THE International Monetary Fund (IMF) expressed its optimism about the potential of country-specific Medium-Term Revenue Strategy (MTRS) to support both tax reforms and economic growth. Addressing the gathering at the Medium Term Revenue Strategy (MTRS)—Building More Effective Tax Systems the Director of IMF's Fiscal Affairs Department, Mr Vitor Gaspar, stated that the MTRS had the potential to help overcome the difficulties faced by the serious broad tax system reform.

Interspersing his speech with quotes from Austrian tax guru Joseph Alois Schumpeter, he recalled his classic The Crisis of the Tax State published in 1918. He quoted Schumpeter: “The tax system was the organ the development of which entailed the other organs”. The MTRS starts from the formulation of a high-level road map of tax system reform in a country—extending over 4 to 6 years. The MTRS is the sustained process of implementation of this tax system reform over time.

The MRTS concept has been developed by the Platform for Collaboration on Tax (PCT)— an initiative of IMF, World Bank Group, Organisation for Economic Cooperation and development (OECD) and the United Nations. Explaining the need for MRTS, Mr Gaspar stated that the organizing principle is a vision for the future tax system that the country aims for. Clarity of purpose helps to overcome well-known problems in the political economy of tax system reform. Experience points to the fact that erratic, inconsistent efforts at change frequently result in no change at all—or in quick reversal.

He observed that developing a country-specific vision requires a government-led effort and whole-of-government buy-in and support. There should be a broad social and political commitment to tax system reform. Thus, an MTRS process is a country endeavour leading to a broadly supported, public, transparent, tax system reform. The process is fundamentally political and social. Here he invoked Schumpeter as having said: “The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare—all of this and more is written in its fiscal history, stripped of all phrases.”

He explained four inter-dependent components of MTRS. These are: 1) Government determining spending required to support economic and social development, 2) Tax system reform road map itself—covering tax policy, revenue administration, and the legal framework, 3) Sustained medium-term government commitment to reform 4) Coordinated but ‘subordinated' external support to the government-led tax system reform.