World Bank Document · 2016. 7. 17. · 2. Facilitating Taxpayers' Compliance; This component would...

IDocument ofThe World Bank

Report No. 16993-GU

PROJECT APIPRAISAL DOCUMENT

ONA

PROPOSED LOAN

IN THE AMOUNT OF US$28.0- MILLION EQUIVALENT

TO THE

REPUBLIlC OF GUATEMALA

FOR

TAX ADMINISTRATION

TECHNICAL ASSISTANCE LOAN

Aniust 4, 1997

Poverty Reduction and Economic ManagementCentral America DepartmentLatin America and the Caribbean Region

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CURRENCY EQUIVALENTS(Exchange Rate Effective August 4, 1997)

Currency Unit = Quetzal (Q)US$1.00 = Q5.98Q1 =US$0.167

FISCAL YEARJanuary 1 to December 31

ABBREVIATION AND ACRONYMS

CAS - Country Assistance StrategyCEM - Country Economic MemorandumCQ - Selection Based on Consultant's QualificationsECU - European Community UnitESW - Economic Sector WorkFARAH - Financial Accounting, Reporting, and Auditing HandbookGANTT - Time ChartGDP - Gross Domestic ProductGUA - GuatemalaIDA - Institutional Development AgreementIDB - Inter-American Development BankIFC - International Financial CorporationAIM - International Monetary FundISET - Temporary Tax on Gross EarningsISR - Income TaxNBF - Not Bank FinancedNCB - National Competitive BiddingNGO - Non-Governmental OrganizationPCU - Project Coordination UnitPIP - Project Implementation PlanPIR Public Investment ReviewPV - Project ValueQBS - Quality Based SelectionQCBS - Quality and Cost SelectionSAT - Superintendency of Tax AdministrationSOE - Statement of ExpendituresTAL - Technical Assistance LoanTOR - Terms of ReferenceVAT - Value Added TaxUSAID - US Agency for International Development

Vice President S.J. BurkiDirector D. Dowsett-CoiroloTask Manager R. Myers

GUATEMALA

Tax Administration Technical Assistance Loan

TABLE ODF CONTENTS

Project Financing Data ........................ 1

Block 1: Project Description

1. Project development objectives .......................... 2........22. Project components .23. Benefits and target population ................................ ;. 34. Institutional and implementation arrarngements .3

Block 2: Project Rationale

5. CAS objectives supported by the project ................................ 46. Main sector issues and Government s1trategy ................................ . . 47. Sector issues to be addressed by the project and strategic choices .68. Project alternatives considered and reasons for rejection .79. Major related projects financed by the Bank and/or other development agencies 710. Lessons learned and reflected in the project design .711. Indications of borrower commitment amd ownership .812. Value added of Bank support .8

Block 3: Summary Project Assessments

13. Economic Assessment .814. Financial Assessment .915. Technical Assessment ..................... ; 916. Institutional Assessment .917. Social Assessment ..................... .. 918. Environmental Assessment .1019. Participatory Approach .1020. Sustainability .1021. Critical Risks ..................... ; 1022. Possible Controversial Aspects .11

Block 4: Main Loan Conditions

23. Effectiveness Conditions .1224. Other ........................... 12

Block 5: Compliance with Bank Policies .12

List of AnnexesAnnex 1: Project Design SummaryAnnex 2: Detailed Project DescriptionAnnex 3: Estimated Project CostsAnnex 4: Fiscal Impact CalculationAnnex 5: Financial SummaryAnnex 6: Procurement and Disbursement ArrangementsAnnex 7: Project Processing Budgets and ScheduleAnnex 8: Documents in the Project FileAnnex 9: Statement of Bank Group Operations in GuatemalaAnnex 10: Guatemala at a Glance

INTERNATIONAL BANK FOR RE:CONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEvELoPmENT ASSOCIATION

Latin America and thie Caribbean Regional OfficeCentral America

Project Appraisal Document

GuatemalaTax Administration Technical Assistance Loan

Date: August 4, 1997 1 ] Draft [X] FinalTask Manager. Ronald E. Myers Country Director: Donna Dowsett-CoiroloProject ID: GT-PA-48654 Sector: Public Sector ManagementLending Instrument: Technical Assistance Loan PTI: [ Yes [XI No

Project Financing Data X Loan [ Credit I] Guarantee [ Other [Specify]

For Loans/CreditslOthers:

Amount(gUSm/SDR1T:.US$ 28.2 million... ..... ......................................................... ... ............................................................ .................. ............................................................... ..............

Proposed Terms: [ Multicurrency X Single currencyGrace period (years): 3 [ Standard Variable X Fixed [ LIBOR-based

Years to maturity: 15Commitment fee: 0.75%

Financing plan (US$m):Source Local Foreign Total

Government 9.2 9.2IBRD/IDA 15.7 12.5 28.2USAID Grant 1.5 1.5IDB 0.5 0.9 1.4Total 25.4 14.9 40.3Other Potential Financiers (uropean Union Grant) TBD................................ ....... .... ...... ....................... ..... .................. .................................................................................. .........

Borrower: Republic of GuatemalaResponsible agency(ies): Superintendency of Tax AdministrationEstimated disbursements (Bank FY/US$M): 1998 1999 2000 2001 2002

Annual 8.0 10.5 6.0 3.0 0.7Cumulative 8.0 18.5 24.5 27.5 28.2

Expected effectiveness date: December 1, 1997 Expected closing date: March 31, 2002

Block 1: Project Description1. Project development objectives (see Annex 1 for key performance indicators):The project seeks to assist Guatemala in raising its revenue perfonnance above historically low rates (averaging only between 6 and9 percent of GDP over the last decade):

(i) improving the effectiveness and efficiency of tax and customs administration through strengthening collection, audit, andenforcement procedures; (ii) increase tax revenues; and (iii) achieving stronger revenue performance is critical in order forGuatemala to increase social sector spending, meet basic infrastructure needs, and implement the December 1996 Peace Accordsbetween the Government and the Union Revolucionaria Nacional de Guatemala (URNG), which ended thirty years of civil war.

Key to the strategy will be the creation of a new institution for internal revenue and customs with operational, financial, and humanrcsources management; the strengthening of tax collection and auditing processes; the establishment of taxpayer assistance services;the elimination of loopholes in the law and simplification of norms and procedures; and the introduction of more rigorouscnforcement mechanisms.

