Reform of public finance systems
Project description
Title: Reform of public finance systems
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Kosovo
Lead executing agency: The Presidency of the National Assembly
Overall term: 2009 to 2018
Context
Institutional weakness and the citizens’ lack of trust in the state are key challenges along the road to achieving a functioning democratic order in Kosovo. The process of raising public funds as well as their use must be transparent and performed responsibly if the state is to be seen as effective, fair and development-focused. The National Assembly has a pivotal role to play in this regard. However, parliamentary control of government activities often remains superficial. In addition, recommendations from the National Audit Office and the Committee for Oversight of Public Finances have little impact on the preparation of subsequent budgets. Budgetary planning is currently an unsatisfactory basis for demands for accountability from the National Assembly and the general public.
The tight fiscal framework is further restricted by newly established fiscal rules. It is the task of the Ministry of Finance to develop and implement effective strategies to deal with the sizeable informal sector. The tax administration must systematically improve efficiency if, for instance, it is to levy taxes designed to offset the medium-term decline in revenues from customs duties and border fees as a consequence of regional integration.
Objective
The parliamentary committees charged with monitoring public finances fulfil their mandate. They examine and check key aspects of public finance, demand accountability based on complete and reliable data and in so doing ensure effective parliamentary budget control. The tax administration conducts company audits in a professional manner. It ensures equality and transparency in the treatment of taxpayers. The Budget Department of the Ministry of Finance has improved its capacities to provide more comprehensive budget information for all actors.
Approach
On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), the project works to improve parliamentary budget control, raise budget transparency and create a more effective tax administration. It advises the Budget and Finance Committee and the Committee for Oversight of Public Finances to strengthen their role in the budget cycle and improve budget transparency. In addition, the project improves their capacity to carry out legislative impact assessments. In order to improve committee work, the project supports the development of internal rules of procedure and a reporting system and helps strengthen the committee secretariats. The project also supports the cooperation and information flow between the two parliamentary committees and the National Audit Office (NAO). The newly initiated cooperation with the Budget Department of the Ministry of Finance includes advice on enhancing the quality and comprehensiveness of the government’s main budget documents. The project is also involved in formalising the exchange of information between the National Assembly, the Ministry of Finance and independent institutions. In addition, the Ministry of Finance receives support from an integrated expert for tax policy.
The project supports the tax administration by providing methodological training for tax inspectors, introducing inspection software, creating an office responsible for fines and tax offences and expanding the range of information available to taxpayers.
Results
The Budget and Finance Committee and the Committee for Oversight of Public Finances in the National Assembly of the Republic of Kosovo are increasingly fulfilling their tasks and responsibilities. This is evident from the more detailed consultations on draft legislation and the use of parliamentary instruments. In the most recent budget discussions, the committees were able to cover many more budget organisations and examine them in much greater detail. The committees’ legislative impact assessments have improved, and the exchange of information between the committees and with independent institutions and the Ministry of Finance is now more formalised.
There has been a marked improvement in the effectiveness of the audits carried out by the Kosovar tax administration since 2011. This is reflected both in the increase in inspection revenues generated from taxes, fines and interest between 2011 and 2013 and in the rise in average revenues from individual inspections. Since April 2014, a separate office to handle fines and tax offences has been successfully piloted.