The World Bank Report No: ISR7407 Implementation Status & Results Croatia Revenue Administration Modernization Project (P102778) Public Disclosure Copy Operation Name: Revenue Administration Modernization Project (P102778) Project Stage: Implementation Seq.No: 11 Status: ARCHIVED Archive Date: 17-Sep-2012 Country: Croatia Approval FY: 2007 Product Line: IBRD/IDA Region: EUROPE AND CENTRAL ASIA Lending Instrument: Specific Investment Loan Implementing Agency(ies): Croatian Tax Administration Key Dates Board Approval Date 28-Jun-2007 Original Closing Date 30-Jun-2013 Planned Mid Term Review Date Last Archived ISR Date 25-Jan-2012 Effectiveness Date 21-Dec-2007 Revised Closing Date 30-Jun-2013 Actual Mid Term Review Date Project Development Objectives Project Development Objective (from Project Appraisal Document) The development objective of the Project is to achieve further improvements in efficiency, taxpayer services, and tax compliancethrough capacity building and systems improvement in the Croatian Tax Administration (CTA). This will be accomplished bysupporting the development of a strategic plan for tax modernization and assisting in its implementation over the next five years.This investment will move the tax administration closer toward harmonization of its policies and operations with EU accessionexpectations. Has the Project Development Objective been changed since Board Approval of the Project? Yes No Public Disclosure Copy Page 1 of 6 The World Bank Report No: ISR7407 Component(s) Component Name Component Cost Organizational Consolidationand Functional Realignment of Tax Offices 7.88 Public Disclosure Copy and Functional Realignment of Tax Offices Knowledge and Professional Upgrading of Tax Officials and Stakeholders 2.03 Upgrading of Tax Officials and Stakeholders Technological Upgrading for Services, Management Information System, and TIN Implementation 19.95 Support Services, Management Informatio n System, and TIN Implementation Support Modernization Management and Project Support 1.91 Project Support Overall Ratings Previous Rating Current Rating Progress towards achievement of PDO Moderately Satisfactory Moderately Unsatisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Unsatisfactory Overall Risk Rating Implementation Status Overview Public Disclosure Copy Because the next assessment of the PDO indicators won't be available until the end of October, 2012, progress towards the PDOhasbeen analyzed by reviewing the output indicators specified in the Short-Term Action Plan. The Short-Term Action Plan wasagreeduring the last supervision mission conducted in March, 2012 (details in Annex 5 in the attached Aide Memoire). With thetechnicalsupport of the Task Team, the baselines have been prepared for the Short-Term Action Plan. They show clear improvements inthecompliance and efficiency of tax administration--the two main dimensions of the PDO. The indicators for non-compliance, theamountof tax arrears, and electronic filing have been on a positive trend line for the last few years. The efficiency of thetaxadministration has also advanced as evidenced by the reduced cost-of-collection ratio. However, these results do not reflectthereal situation of the tax system in Croatia because there is no real Large Taxpayers Office (LTO) in operation (compared withOECDstandards). As a consequence, the results fail to capture the impact of large taxpayers' compliance. This is one of thereasonswhy the Bank strongly recommended implementation of a Large Taxpayers Office to ensure the success of the Project. Interms ofproject implementation, CTA agreed to focus reforms on the creation of an LTO. Technical steps and an Implementation Planfor theestablishment of an LTO, agreed in March, should be completed prior to the next mission. Reforms based on technicalandinfrastructure activities also show advances in their procurement processes: E-learning; Page 2 of 6 The World Bank Report No: ISR7407 Business Process AnalysisandRe-engineering of Core Operational and Headquarters Functions; Large Taxpayers Office Advisory Services; External andInternalCommunication; and E-audit activities have been completed (or almost completed) for the procurement processes.However,theimplementation of these activities is only in a preliminary stage, and the assessment of the impact of these activitieswill needto be conducted around the end of 2012. Public Disclosure Copy The technical and procurement documents for the Compliance Risk ManagementSystem andtheCivil Works for the Back-up/Disaster Recovery Site have been completed after incorporating inputs provided by the Bankint helast 3 months. They should be approved