Project Appraisal Document Page 2Country: Guatemala Project Title: Tax Administration Technical Assistance Loan

2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

Com onent Categorv Cost Incl. % ofContingencies Total

(US$M)1. Creation of a Superintendency of Tax Administration (SAT): The component Institution 6.5 17would support the design and development of an operational and financial buildingindependent institution responsible for national internal and customs revenuecollection. The assistance would help develop the new organizational structure andmanagement systems, and to address training and professional development needs.

2. Facilitating Taxpayers' Compliance; This component would help identify andoperationalize measures to improve voluntary taxpayer compliance through review Institution 11.7 31and simplification of procedures and modernization of information technology buildingincluding tax collection through the banking system; creation of a Special TaxpayersUnit to give priority attention and service to the needs of taxpayers providing thebulk of tax revenues; and by establishing a network of taxpayer services (assistanceand grievances) offices to give taxpayers access to recourse and help themunderstand, and comply with, the tax code.

3. Strengthening Enforcement Mechanisms: This component would finance thecarrying out of the review of the legal and regulatory framework applicable to tax Institution 10.4 27administration and the institutional structures to improve tax collection enforcement. buildingA new Audit Department would consolidate all audit and investigation expertisewithin the SAT, with updated information technology and analytical tools tofacilitate data cross-checking, logistical support, and strengthened legal power toinvestigate tax evasion. Particular attention would be given to training.

4. Social Communications: This component would help secure citizenunderstanding for the tax administration reforms by financing a social Institution 4.8 13communication campaign to inform and educate the public about the benefits of an buildingindependent and professionalized tax collection authority, on changes in the tax law,compliance and enforcement mechanisms, and taxpayer services and rights. Thecomponent would also provide feedback to the Government on tax administrationissues, as well as promote internal change management within the SAT and thegoals of increased transparency and accountability.

5. Project Coordination: Project coordination would be the responsibility of a unitwithin the Superintendent of Tax Administration. The unit would support and Project 4.6 12monitor progress of the project, oversee contract issuance and completion, track managementdisbursements, prepare semi-annual reports, contract project audits, and liaise withthe Bank's supervision missions.

Total 37.9 100Price Contingency

2.3Total Project Cost

40.3


3. Benefits and target population:If the outputs of the project are correctly utilized and implemented, then the major benefits from the project would be: (i) qualitativeimprovements in tax administration in terms of effectiveness, transparency, and assistance to taxpayers; (ii) measurableimprovement in monitoring and control (financial and physical) of imports; and (iii) increased tax revenues. The target populationwould be tax administration agencies and taxpayers.

4.Institutional and impl entation arr angements:- --------------..........

Implementation period: 1997-2001

Executing agencies: The project will be executed by the new Superintendency of Tax Administration, under a Subsidiary Agreementto be entered into between the Borrower and the SAT. Such Agreement is a condition of effectiveness.

Project coordination: A project coordination unit (PCU) will be created within the SAT with primary responsibility for projectimplementation. The creation and staffing of such PCU is a condition of effectiveness.

Accounting, financial reporting, and auditing arrangements: Project records and accounts would be maintained by the PCU toreflect, in accordance with sound accounting practices, the operations, resources, and expenditures for each project activity. Theaccounts will be consolidated annually into financial statements for the project as a whole. Supporting documentation will be madeavailable to Bank missions and independent auditors as required. For expenditures incurred on the basis of Statements ofExpenditures (SOEs), all records providing evidence of such expenditures will be retained by the PCU until at least one year after theBank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account or payment out of theSpecial Account is made, whichever is later. Project records amd accounts, including the Special Account and SOEs, will be auditedannually in accordance with appropriate auditing principles consistently applied by auditors acceptable to the Bank, with terms ofreference for auditors and reports approved by the Bank. The Bank's Financial Accounting, Reporting, and Auditing Handbook(FARAH) published in January 1995 would be used by the auditors in accordance with the Bank's auditing guidelines. Audit reportswill be furnished to the Bank within four months after the close of the Government's fiscal year.

Monitoring and evaluation arrangements: Monitoring of project execution will be undertaken by the PCU. The Bank willparticipate in monitoring project implementation through periodic supervision missions. The PCU will provide to the Bank anannual working plan not later than December 31 of each year, starting 1998. The PCU will provide to the Bank the 1998 plan as acondition of effectiveness. Annual reviews of the project will be carry out not later than March 31 of each year, starting in 1999. Amid-term review conducted by March 2000 to assess progress in meeting agreed targets and to identify additional technical supportas needed. Semi-annual progress reports will be presented to the Bank no later than 30 days after the conclusion of each calendarsemester, starting 1998.

Block 2: Project Rationale

5. CAS objective(s) supported by the project Document number and date of latest CASThe CAS emphasizes the need to increase public savings and improve the public discussion: Report No. 1445 1-GU, May 30,sector's extremely limited service delivery capability, which is linked to a historically 1995weak institutional capacity. Two recent ESW reports (a CEM and a PIR) underscorethat a considerably greater domestic revenue effort is required to maintainmacroeconomic stability and promote faster growth. Furthermore, enhancingGuatemala revenue performance is critical for sucessful implementation of theapproved Peace Accord; these accords include specific targets for revenues, and theBank's CAS and assistance strategies of most major donors in Guatemala give highpriority to support for the peace process. By strengthening tax administration, theproject would improve revenue performance and public savings, and contribute tomore sustainable public investment and social sector expenditures.


6. Main sector issues and Government strategy:IssuesDespite the approval of several comprehensive tax reforms and externally supported attempts at tax administration and customsmodernization in the last decade, Guatemala's tax revenue ratio is among the lowest in Latin America. Revenues have averagedbetween 6 and 9 percent of GDP over the last decade and registered 8.5 percent in 1996 reflecting in part the impact of a temporaryone year tax on gross earnings. These low levels severely constrain public investment and social sector spending with a significantimpact on poverty alleviation. They would also preclude successful implementation of the December 1996 Peace Accord. The wideannual variation in tax collection has threatened macroeconomic performance and subjected public investment (and externalfinancing) to disruptive cycles of stop-go spending.

