Oped»
Incentives to work
AUG 22 -
Generally, under a personal performance evaluation system, people receive additional monetary or non-monetary benefits depending on their work output. The government introduced a performance-based incentive system in the revenue administration for the fiscal year 2006/07. It started in the Large Taxpayers’ Office and the Dry-port Customs Office with the goal of enhancing the capacity of officials to deliver hassle-free services to taxpayers, decrease compliance costs and increase government revenue. This system has been extended to all tax and customs offices except the Rasuwa Customs Office under the Department of Customs and the Butwal Tax Office under the Inland Revenue Department. After adopting this system, revenue collection has increased significantly. It increased by 34 percent over the previous fiscal year in FY 2008/09. The ratio of revenue collection to the gross domestic product has also increased. In the fiscal year 2007/09, it was 15 percent, up from 12 percent in 2006/07. The trend of revenue collection has been positive since the implementation of the performance-based incentive system in revenue administration. As a result, revenue collection in the fiscal year 2009/10 increased by more than 25 percent and its contribution to GDP reached nearly 15.8 percent. The positive impact of this system has not only been felt in revenue collection, but also on the integrity, accountability and responsibility of personnel covered under this scheme.
Increasing revenue collection is vital for sustainable development because, in the long run, the country cannot remain dependant on foreign and domestic borrowing. In order for the government to better manage general expenditures, the prime focus should be on managing internal resources and the key to this is maximisation of revenue mobilisation. This is only possible by making some changes—either through modernisation or structural adjustments in the current revenue administration. It is worth remembering that the revenue administration collects more than 85 percent of revenue in the form of taxes; the other 15 percent revenue comes from non-tax revenue sources.
The introduction of a personal performance-based incentive system is one of the most effective steps to modernise revenue administration. This system is based on various functional indicators that have been developed in line with each department’s daily activities and corresponds to the nature of each department’s work. The departments share some similar indicators, and both the Customs and Inland Revenue departments have given more weight to revenue collection. Revenue collection accounts for more than 60 percent of the performance evaluation. The remaining portion goes to other activities and each indicator carries a different weight. As per the performance on each indicator, the final percentage is calculated and each office receives incentives accordingly. Each official can receive a maximum of 200 percent allowances in addition to his/her base salary as per the performance of the functional indicators. But, as of yet, no official has received 200 percent incentive allowances.
Each year the Ministry of Finance performs an internal review and each month the Director General of each of the departments presents a progress report to the finance minister and finance secretary. The committee under the chairmanship of the joint secretary of the revenue division can revise any indicators if needed. The Director General of each department has the right to make additional clarifications when there is any doubt in the calculation of any indicator. The Ministry of Finance still needs to form a committee to evaluate the effectiveness of this system, and on the committee’s recommendation the Ministry of Finance can then make changes to the functional indicators.
The success of the implementation of this performance management system in the revenue administration has inspired the government to introduce it in several other governmental agencies. After realising the necessity of such a system, the government has now introduced it in agencies such as the office of the Prime Minister, the Council of Ministers as well as the Department of Civil Personnel Records, the Nijamati Kitabkhana. The functional indicators that would be used to monitor and evaluate personnel performance in each department may differ from one agency to the next.
In the end, the implementation of any government programme is ultimately funded by tax revenue.
Given this, it is right of taxpayers to know where and in which capacity the government spends the money they pay to the state.
The paucity of effective monitoring and supervision of implemented programmes is a key weakness of governmental administration. It has to be
evaluated whether this performance-based incentive scheme will be able to produce the desired results. This system is in its infancy and it needs to be looked over closely.
The truth is that Nepal’s administration has been suffering from lack of good governance. Therefore, performance-based incentives should be directly linked with good governance. Whatever system is introduced into the governmental institution, how to best improve the service delivery mechanism should always be on the top of the priority list. Consumers need efficient services, not services unnecessarily prolonged and full of hassles. In addition, taxpayers have a right to expect a return on their taxes in the form of social security, economic growth and development.
There can be no debate on the need for equitable distribution of resources, timely delivery of services, good governance, creating a feeling of accountability and responsibility, corruption-free administration, and justice. Implementation of a performance management system does not mean merely providing extra benefits to government employees. It should be closely monitored and in line with performance of the personnel receiving the benefits. Otherwise, there is a huge risk of a backlash for picking favourites.
(Bhandari is officer at the secretariat of revenue secretary, Ministry of Finance)
Posted on: 2010-08-23 07:37
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