Supporting Institutional Reforms in Tax and Customs: Integrating Tax and Customs

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The World Bank Group

Supporting Institutional Reforms in Tax and Customs: Integrating Tax and Customs


January 2003

A study prepared by PLS RAMBOLL, Copenhagen, and supported by the Danish Governance Trust Fund.

Table of Contents


1. Introduction 1

2. Case Descriptions 1

Denmark 1

Canada 4

The Netherlands 8

Latvia 12

Colombia 16

3. Motives for Integration 19

4. Merger Strategies 22

5. The Merger Process 27

5.1 Timing 27

5.2 Preparing/planning 29

5.3 Management (leadership) 31

5.4 Culture 34

5.5 Clients/image 36

5.6 IT and Support Systems 37

6. Conclusions 38

  1. Introduction

Integration of customs and taxes has been a topic of interest for the World Bank, the IMF, OECD, and CIAT, among others, over the past decade. The World Bank, in its operational work, examined the integration of tax and customs administrations in a number of countries and found that in several cases lack of cooperation between the agencies ultimately led to a decline in revenue collected. In light of recent trends to merge these agencies, this study revisits the topic for the purpose of:

  • Developing guidelines for types of tax and customs integrations in developing countries, and

  • Facilitating the integration process by identifying best practices from successful mergers

The desire to increase efficiency and effectiveness has been a basic motivation behind mergers since the early 1980s. This study reviews five cases of customs and tax agency integration: Denmark, Canada, Colombia, The Netherlands, and Latvia. The studies were based partly on interviews with managers and partly on reports from each country. Countries were selected because they represent typical patterns in motive and integration strategy, i.e., choice of tools, as depicted below.



of tools




Aims and strategies

Investig. units

Political relations





Operational strat.

Headquater tsructure

Physical organiz.

Judiciary system

Information systems



  1. Case Descriptions


Pre-merger status

In Denmark the Ministry of Taxation separated from the Ministry of Finance in 1975. Under the Tax Minister were Tax and Customs, the latter including VAT and excise duties. Each had its own Permanent Secretary.

The tax administration and control were shared between 275 municipalities and a State Tax Service with regional offices in 25 major cities and Headquarters in Copenhagen. The State Tax Service also developed IT systems, printed tax forms and returns, planned and monitored tax activities, and the like. The municipalities were responsible for collecting income and inheritance tax from physical and juridical persons.

The Customs and Excise organization comprised a headquarters office and 31 local offices, each of which handled the collection and administration of VAT, excise duties, and customs.
The administrations also had their own aims and strategies, coordinated by the Minister and the Directorates. Operational targets were developed independently and not routinely shared. Each institution had its own IT systems, policies, strategies, and own providers. Most IT systems for tax were developed and maintained by the Danish Government’s IT Center, while Customs had its own internal IT development and operating facilities. Regionally and locally, some cooperation existed between Directorates, mainly concerning nuts-and-bolts operational matters.
The merger

The Danish Tax Directorate and the Customs and Excise Directorate merged in 1990. The merger took only six months to complete. C
urrently fully integrated into one organization, they share central and regional offices under the Minister of Taxation, with one Permanent Secretary responsible for both tax and custom issues.

Headquarters is divided into five operational units, each covering both tax and customs, with four support units.

The country is divided into 29 Customs and Tax Regions, including 7 local Customs Centers plus one in the capital, Copenhagen. The regional offices contain the following departments:

  • Administration (collection of customs, VAT, social insurance contributions, excise duties and different administrative tasks).

  • Information (enterprise registration, data on citizens and enterprises, including data verification visits to enterprises).

  • Legal (response to written communication, assessment of properties), and

  • Audit (special audit tasks)

In addition, 12 regional units have a Customs Control Department and 8 a training center.

Each regional office is organized into various enterprise groups. Each group is responsible for collection tasks, including some types of audits. A Legal Department and an Audit Department supports them, while an Internal Service Department looks after administration, i.e., human resource management, office supplies, physical facilities, and accounting.
Local offices–in particular border posts–are integrated into regional units. Municipalities (local governments) are responsible for tasks such as changing tax cards during a given tax-year.
The new organization has one headquarters office and 31 regional offices. The internal structure of regional offices aimed at designing a work environment which enables staff from two different organizations to work together as quickly as possible. In addition, a self-standing regional institution was created to handle all regional issues within prescribed time limits and to facilitate central planning and strategy development.
The current internal organization was implemented in 1995 at a different pace in each regional office. This change was combined with reducing managerial levels from three to two, resulting in an overall reduction in the number of mangers of 38 percent (from 546 to 340). The main driver of structural change was increased efficiency obtained through better knowledge of each taxpaying enterprise. These changes also provided staff with opportunities to develop core competences.

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