Revenue collection reflects both the structure of the tax system and deficiencies in tax administration. VAT rates are the lowest inLatin America (10 percent), with numerous exemptions and loopholes. Personal income is taxed at rates of 15, 20, and 25 percent.In addition there are high thresholds for tax liability, deductions for VAT payments, exclusion of annual bonuses and pensions,limited withholding for wage earners and no withholding or periodic payments during the tax year by professionals or the self-employed. In fact corporate and personal income taxes represented less than 20 percent of total collections in 1996, with the VATaccounting for 36 percent and import duties 24 percent of revenues, respectively. Small duties on tobacco, alcohol, stamps, andinheritance collect little.

Tax evasion is endemic in Guatemala. Previous reform efforts have made some progress, mainly in decentralization and generationof up-to-date tax information systems and databases, but many of the long-standing deficiencies in tax administration have not beenrectified. These shortcomings include: (i) poor identification of non-filers and stop-filers; (ii) poor audit program design,implementation, and sequential follow-up; (iii) poor use of databases for cross checking; (iv) low quality and quantity of tax auditors;(v) lack of a career-path for employees, including appropriate compensation and personnel policies; (vi) lax transit andaudit/inspection controls in customs; and (vii) a tax code with poorly defined and weak penalties and lengthy business liquidationprocedures for tax defaulting businesses.

The Customs Service in particular has suffered from profound institutional weaknesses related to poor management, weak humanresources, low pay, lack of adequate systems of financial and physical control, unduly bureaucratic processes with excessive scope fordiscretionality by individual staff, deteriorating physical infrastructure, lack of transparency in the collection of import duties, andresistance to change. Last year the Government uncovered a major corruption ring within Customs accused of diverting massiveamounts of revenues. The Governmuent has intervened in Customs, but has determined that only a substantial program ofinstitutional reform can lead to long-term improvements.

Government StrategyThe authorities have initiated an ambitious program of public sector reform to address the national goals of poverty alleviation andthe consolidation of peace after years of guerrilla warfare. Programs to reform the civil service, restructure ministries, reform theadministration ofjustice, modernize government financial management, and increase the role of the private sector in the provision ofinfrastructure services are in preparation or execution. Under the terms of the recently signed Peace Accords the Government hasundertaken to raise tax revenue to 10 percent of GDP in 1998 and 11.4 percent in 1999, seeing increased revenue as necessary toprovide a solid basis for priority spending. Reform of tax administration is a key element in the Government's strategy forincreasing tax revenue as well as reducing economic distortions and promoting the transparency of tax and customs collections.Following years of marginally successful efforts to strengthen the existing tax administration regime, the Government has decided tocreate an autonomous Superintendency of Tax Administration with a new organizational structure and functional relationships.Successful creation and functioning of the SAT under modern operating procedures and performance-based personnel managementpolicies, coupled with priority measures to improve voluntary compliance, reduce evasion, and strengthen taxpayer services areexpected to permit an increase in the effectiveness, efficiency, and equity of tax administration. In adopting this institutionalstrategy, the Government has paid closed attention to cross country experience in Latin America, and has consulted a wide range ofnational and international specialists.

Given the urgent need to increase tax collections (and to meet agreements under the Peace Accords) the Government intends tolaunch the SAT in early 1998. In the meantime it would utilize project funds (including some on a retroactive basis) to finalize thedesign of the organization as well as initiate the project's tax administration strengthening initiatives. The Government hassubmitted a draft legislation to the Congress to create the SAT and expect to present the Bank loan for congressional approvalwithin next 4 months. The authorizing draft legislation, which would create an autonomous institution, requires a two-thirdsmajority votes in Congress. To secure the needed congressional action the Government is conducting a public education effort


including national workshops involving all political parties lnd representatives of civil society, high profile visits by supportiveinternational experts and officials including the IMF Managing Director and European Union Commissioner, and lobbying of keybusiness groups. The Government fully anticipates passage of this legislation, which is a condition of loan effectiveness. Tocomplement the SAT, the Government in late 1996 secured passage of Tax Code reform legislation, which it believes will provide animproved scope to improve tax collection under a strengthened tax administration regime.

7. Sector issues to be addressed by the project and strategic choices:The proposed project would support the strategy of the Government for a comprehensive reform of the tax administration system.The creation of the SAT plus substantive tax administration initiatives would seek to address the major shortcomings in taxadministration by expanding the tax base, modernizing collection and audit procedures, fostering voluntary compliance, andstrengthening the institutional and legal framework for tax enforcement. Priorities in the first year of the project would includestrengthening of the SAT capacity and its operating systems, selection and training of highly qualified staff, and substantive focus onthe needs of special taxpa.yers, improving the taxpayer registry, and strengthening tax collection, Customs, and audit processes.

. ... ... ... ... ... ... ... ... . . ...................... ._ _ _ _ _ .... ._ _ ._ ..... _ ._ ....... ..... ... _ _ _. _ ....... _ .................................. _._..

8. Project alternatives considered and reasons for rejection;The main strategic choice made by the Government was to eschew incremental measures to strengthen tax administration in favor ofa more fundamental and faster-paced change strategy. This reflected widespread demand for basic reform, the critical need toincrease revenues on a sustained basis (in part to meet the terms of the recently signed Peace Accords), serious doubts that currentpersonnel and compensation policies and practices would permit meaningful improvements in tax collection, and the less-than-satisfactory results of previous remedial efforts A second strategic choice involved combining responsibility for tax and customsadministration under a single entity, rather than in separate institutions, which would allow the reduction of administrativeoverheads, decreasing at the same time the potential for level of corruption,and increasing public sector control over evadors throughthe use of a common information system and internal cross-<,hecks.

9. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).Sector Issue Project Latest Form 590 Ratings

IP DOBank-financedReform of public sector financial management Integrated Financial Management S S

(under implementation)Reform of civil service and institutional restructuring Public Sector Modernization TAL

(under preparation)Reform of judicial administration Judicial Administration Reform TAL

(under preparation)Privatization of selected state enterprises Private Participation in Infrastructure TAL

(recently approved)IDB-financedCustoms institutional development Strengthening of the Customs SystemInternal Revenue institutional development Strengthening of the Tax Administration

USAID-financedCustoms institutional development Modemizing the State-Fiscal ReformThe Government anticipates receiving additional support for its tax administration effort. In June 1997 it signed a letter of intentwith the European Union which tentatively identified tax administration reform as a priority area for future European Union support,within a proposed package of total assistance aggregating ECU 200 million over 4 years. The Government also anticipates that theUSAID will increase its current program of support for tax and customs administration.

