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Mario Pessoa, Andrew Okello, Artur Swistak, Muyangwa Muyangwa, Virginia Alonso-Albarran, and Vincent de Paul Koukpaizan
The value-added tax (VAT) has the potential to generate significant government revenue. Despite its intrinsic self-enforcement capacity, many tax administrations find it challenging to refund excess input credits, which is critical to a well-functioning VAT system. Improperly functioning VAT refund practices can have profound implications for fiscal policy and management, including inaccurate deficit measurement, spending overruns, poor budget credibility, impaired treasury operations, and arrears accumulation.This note addresses the following issues: (1) What are VAT refunds and why should they be managed properly? (2) What practices should be put in place (in tax policy, tax administration, budget and treasury management, debt, and fiscal statistics) to help manage key aspects of VAT refunds? For a refund mechanism to be credible, the tax administration must ensure that it is equipped with the strategies, processes, and abilities needed to identify VAT refund fraud. It must also be prepared to act quickly to combat such fraud/schemes.
Mr. Serhan Cevik and Guohua Huang
This how-to note focuses on the management of the fiscal costs associated with natural disaster risks. Unlike other types of fiscal risks (for example, unexpected macroeconomic changes or materialization of contingent liabilities), a natural disaster presents a unique challenge to fiscal risk-management and budget processes because of its exogenous nature and potentially overwhelming scale. This note discusses how governments can build fiscal resilience against natural hazards and strengthen fiscal management after a disaster, including through budgeting frameworks and other fiscal policies. The note aims to answer three central questions: How large should fiscal buffers be? How should fiscal buffers be built up? How should fiscal buffers be used efficiently and transparently once a natural disaster has struck? These three questions directly relate to fiscal policy, fiscal risk management, and the budget process—all core areas of IMF expertise. To address them, the note focuses on fiscal strategies for financing recovery efforts and considers approaches to mitigate disaster impact. The note also provides guidance on how to conduct regular risk analyses of natural disasters’ potential fiscal consequences and outlines best practices for defining and accounting for the contingent liabilities associated with natural disasters in budgeting frameworks. Finally, the note touches on approaches for risk reduction, disaster risk financing strategies, and risk transfer mechanisms, such as various insurance instruments.
International Monetary Fund. Fiscal Affairs Dept.
This note highlights commonly observed weaknesses in the management of government guarantees, good practices, and measures governments could take to strengthen: (i) the evaluation of guarantee proposals; (ii) the quantification of risks arising from guarantees and their mitigation; and (iii) the budgeting, accounting, monitoring, and disclosure of guarantees.