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



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Colombia


Pre-merger status

The case of Colombia is in effect a story in two parts. The “pre-merger” situation was in fact an even earlier attempt to reform the tax and customs administrations. In 1991, Colombia approved a new national constitution replacing the one of 1886. The constitution called for a more open society, economically and politically, and extended broad powers to reform the public administration. Based on these powers, the National Tax and Customs Directorate (DIAN) was created in December 1992, beginning operations July 1, 1993. Previously, the Tax Directorate (DIN) and the Customs Directorate (DAN) operated separately and pursued independent corporate strategies, with no contemplation of integration. The Tax Directorate had developed an ambitious reform agenda to the point where it had become a model for public sector reform.


Many forces came to bear on the creation of the Customs Directorate. In 1991, with a new environment of globalization, the role of customs was expected to change radically and to be focused less on the control of flow of the goods and more on the collection of customs fees, VAT, and excises—all revenue management issues. Moreover, the Ministry of Finance desired to extend the successful reform efforts of the Tax Directorate to Customs. Also, international experience suggested the merger of customs and taxes was an attractive organizational alternative. All these factors came to bear on the creation of DIAN. However, there was no well-prepared plan for merging the two agencies.
The detailed work on DIAN design took place after its creation and launching in July 1993. The design that emerged was ambitious and daring. Customs (as traditionally understood) almost disappeared and was subsumed by a “tax” operational framework. The new design did not however prove sustainable for several reasons.
The merger

The Colombian National Tax and Customs Directorate (DIAN) is only partly integrated. The bulk of collection is done at non-integrated local offices. These offices collect 84% of all revenues, while integrated offices collect only 16%. The figure below depicts what is centralized and what remains separate.


A public-private sector commission created with the 1995 tax reform forced DIAN executive management to agree on an anti-evasion and anti-smuggling campaign. Thus, a compromise was reached with the private sector to counter-reform DIAN. A new DIAN would emerge in 1997.

DIAN is a Special Administrative Unit that reports to the Ministry of Finance and Public Credit, and has its own budget, giving it a degree of administrative autonomy. The objectives and strategies of Customs and Taxes are integrated, and operational objectives are coordinated at headquarters. However, there are separate tax (DIN) and customs (DAN) units, and most revenues are collected at separate tax and customs local offices. The idea of integrated customs and tax offices at the local level has diminished in importance. IT systems are only partially integrated. Tax and customs forms are prepared by the same central unit. The tax identification number (TIN) and taxpayer and revenue accounting are the same, as are payment conditions, interest, and other charges.


Effects of the merger

The detailed work on DIAN design took place after its launching in 1993. The new design did not prove sustainable. A public-private sector commission created with the 1995 tax reform forced DIAN executive management to agree on an anti-evasion and anti-smuggling campaign. Thus, a compromise was reached with the private sector to backtrack on DIAN’s reform. A new DIAN emerged in 1997.


Today, a number of functions are integrated in DIAN: enforced collection; economic analysis; legal department; IT management; planning; internal control; HR development; fiscal and customs police; and special operations Functions that are separated include: foreign trade services; audit; foreign exchange control, and arrest and seizure.

The combination of integrated work in headquarters and independent tax and customs offices at the local level raises serious questions about the actual level of integration achieved. The bulk of collection is done at non-integrated local offices.





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