10. Lessons learned and reflected in the project design:Lessons learned from previous tax administration projects an,d reflected in the project concern the need to: (i) ensure commitmentand ownership of the overall reform through extensive and deep dialogue with the authorities in all aspects of project design andimplementation, plus the presentation of the project to a wide audience of senior Executive Branch and Congressional leaders, civilsociety, and key staff to encourage "buy-ine and commitment; (ii) creation of an experienced and highly-skilled project coordinationunit; (iii) ensure appropriate emphasis on organization, business processes, human resource selection, pay, and training issues andavoidance of an overemphasis on information technology. The project would finance major substantive efforts to promote taxcompliance both through the provision of improved services, as well as the implementation of a strengthened audit effort to raise theperceived risk of detection of non-compliance.


The project has identified several additional best practices from the Bank's global experience including: (i) organization of taxadministration based on function rather than by tax; (ii) downward delegation of authority complemented by training and improvedmanagement information systems; (iii) priority attention to the review and strengthening of the legal and regulatory framework; (iv)programming of a social communications campaign to educate taxpayers on their rights and obligations; and (v) reliance on aUnified Taxpayer Registry to monitor tax compliance and establish a single taxpayer account.

In addition, the project will benefit from lessons learned in previous Technical Assistance operations including: (i) specific yetflexible action plans would be developed for each component that focus on outputs, and define evaluation criteria and performanceindicators; and (ii) criteria would be established to ensure careful project supervision, especially with respect to procurement andsupervision of consultants, so as to prevent inadequate budget control and weak management.

Lessons learned from other operations in Guatemala include: (i) the need for close project supervision which will be facilitated inthis case by close overlap with the integrated financial management project, the recent opening of a Resident Mission, and frequentproject reviews linked to preparation of related public sector management operations; (ii) the need to assure adequate counterpartfunding, which should be facilitated in time by successful implementation of the tax administration reforms supported by the project;and (iii) the need for greater permanency in counterpart staff, which will be encouraged by the Bank as a critical issue in its projectsupervision.

The satisfactory experience heretofore with the Integrated Financial Management project (GU-3 895), declared effective in March1996, and being implemented by the Ministry of Finance, gives.a level of assurance regarding the commitment and ability of thatMinistry to help implement the proposed project in a timely and successful manner.

11. Indications of borrower commitment and ownership:The strength of the Govermment's commitment to improved tax and customs administration is shown by: (i) submission to Congressof the far reaching SAT draft legislation; (ii) its initiation of an education campaign to increase public understanding of the need fortax administration reform; (iii) passage in late 1996 of reforms to the Tax Code, including strengthened enforcement measuresagainst tax evasion; (iv) its takeover of the Customs Service and aggressive prosecution of corruption within Customs; and (v) recentpassage of reforms to the VAT and income tax laws aimed at expanding the tax base. The Government has also moved in otherareas of public sector modernization, including forceful implementation of the integrated financial management project; advances inincorporating the private sector in the provision of infrastructure (supported by a recently approved Bank loan); presentation toCongress of several key modernization bills relating to the Comptroller General, Budget, Probity, Civil Service, FinancialManagement, Executive Branch Organization, and Procurement; and significant and highly visible measures to attack corruptionamong the police and army.

............................................................................................................................................................................................................................................................12. Value added of Bank support:Bank support would provide critically needed and timely financing; supply high-quality technical advice based on worldwide andregional experience in tax administration; convey credibility and transparency to the reform effort; and promote efficient andeffective use of the resources supporting the Government's program.

Block 3: Summary Project Assessments (Detailed assessments are in the project file. See Annex 8)13. Economic Assessment [ Cost-Benefit Analysis :N/A t Cost Effectiveness [x I Other(see Annex 4): Analysis: N/A Fiscal

Impact]Fiscal impact:The project is expected to have a positive fiscal impact resulting from administrative reforms aimed at improving effectiveness in taxcollection and auditing, and by increasing the tax base through improved mechanisms in registry and taxpayer services. While someimprovements in revenue performance may be expected from the start up of the project in 1998, it is conservatively estimated thatthe reforms will result in a permanent increase in annual tax revenues of about 0.9 percent of GDP from the year 2000 onwards.

............................................................................................................................................................................................................................................................14. Financial Assessment: Not Applicable

...... ........................................................................................................................................................................ .........................................................................15. Technical Assessment: Although the tasks to be undertaken under this program are demanding, they are feasible for a countrysuch as Guatemala, assuming appropriate leadership and commitment. Substantial input from international consultants withexperience in tax administration reformn will be required. At the same time, the appointment of coordinators for each area beingreforned from the local counterpart team, plus selected use of national consultants, should ensure that there is suficient localparticipation and transfer of knowledge.

Projed Appraisal Document Page 7Country: Guatemala Project Title: Tax Administration Technical Assistance Loan

16. Institutional Assessment:a. Executing agencies: The SAT. The Ministry of Finance is one of the institutionally stronger ministries within the

Government. Top management and most top career staff are professional and motivated. The SAT is expected to draw upon somehuman resources from the Ministry as well as to attract highly q[ualified and motivated new staff, including most of the SATmanagement team.

b. Project management: The Project Coordination Unit is now being constituted and would be directed by a permanent projectdirector. Several key administrative staff have been appointed. A condition of effectiveness is that the PCU be appropriately staffedwith qualified personnel in key positions.

...................... ....... ........................................................................... .................. .............................. .......................................................................................17. Social Assessment: Not Ap.plicable18. Environmental Assessment: Enviromnental [] A [ B X C

Category

.............. ~~X ~ lw.. .......................... ............. . .. ............ ........... ........................ ........... ...........19. Participatory Approach: Identification/Preparation Implementation Operation

Beneficiaries/community groups COL COL COLAcademic institutions CON COL COL

Other donors COL COL COLLeadership of the Congress COL COL CON

Chamber of Commerce and Industry CON CON

......................................... I........................................................................................................................................................ ............'

20. Sustainability:The project is expected to have a lasting impact on the financial base of Guatemala's public sector. By supporting a comprehensivereform in the modality of tax and customs administration in conjunction with improved enforcement, the project should help theGovernment establish a sustainably higher, and more predictable, level of revenues. The project's emphasis on creating appropriateincentives for tax payment should lead to increased resources to finance public investment and social sector spending, creatingconstituencies for more vigorous enforcement of tax collection, help increase the credibility of the public sector in general, andestablish benchmarks for tax collection.

