2020. Date 31-Dec-2016 01-Dec-2020 24-Jun-2021 31-Dec-2022 No significant project activities yet to impact value of indicator. Comments: IN01002965 ►Achieved processing of almost 90% of VAT refund claims within 30 days for predominantly exporters and 60 days for the rest of the taxpayers according to domestic law (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value Exporters: 70%; Rest: No change from previous Lower than 2019 and Exporters: 88%; Rest: 65% the target values for 85% Exporters: 70% (2019); 2020 due to COVID-19 Rest: 74 (2019) Exporters: 60% (2020, 80% target) and 68.7% for first 5 months of CY2021 Rest: 70 (2020, 75% target) and 56.4% for first 5 months of CY2021 6/29/2021 Page 3 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) Date 31-Dec-2018 01-Dec-2020 24-Jun-2021 31-Dec-2022 Project implementation on the ground has yet to take place. EFI will have a significant impact in 2021. Comments: Reduce compliance costs for corporate taxpayers IN01002963 ►Time it takes to pay taxes and social contributions (Hours, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 314.00 300.00 300.00 200.00 Date 31-Dec-2015 01-Dec-2020 24-Jun-2021 31-Dec-2022 Current value based on Doing Business 2020. No change from 2019 but levels are above target Comments: levels. No update to Doing Business publication. Overall Comments PDO While there are no project activities yet that have significant impact on the results indicators, the performance trend of the indicators have been impacted by COVID-19 in 2020. Intermediate Results Indicators by Components Institutional Development IN01002966 ►MTA staff satisfaction with the new skills and ability to apply them, disaggregated by gender (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target No change from previous - 68% of MTA staff respondents indicate satisfaction (men 71%, women 66%). 2020 survey was not conducted No change from previous due to COVID-19 and - 68% of MTA staff institutional changes. respondents indicate Increase by 10% The 2021 survey will Value No baseline satisfaction (men 71%, compared to baseline be launched in July women 66%). 2020 established in 2019 2021. survey has yet to be conducted. While there was no survey in 2020 and 2021 have yet to be launched, the open dialogue launched by the RA with taxpayers during the 6/29/2021 Page 4 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) development of the EFI system since July 2020 and during its ongoing implementation is helping improve the overall EFI system. As a consequence, system functionalities have been updated several times already in response to problems reported and recommendations shared by taxpayers and RA staff. For example, as of April 1, 2021, the EFI fiscal services put into production a sixth version. On the other hand, public application for invoice verification had three versions. Date 31-Dec-2016 01-Dec-2020 24-Jun-2021 31-Dec-2022 The results of the first satisfaction surveys conducted in the summer of 2019 were presented in October 2019 to MTA management, the Project Steering Committee and Advisory Board, which includes private sector stakeholders. They will need to be considered in the development of the change management and communications plan for the project. Due to COVID-19 and transformation of the MTA into the new Comments: Revenue Administration, the contract to conduct the follow-up survey was only signed recently. The survey will be launched starting July 2021. IN01002970 ►Estimated tax gap is calculated annually and suitable for publication by year 5 (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Yes. Follow-up exercise Follow-up exercise Value No initiated to develop Yes (with publication) initiated to conduct tax reports and training. gap analysis using 2019 data. Date 31-Mar-2016 01-Dec-2020 24-Jun-2021 31-Dec-2022 Consultancy for establishing methodology extended to inform follow-up exercise, report development and training. Within target and consistent with project timeline. -Training was organized for the RA employees to use the methodology, including tax gaps for 2017 and 2018. Comments: -RA's Internal procedure for calculating the tax gap by type of tax was prepared. - A standardized annual tax gap report has been prepared, using the example of 2018 tax gap report and will be prepared annually thereafter. Business Processes IN01002967 6/29/2021 Page 5 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) ►Payment compliance rate for VAT (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 62.00 60.00 75.00 87.00 Date 31-Dec-2016 01-Dec-2020 24-Jun-2021 31-Dec-2022 No project activities yet. Below target of 80% due to COVID-19 impact. Comments: IN01002971 ►Payment compliance rate for CIT (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 81.00 80.00 80.00 93.00 Date 31-Dec-2016 01-Dec-2020 24-Jun-2021 31-Dec-2022 Same achievement as in 2019. Below target of 86% for 2020 due to COVID-19. Comments: IN01002974 ►Improved selection of taxpayers for audit so that comprehensive audits are centrally selected from the risk analysis system (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target no comprehensive audits centrally selected from 75% of comprehensive no comprehensive audit risk analysis system - 20% above the target audits selected Value centrally selected from consistent with project of 15% for 2020 centrally from risk risk analysis system timeline no change from analysis system baseline expected at this time Date 31-Dec-2018 01-Dec-2020 24-Jun-2021 31-Dec-2022 Project related activities have yet to be implemented. Achievements are due to IMF Technical Assistance Comments: on risk analysis. Taxpayer Services IN01002968 ►Taxpayers satisfaction with MTA's quality of taxpayers services and integrity of MTA staff, disaggregated by gender (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Follow-up survey to be launched in July 2021. That said, while there was no survey conducted since 2019, the success of the Increase by 10% Follow-up survey yet to timely launched of the Value No baseline compared to baseline be deployed. EFI is partly due to established in 2019 the open dialogue launched by the RA with taxpayers during the development of the EFI system that started in July 2020 6/29/2021 Page 6 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) and during its ongoing implementation. The open and continuous feedback loop is helping improve the overall system. As a consequence, system functionalities have been updated several times already in response to problems reported and recommendations shared by taxpayers and RA staff. For example, as of April 1, 2021, the EFI fiscal services put into production a sixth version. On the other hand, public application for invoice verification had three versions. Date 31-Dec-2016 01-Dec-2020 24-Jun-2021 31-Dec-2022 Baseline survey completed. Follow-up survey planned in 2020 could not be deployed due to COVID-19. The 2021 survey will be launched in July 2021. Comments: IN01002972 ►Increased e-filing for VAT (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 75.00 77.37 90.24 95.00 Date 31-Dec-2018 01-Dec-2020 24-Jun-2021 31-Dec-2022 2020 achievement is higher than target of 80%. Critical project activities have yet to be implemented. EFI expected to have a positive contribution to this starting 2021. Accordingly, as of the first 5 months of CY2021, achievement is 99.78% above target of 90% for 2021 and project end-target of 95%. Comments: Electronic Fiscal Invoicing (EFI) IN01002969 ►Improved post filing index (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target No change from No change from previous previous - 70.5 - no increased by 8% from Value 70.49 - 70.5 - no follow-up follow-up publication baseline publication issued issued Date 31-Dec-2018 01-Dec-2020 24-Jun-2021 31-Dec-2022 EFI launched on January 1, 2021. Awaiting new publication for Doing Business. Comments: 6/29/2021 Page 7 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) IN01002973 ►Real-time information for VAT transactions available to MTA (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target EFI contract under Achieved - EFI system EFI system available no real time EFI system implementation - roll-out available 99.5% of the Value 99.5% of the time for in place to start on January 1, time for all cash all transactions 2021 transactions Date 31-Dec-2018 01-Dec-2020 24-Jun-2021 31-Dec-2022 Project end-target achieved with EFI implementation starting in 2021. Comments: Performance-Based Conditions Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P149743 IBRD-87720 Effective USD 15.70 15.70 0.00 1.69 14.08 11% P149743 IBRD-90130 Effective USD 5.20 5.20 0.00 5.23 0.48 92% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P149743 IBRD-87720 Effective 31-Jul-2017 19-Jan-2018 13-Mar-2018 31-Mar-2023 31-Mar-2023 P149743 IBRD-90130 Effective 10-Oct-2019 11-Nov-2019 20-Nov-2019 31-Mar-2023 31-Mar-2023 Cumulative Disbursements 6/29/2021 Page 8 of 9 The World Bank Implementation Status & Results Report Revenue Administration Reform Project (P149743) PBC Disbursement Achievement Disbursed amount in Disbursement % PBC ID PBC Type Description Coc PBC Amount Status Coc for PBC Restructuring History There has been no restructuring to date. Related Project(s) P170454-Additional Financing for the Montenegro Revenue Administration Reform Project 6/29/2021 Page 9 of 9