Customs reform and performance contracts : early results from Madagascar (English)

Malagasy customs introduced performance-based payfor customs inspectors in Madagascar’s main port of Toamasina, incentivizing them to curb tax evasion andillicit financial flows, and expedite customs clearance. While performance pay has been associated... See More + Malagasy customs introduced performance-based payfor customs inspectors in Madagascar’s main port of Toamasina, incentivizing them to curb tax evasion andillicit financial flows, and expedite customs clearance. While performance pay has been associated with positive outcomes in education, health, and tax collection when objectives are clearly defined (Hasnain, Manning, andPierskall 2014; Prentice, Burgess, and Propper 2007),little is known about its usefulness in motivatingcustoms agents to achieve multiple objectives, including facilitating trade while maximizing revenue collected andminimizing fraud. Initial evidence suggests that individual inspectorperformance contracts improves customs performanceand service delivery by reducing clearance times. Thereform’s success to date reflects effective managementin customs, strong support from the Minister of Finance and Budget, extensive stakeholder consultation,application of data mining techniques, more intensivemonitoring, and deep collaboration between Malagasy customs and the World Bank. If the early results prove robust, public servant performance contracts couldbe a cost-effective approach to improving revenue administration and service delivery in other contexts,including fragile countries. Malagasy customs, under the leadership of a newdirector general, initiated reforms from 2015 to address customs performance, including deep collaboration with the World Bank.World Bank support included a study of tariff evasionchannels using mirror trade statistics. Based on this study, the Malagasy authorities identified two priorities: reforming the accelerated clearance program and improving human resource management by introducing performance contracts.  See Less -