H - ica Risk..s see.. --- h .. co"u...m ... f..A...nnex.. 5:.................................................................................................................. 21. Critical Risks (see fourth column of Annex 1):Project outputs to development objectives

Risk Risk Risk Minimization MeasureRating

Laws and regulations related to the SAT are high Careful preparation of legislation and regulations, extensive dialoguesubject to constitutional challenges that are with aUl political parties and civil society, and planned socialeither upheld or cause protracted delays in tax communication efforts with specific workshops targeted on theenforcement due to conflicting judicial judiciary.interpretations or actions.

SAT (i) unable to attract or keep qualified, well- low Legislation is expected to allow SAT to establish its own humanmotivated staff; and (ii) lacks sufficient resources regime and manage its budgeted resources. Creation ofautonomy due to political or budgetary high profile Superintendency Board including non-governmentalconstraints. representatives.

Project components to outputsRisk Risk Risk Minimization Measure

RatingDifficulties in coordinating interrelated tasks, moderate The active support of the Finance Minister and Superintendent. Thecomponents, and sources of finance and inability appointment of a single overseer in each component who will be ableto supervise consultants. to monitor progress. Hiring of a project director in consultation with

the Bank.

Project Appraisal Document Page 8Countrt. Guatemala Projct rle: Tax Admidnisration Technical Assistance Loan

Counterpart funds not available low Project has strong Government support. Counterpart funds are beingbudgeted for first year of execution. Govermnent expects additionalfinancing from donors for the SAT in the future.

Congress fails to pass legislation creating moderate Passage of legislation creating the SAT with adequate independenceautonomous SAT with legal personality and own in terms of hulman resource, financial, and operational managementhutman resources system requires a 2/3rds majority vote of the Congress. Although the

Govemnment does not automatically have such a majority it isconfident that the necessary 213rds vote can be obtained.Govement is conducting a major public and congressionalinformation effort supported by intemational experts. Creation ofthe SAT is a major issue in forums overseeing implementation ofPeace Accords.

OveraU project risk rating moderate

22. Possible Controversial Aspects:Resistance of tax evaders to improved tax compliance, and resistance of some current tax administration and customs staff notoffered positions in the new organization.

Block 4: Main Loan Conditions23. Effectiveness Conditions. Legal framework has been established for the operation of the SAT and that such legal framework is in full force and effect.* That the regulations for the SAT has been issued and that such regulations are in full force and effect* Execution of Subsidiary Agreement between Borrower and SAT.* Creation of PCU and its appropriate staffing.* Action plan for 1998 has been furnished to the Bank24. Other [classify according to convenant types used in the Legal Agreements database.]

Block 5: Compliance with Bank Policies[X] This project complies with all applicable Bank policies.

Task Manager: Ronal E. Myers Country Director: Donna Dowsett-Coirolo

Project Appraisal Document Page 9Country Guatemala Project Title: Tax Administration Technical Assistance Loan

Annex 1Guatemala Tax Administration TAL

Project Design Summary

Narrative Summary Key Performance Indicators' Monitoring and Supervision Critical Assumptions andRisks

CAS ObjectiveImprove service delivery of the New institutional framework. Standard Govermuent reports Government capacity forpublic sector through for tax and customs setting policy prioritiesinstitutional strengthening administration established,activities and improving with improved effectiveness of Political stabilityefficiency, accountability and tax collectiontransparency of core financialmanagement functions of thepublic sector _Project DevelopmentObjectives1. Improve effectiveness and 1.1 Percentage of late filers 1.1 Internal records Govermnent continuedefficiency of tax and Customs reduced from 20 to 10 percent commitment to the wideradministration through for VAT and from 45 to 20 public sector reform programstrengthening collection, audit, percent for income tax by and targets set in the Peaceand enforcement procedures 2000. Accords.

1.2 Tax arrears due in 6/97 1.2 Internal recordsreduced by 50 percent by 12/99

2. Increase tax revenues 2. Increase tax revenues by l'o 2. Fiscal accountsof GDP by 2000 above the8.5% of GDP reached in 1996

Project Outputs General: Supervisionmissions, review of requestsfor Bank no-objection tocontract proposals, audits,consultant reports, PCU semi-annual reports and annualreviews.Specific:

1. Strengthened organization 1.1 Detailed structure and 1.1 Semi-annual report from SAT ability to increaseand management of tax operating procedures of SAT PCU operating efficiency andadministration. in place by 3/98 effectiveness as programmed

1.2 Implementation oftransition plan to recruit, 1.2 Personnel records SAT ability to attract andselect, and hire personnel retain qualified staffcomplement for SAT by12/31/971.3 Initial training of allmanagers and 50 percent of 1.3 Training recordstechnical staff by 12/98, andall technical staff by 12/991.4 Human resources 1.4 Semi-annual report fromdepartment and training unit PCU

I established by 1/98

Baseline and targeted values should be shown, with the latter divided into values expected at mid-term, end of project and full impact.


1.5 Human resource policies 1.5 HR Dept records; trainingincluding employee recordsdevelopment program in effectby 6/981.6 Human resource 1.6 Consultant reports andmanagement system in place procurement recordsby 6/981.7 Financial management 1.7 Consultant reports andsystem in place by 6/98 system documentation

2. Improved tax and customs 2.1 Special Taxpayers Unit 2.1 Semi-annual report from Effective operation of thecollection procedures established by 1/98 PCU and personnel records Special Taxpayers Unit

2.2 Installation of new 2.2 Semi-annual report fromcomputerized tax collection PCUsystems by 12/98 and system documentation2.3 New customs collection 2.3 Semi-annual report fromsystem in place in four PCU and systemlocations by 12/98 and all documentationlocations by 6/99

3. Enhanced voluntary 3.1 Strengthening of 3.1 Consultants reportscompliance institutional capacity to

measure tax compliance by6/993.2 Establishment of grievance 3.2 Semi-annual report fromand assistance units in each PCU and personnel recordsagency by 12/983.3 Appeals system 3.3 Semi-annual report fromreorganized to speed internal PCUprocesses by 20003.4 Enforce banks' compliance 3.4 Semi-annual report from Ability to enforce currentwith contract clauses for PCU contracts with bankscurrent tax collection systemby 6/983.5 Contracts with banks 3.5 Semi-annual report fromreflecting new tax collection PCU and selected contractsprocedures renegotiated by12/983.6 Define actions to improve 3.6 Consultants reports and Timeliness of accurateaccuracy of taxpayer master internal reports taxpayer master filefile by 3/98 and initiateimplementation by 12/98