by the Bank in September 2012. It is anticipated that the implementation of theseactivitieswill increase loan disbursements. Despite the advances noted above, the impact of the Project in the reform process canonly beassessed around the end of 2012, by which time, it is believed, the activities will have made further advancements. Locations Country First Administrative Division Location Planned Actual Croatia Not Entered Zagreb Results Project Development Objective Indicators Indicator Name Core Unit of Measure Baseline Current End Target Increase in taxpayer compliance rates, based Text Value 89% (2008 data). At least 5% improvement. oninternationally accepted method for Date 31-Dec-2007 04-Oct-2010 31-Dec-2012 estimating the tax gaps. Comments The value will be revised as a result of the next annual assessment in Oct. 2013. Decrease in taxpayer compliance costs, as Text Value 1.2% for CIT, 0.8% for small At least 10% improvement. assessed by taxpayer surveys. taxpayers, 0.03% for individuals according to earlier local study. New methodology to be developed. Baseline data consistent with new methodology to be Public Disclosure Copy developed. Date 31-Dec-2007 04-Oct-2010 31-Dec-2012 Comments The value will be revised as a result of the next annual assessment in Oct. 2013. Page 3 of 6 The World Bank Report No: ISR7407 Perception of taxpayers regarding the quality of Text Value No surveys undertaken. At least 5% improvement. service provided by CTA, as measured by Date 31-Dec-2007 04-Oct-2010 31-Dec-2012 periodic surveys Comments The value will be revised as a Public Disclosure Copy result of the next annual assessment in Oct. 2013. Perception of tax officers regarding the terms Text Value No surveys undertaken. At least 10% improvement. of employment and working environment, as Methodology and baseline measured by periodic surveys. data to be developed. Date 31-Dec-2007 04-Oct-2010 31-Dec-2012 Comments The value will be revised as a result of the next annual assessment in Oct. 2013. Intermediate Results Indicators Indicator Name Core Unit of Measure Baseline Current End Target (IRI 1) Authorized Occupancy Permits for the Text Value None. Obtained. Zagreb Facilities Date 21-Dec-2007 31-Dec-2010 28-Feb-2013 Comments This indicator is no longer relevant to the Project as the activities for the consolidation of the Zagreb Facilities have been canceled. (IRI 2) Ratio of staff in inspections functions as Text Value 15% 30% a percentage of total staff in Zagreb Region, Date 21-Dec-2007 30-Sep-2011 31-Mar-2013 Local Offices, plus LTO Comments (IRI 3) Average annual position vacancy rate Text Value 10.4% 15.1% 5% reduced Date 21-Dec-2007 30-Apr-2012 31-Mar-2013 Comments (IRI 4) Annual turnover for economists, lawyers Text Value 3.6% 15.07% 5.0% Public Disclosure Copy and ICT staff reduced Date 21-Dec-2007 30-Apr-2012 30-Jun-2013 Comments (IRI 5) Annual average assessments per Text Value 348,075 EURO 385,097 EURO 500,000 EURO inspector increased Date 21-Dec-2007 30-Apr-2012 31-Mar-2013 Comments Annualized the value of the 1st Quarter of 96,274.14 EURO Page 4 of 6 The World Bank Report No: ISR7407 (IRI 6) Percent of total declarations by legal Text Value 3.0% 32.68% 80.0% entities filed electronically increased Date 21-Dec-2007 30-Apr-2012 31-Mar-2013 Comments Public Disclosure Copy (IRI 7) Physical and Legal Person ID Text Value OIB was issued and mailed OIB was issued and mailed OIB is used for effective data Operational (OIB) nationwide. nationwide. exchange. Date 30-Sep-2010 30-Apr-2012 31-Mar-2013 Comments A Pilot LTO established Text Value No genuin National LTO Procurement of a new LOT exists advisor in process Date 30-Nov-2011 31-Mar-2012 Comments Data on Financial Performance (as of 21-Oct-2011) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P102778 IBRD-74710 Effective 28-Jun-2007 03-Jul-2007 21-Dec-2007 30-Jun-2013 30-Jun-2013 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P102778 IBRD-74710 Effective USD 68.00 34.00 34.00 9.89 24.21 29.00 Disbursement Graph Public Disclosure Copy Page 5 of 6 The World Bank Report No: ISR7407 Public Disclosure Copy Key Decisions Regarding Implementation CTA has prioritized the implementation of institutional reforms as well infrastructure development, including: (i) establishment of a National Large Taxpayer Office (LTO); (ii) enhancement of change management strategy; and (iii) four operational tools: Long Term Compliance Risk Management; e-Audit; e-Learning; and civil works for Disaster Recovery/ Back Up Center. Restructuring History Level two Approved on 08-Sep-2010 Related Projects There are no related projects. Public Disclosure Copy Page 6 of 6