4. Strengthened control of tax 4.1 Cross-checking system for 4.1 Quarterly report from PCU Delay in implementing cross-evasion VAT purchases and sales and system documentation checking system for VAT

established, and information purchases and saleson purchases requested fromthe 500 largest VAT taxpayersby 7/98.4.2 Definition and 4.2 Semi-annual report fromimplementation of revised PCUaudit policies by 6/984.3 Development of a system 4.3 Semi-annual report fromfor cross-checking relevant tax PCU and systeminformation by 12/98 for audit documentationselection purposes . ._:


4.4 Increase number of 4.4 Semi-annual report fromauditors to 200 by 6/98 and to PCU and personnel records300 by 12/984.5 Training of 200 auditors by 4.5 Semi-annual report from Timely implementation of new12/98 and another 100 auditors PCU and training records tax audit strategiesby 6/994.6 Initiation of special 4.6 Semi-annual report fromprogram of brief issue- PCU and internal recordsoriented VAT audits by 01/98,achievement of 2400 audits in1998 and, at least, maintainthis rate in coming years 4.7 Semi-annual report from4.7 Initiation of special PCU and internal recordsprogram of visits to checkissuance of invoices by 0 1/98and achievement of 5,000visits in 1998 and 10,000 in19994.8 Creation of business 4.8 Semi-annual report fromclosure unit by 01/98 PCU4.9 Request to the judicial 4.9 Semi-annual report fromsystem no less than 10 PCU and legal documentsbusiness closures by 12/98 andat least another 20 closures by06/994.10 Elimination of automatic 4.10 Semi-annual report from80 percent reduction in fines PCUby 01/984.11 Review of legal and 4.11 PCU and consultant The legal and regulatoryregulatory framework reports reviews and recommendationsapplicable to tax are implemented to support theadministration, particularly SAT enforcement capacitywith regard to proceduresrelated to tax collection,investigation and auditing, aswell as the application ofsanctions to tax evadersinitiated by 4/98 andcompleted by 10/98

Project Components Inputs General: Supervision[See Annex 2 for a detailed Legal and specialized consul- missions, review of requestsdescription.] tancies, training and for Bank no-objection to

equipment contract proposals, audits,consultant reports, PCUquarterly reports and semi Adequate availability of

1. Creation and annual reviews. counterpart fundsDevelopment of the 1. Loan cost: $ 4.9 millionSuperintendency of Tax Congressional approval ofAdministration (SAT) submitted SAT legislation1.1 Legal framework 1.1 Legal publications1.2 Institutional development 1.2 Semi-annual report from Sufficient implementation1.3 Human resource PCU capacity to coordinatedevelopment 1.3 Training records interrelated tasks and

supervise consultants

Project Appraisal Document Page 12Country: Guatemala Project irle: Tax Administration Technical Assistance Loan

2. Facilitating Taxpayer 2. Loan cost: $ 6.9 millioncompliance2.1 Process Reengineering 2.1 Consultant and PCU

reports, taxpayer registry2.2 Unit for Attention to 2.2 Internal recordsSpecial Taxpayers2.3 Taxpayer services 2.3 Consultant and PCU(assistance & education) reports2.4 Informatics 2.4 Computerization plan,

procurement records, trainingreports and evaluations

3. Strengthening 3. Total cost: S 7.2 millionEnforcemcnt Mechanisms3.1 Legal Framework 3.1 Draft legislation and Increased tax enforcement

regulations, PCU and supported by the judiciaryconsultant reports

3.2 Strengthening tax audit 3.2 Audit reports, proceduralguidelines, training records

3.3 Modernization of Audit 3.3 Procurement records andInformation Systems system documentation3.4 Strengthening Humsan and 3.4 Hiring records, trainingPhysical Resource reports & evaluations,

procurement records4. Social Communications 4. Loan cost: $ 3.3 million

Campaign4.1 Informational material 4.1 Distribution materials4.2 Communications media4.3 Seminars4.4 Surveys/opinion polls 4.4 Survey results4.5 Education program 4.5 Curriculum4.6 SATs change management

5. Project Coordinating 5. Loan cost: $ 4.6 millionUnit5.1 Staff unit 5.1 Employee records5.2 Procure equipment 5.2 Procurement records5.3 Training 5.3 Training records

Project Appraisal Document Page 13Country: Guatemala Project rTtle: Tax Administration Technical Assistance Loan


Detailed Project Description

Project Component 1 - Creation of the Superintendency of Tax Administration (SAT)US $4.9 million

This component would support: the creation and implementation of the regulatory framework for the SAT; the detailed organizationdesign of the new institution, including the establishment of the SAT's financial and management information systems; thedevelopment of a human resources policy, including the selection and priority training of new personnel, and creation of a newinstitutional culture. The development of this component is based on various diagnoses of the Guatemalan tax and customsadministration system completed between 1994 and 1996. These assessments have identified profound weaknesses in several areas:

i) The organization of the separate internal and external revenue services is unduly complex, reflecting a confusing structure basedon functions (collection and audit) and on taxes (separate units for income and VAT taxes). There is no separation betweenplanning and operations. In Customs, management is especially weak and there are no procedural manuals nor officially-sanctionedwork processes. There is little coordination within or between the two services, contributing, along with poor coordination with theAttorney General's Office, to a poor record of successful tax fraud investigation and prosecution. There is inadequate attentionprovided to large taxpayers, and the effectiveness of the tax collection program using the banking system is limited by its high cost,the rudimentary processing of tax forms, and slowness of payrments forwarded to the Government.

ii) Human resources policies, training, and compensation levels seriously hinder productivity. Only 11 percent and 57 percent ofstaff have university and secondary level degrees, respectively, in the Department of Internal Revenue, while less than 20 percent ofCustoms officers have completed high school. Pay is not competitive, there is no process of selective recruitment or promotion basedon merit, and there is no routinely functioning training program. The Government and public perceive widespread corruption in taxadministration.

iiij Administrative budgets are inadequate, with many Customs posts lacking electricity or telecommunications capabilities,subsistence payments for auditors traveling outside the capital amount are grossly inadequate even if functioning vehicles can besecured, and the ability of the Government to successful investigate sophisticated taxpayers is limited.

Previous attempts at strengthening tax administration have had limited success due to the fundamental problems remaining inorganization and human resource management Therefore, after reviewing cross-country experience, the Government has decided tocreate a new structure that can function under modem operating procedures and performance-based personnel management policies.The SAT would have autonomy in pay and personnel practices designed to attract and retain competent and honest staff. It would begoverned by a Board of Directors. This oversight body is intended to help bring credibility to the Superintendency, supporting theGovernment's intent to establish a politically neutral and professional tax administration regime.

This component will provide technical assistance, goods (including information technology), and training to complete the design andsuccessfully launch the new Superintendency. Sub-components would include three areas:

i) Legal Framework- Technical assistance to prepare the intemal regulations and necessary ancillary legal provisions regarding: (i)SAT management; (ii) regulations of the Board of Directors; (iii) pay and human resources policies; (iv) procurement and contracts;and (v) financial administration of the SAT.

ii) Institutional Development- Technical assistance and information technology for the detailed design and establishment of theorganization, including: (i) its institutional structure and funclion aimed at the establishment of clear lines of authority and reportingfor functional and regional units, separation of units for planning and operations, and appropriate coordination amongst all units; (ii)analysis and description of all job positions and development of a detailed position manual; (iii) establishment of a procurement andcontracting system assuring the proper procurement, maintenumce, and inventory management of goods; and (iv) establishment of amodem budget and accounting system (including information technology) linked to the Integrated Financial Management Systembeing developed within the government, to include appropriately designed and monitored performance indicators as well as internalaudit and control systems.


iii) Human Resources Development- Technical assistance and training for the creation of a modem human resources system through:(i) the design and implementation of a new personnel regime and procedures (including sub-contracting capacity); (ii) developmentof a personnel data base; (iii) survey of compensation levels in the market and creation of a new competitive salary structure andcapacity to adjust salaries and benefits as appropriate; and (iv) development of a personnel evaluation system to serve as the basis forrecruitment, promotion, training, and redundancy. This sub-component also includes support for contracting of a private firm toassist in the design and execution of a personnel selection process through performance testing and personnel screening, with theview of launching the SAT with highly qualified and professionally motivated staff. This selection process will be open to allexisting staff of the Internal Revenue and Customs Services. This sub-component also includes resources for priority training needsof new staff in order to minimize the disruption in tax collection as well as lend support for change management and efforts to createa new service oriented culture within the organization.

Project Component 2 - Facilitating Taxpayer ComplianceUS $6.9 million

This component would support a major effort to improve voluntary taxpayer compliance with tax obligations through: (i)simplification of processes and modernization of information technology systems with the goal of increasing the speed and accuracyof tax collection as well as expansion of tax filing; (ii) creation of a Special Taxpayers Unit to provide increased attention and serviceto large taxpayers; and (iii) establishing Customer Service Units to assist taxpayers in fulfilling their tax obligations. Sub-components would include three areas:

(i) Process Reengineering- Technical assistance, information technology, and training to design and support implementation ofassessments and reengineering of at least five key processes affecting both internal and external revenues with the aim of improvingresults (speed, efficiency, and effectiveness), transparency (through appropriate controls and supervision), and service to the taxpayer(simplification of processes and equity). This sub-component would involve the analysis of business processes currently in use, thedevelopment of improved processes and procedures, the planning and implementation of changes required linked to informationtechnology investments, and monitoring performance under the reformulated processes and procedures to support their continuedimprovement. In Customs: (i) the Government has initiated a process of "self-declaration" designed to substantially reducediscretionality by Customs officers, remove duty collection as a responsibility of those officials, and delegate to import agents andimporters the responsibility to value imports, subject to random checks generated by pre-selected criteria identified in individualcases by a centrally programmed information technology system. This process will be reviewed and strengthened under the project,as well as processes relating to (ii) the transit and warehousing of imports; and (iii) the monitoring of exports (especially fromexporters benefiting from special import concessions). The Government has identified two priority processes in Internal Revenue tobe supported by this sub-component, including: (iv) the design and implementation of a revised (and renegotiated) system of taxcollection through the banking system requiring preliminary processing of tax forms, identification of payments linked to individualtaxpayers, and timely forwarding of payments to the Government; and (v) the tax appeals process. Other initiatives to promotecollection to be supported by this sub-component include: the review, strengthening, and extension of the Unified Taxpayer Registryprogram, which today is considered to comprise grossly outdated information covering only a small percentage of the tax base.

(ii) Unit for Attention to Special Taxpayers- Technical assistance to design and support establishment of a unit to give priorityattention and support to around 500 taxpayers who account for about 65 percent of tax revenue. The unit would provide validationof the information received at the time of declaring and paying taxes, assist in the detection and follow-up of taxpayers' omissionsimmediately after tax due dates, and provide timely taxpayer services and advice to these clients.

(iii) Taxpayer Services- Technical assistance, information technology, and training to develop a national program to disseminateinformation on various basic aspects of tax responsibilities that all taxpayers need to know. It would aim to minimize the time eachtaxpayer spends filling out tax forms, to answer questions relative to any new procedures under the SAT, and reduce the costs ofvoluntary compliance. Additionally, taxpayers would have access to expert advice in an environment of confidentiality. Aninformation system would also be set up to resolve questions by telephone or through other modes of communication to reduce thework load on local taxpayer walk-in service centers. An associated activity would be conducting customer surveys as a mechanismto improve taxpayer services.

Project Component 3 - Strengthening Enforcement Mechanisms


US $7.2 million

This component would support a critically important effort, complementary to the program to improve voluntary tax compliance, bycreating a new Audit Department designed to significantly increase the Government's tax audit capacity and to link informationobtained from both Internal Revenue and Customs. Over the life of the project it would involve: (i) review of the legal framework inorder to strengthen its application in the areas of investigation and audit, identification and collection of tax arrears, and applicationof sanctions; (ii) strengthening of the tax auditing program; (iii) modernization of audit information systems; and (iv) improvementof human and physical resources. Sub-components include four areas:

(i) Review of the Legal Framework- Technical assistance for the review of existing laws and regulations and their applications andpossible revision, as appropriate, in the areas of: (i) access 1to third party information; (ii) restrictions on Government access toinformation held by other Government agencies; (iii) ability to obtain and utilize information from taxpayers relating to their taxobligations; (iv) ability to obtain and utilize accounting, inventory, and other taxpayer documents to support audits; (v) to seizeinformation during investigation of commercial establishments; (vi) power to require taxpayers and third parties to providedeclarations and evidence to courts; (vii) eliminating the ceiling on fines at 20 percent of the tax; (viii) elimination of therequirement of three violations for the same fraud prior to temporary closure of a commercial establishment; (ix) reduction in thenumber of appeals; (x) reduction in processing steps; (xi) elimrnination of the primary role of the Attorney General's Office in theprosecution of tax fraud cases; (xii) official stamping of invoices before their distribution to commercial establishments; (xiii)initiation of partial payments in the event of tax fraud appeal; and (xiv) restrictions on access to judicial injunctions after losing taxcase appeals, among others.

(ii) Strengthening Tax Audit- Technical assistance, information technology, and training to develop and implement: (i) proceduresfor the selection, programming, and execution of audit cases to be supported by data from within and outside the SAT; (ii)procedures for the supervision and monitoring of audits; (iii) programs to strengthen control over invoices and receipts ofcommercial establishments; and (iv) programs for the use of modern computation equipment, including "laptops", in the differentphases of physical and financial audits.

(iii) Modernization of Audit Information Systems- Technical assistance, information technology, and training to design andimplement a multifunction graphic information technology system supporting a modern tax audit program.

(iv) Strengthening of Human and Physical Resources- Technical assistance, training, and some infrastructure support to strengthenthe audit function: (i) supporting a measurable increase in the quality and number of specialized auditors; (ii) creation of aspecialized training program to significantly improve the capacity of auditors; and (iii) purchase of 100 vehicles to facilitate physicalaudits.

Project Component 4 - Social CommunicationsUS $3.3 million

This component would support activities necessary to assure public understanding and support for the objectives of strengthened taxadministration, to inform and educate the general public about the benefits to be derived from the creation and functioning of aprofessional and autonomous tax administration entity, the changes being introduced in tax laws and regulations, the newmechanisms for tax compliance and audit, as well as the rights and responsibilities of taxpayers. Reliance would be placed on aprofessional firm expert in social communications, focus groups and surveys of public opinion about the SAT, creation of publicrelations materials and strategy, and conducting of public forums, workshops, and meetings. Publication of bulletins and brochures,holding information fairs, and open discussions using communications media would be used to explain the various changesassociated with implementation of the SAT. Surveys would also be conducted to evaluate the public's understanding and awarenessof the new laws and procedures to create feedback mechanisms with the aim of developing better tax policy and a more efficient,effective, and respected tax administration. Additionally, an educational program explaining taxpayer rights and responsibilitieswould be made available to primary through tertiary level students, in coordination with education sector authorities. Thecomponent would also finance a communications effort within the SAT to support the change management effort and strengthenknowledge of and commitment to the goals of the organization.

Project Component 5 - Project Coordination

P,ect Apprsal Document Pa9e 16Counlay Gumat - Pract Tie: Tax AdmnhJtran Techrical Assice Loan

US S3.7 million

This component would provide project implementation support by fic intenaional experts and local stafl support personnel,operating costs, and equipment for the Project Coordination Unit The PCU would be responsible for the supervision of the project,contracting of and monitoring of consultant firms and individual consultants, oversight of project finances, preparation of reports,and auditing under the project. International experts in audit, internal revenue and customs processes, and information technology,as well as a senior international project advisor would provide direct support to the project director in key substantive areas, as wellas interface with the consulting firms that are expected to help implement the project. National counterparts in the four projectcomponents will help to coordinate these areas within the project and with SAT management and oversee the institutionalization oftheir respective project elements.

Price Contingency (Unallocated)US S2.2 million

Project Appraisal Document Page 17Country Guatemala Projet T1: Tax Administrtion Technical Assiance Loan

Aanex 3Guatemala Tax Administration TAL

Estimatedl Project Costs

Proiect Comoonent L:ocal Forcign TotalUS $ million---

Creation of Superintendency of Tax Administration 3.4 1.5 4.9Facilitating Taxpayer Compliance 3.3 3.6 6.9Strengthening Enforcement Mechanisms 2.4 4.8 7.2Social Communications 2.8 0.5 3.3Project Coordination 2.6 1.1 3.7Total 14.5 11.5 26.0

Total Baseline CostPhysical ContingenciesPrice Contingencies 0 0 2.2

Total Proiect Cost 28.2

Project l4praisal Documeant IPae 18Country, Guatemala Project Title: Tax Administration Technical Assistance Loan


Cost Effectiveness Analysis Summary2

(Indicate currency, units, and base year)

Present Value of Flows Fiscal ImpactEconomic FinancialAnalysis Analysis3 Taxes Subsidies

Project Costs Minimum increase in$28.2 million N/A N/A the tax ratio from tax

administration measuresalone (8.5 percent ofGDP in 1996)0.9 percent of GDP from2000 onwards

The fiscal impact of this project is estimated by projecting increases in the effective tax ratios arising from proposed taxadministration measures. These reflect both the expected increased efficiency of the fiscal authority to collect and audit,and the estimated impact of the increase in the tax base. A projected scenario (available on file) results from the followingtax administration measures:

* Creation and organizational development of the new Superintendency of Tax Administration, which comprises thefunctions of Internal Revenue and Customs.

X Approval of key amendments to the Tax Code and judicial norms to support punishment of tax evasion.* Establishment of a control system aimed at large contributors by 1998.* Establishment of cross-checking mechanisms.* Improved registering of medium-size contributors during 1997.* Revision of the tax payment system with commercial banks during 1998.* Improved control of smuggling resulting in moderately higher tariff collection.

The scenario is specified for the period covering 1998-2000 and is based on assumed increases in the effective tax-to-GDPratios for:

* value-added tax (VAT)* income tax (ISR)* external tariffs

Forecasts are based on the following assumptions:

* A baseline GDP growth rate of 4 percent;* Constant VAT and ISR consumption and income elasticities;* World Bank forecast data for exports and 1MF data for GDP and imports;* Continuity of the present exchange rate policy throughout the period;* No changes in tax and tariff rates and policies (so as to isolate the effects of the above tax administration measurcs).

The forecasts already incorporate the 1996 fiscal policy and tax administration changes, including:

2This annex was prepared on the basis of the fiscal projection ty prepared by LR. Lpez-Cilix with the mupport of specialized consultants3 If the difference between the present value of financial and economic flows is large and cannot be explained by taxes and subsidies, a brief explanation of the difference iswaTanted, e.g., -Me difference between financial and economic costs arises from price controls on the inputs"

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