Implementing Good Governance and Combating Corruption
41. Four conference sessions tackled the issues of Implementing
Good Governance and Combating Corruption. The first,
by Dr. Clay Wescott, a Senior Public Administration Specialist
in ADB’s Regional and Sustainable Development Department,
addressed the topic “Good Governance for Improved
Tax Policy and Administration”.
42. Beginning a few years ago, the Asian Development Bank
started to pay serious attention to governance issues. The
Board of the ADB was the first of an international financial
institution to adopt and implement a governance policy, defining
governance as “The manner in which power is exercised
in the management of a country’s social and economic
resources for development”.
43. One challenge in approving the new policy came from
Article 36 of the ADB’s Charter, which states that the Bank
“shall not interfere in the political affairs of any member nor
shall they be influenced in their decisions by the political character
of the member concerned. Only economic considerations
shall be relevant to their decisions...”. Yet, the policy justifies
ADB’s governance work because “...the success of the ADB’s
project investments depends on borrowers having a sound institutional
framework, and implementation capacity”.
44. The policy specifies four elements of good governance:
accountability, participation, predictability, and transparency.
Accountability means, for example, calling tax officials to
account for their actions. It means answerability: requiring
officials to respond to questions concerning official actions.
And, it means consequences: that there is certain punishment
when officials or taxpayers are caught breaking the law.
45. Participation means encouraging feedback from taxpayers
(facilitated by information and communications technology),
investigative reporting by a free, professional media,
and a role for commercial associations, lobbies, and direct
action by citizens, through tax protests. The benefit of encouraging
such participation is that it helps provide reliable
information and serves as a reality check and watchdog on
officials. However, many governments resist measures to increase
participation. A recent study found that there was not a
single World Bank project during the 1990s supporting tax
reform with a component for improved tax administration.
46. Predictability means that tax regulations are clear, known
in advance, and uniformly and effectively enforced with minimal
discretion for tax officials. It also means that regulatory
frameworks minimize hidden taxes. Corruption is the most
common source of unpredictability.
47. Transparency means low-cost access to procedural information
which is relevant and understandable. Information and
communications technology offers good possibilities for the
low-cost transfer of information.
48. One challenge for the ADB and other donors working in
this area is that studies show that increasing aid to a developing
member country can sometimes worsen governance. Data since
1995 show that countries receiving more aid tended to have
increasing political instability, and worsening regulatory quality
and rule of law. The possible reasons: aid can weaken institutional
capacity, siphon off scarce talent from the bureaucracy,
and weaken accountability. It can also lead to conflict over control
of aid funds, and alleviate pressures to reform inefficient
policies and institutions. ADB needs to be careful to avoid these
problems in assisting developing member countries.
49. Good governance helps the poor by facilitating markets
and economic growth, by promoting participation and empowerment,
by ensuring that lawful taxes are paid so that public
services are adequately funded, and by enabling delivery of
high-quality services. Lower income homes pay more for corruption.
In Bangalore, India, for example, 33% of poor reportedly
have to pay bribes, while only 14% of the non-poor have
to pay bribes. Corruption hurts the poor through lower growth,
regressive taxes, reduced and lower quality services, higher investment
risks, and lack of protection of legal and civil rights.
50. An area of increasing interest for governance reform is
fiscal decentralization: transferring fiscal, political and administrative
functions from higher to lower levels of government.
There are three types of decentralization.
Deconcentration means assigning certain functions to branch
offices. Delegation means transferring tasks from one public
agency to another agency or service provider. Devolution
means transferring authority for tasks to autonomous, locallevel
51. Countries adopt fiscal decentralization in hopes of expanding
democracy. They also hope for efficiency gains, and improved
service through agency arrangements. In some cases, decentralization
is a response to demands for regional autonomy. Questions
for further research include: Has decentralization brought
efficiency gains, improved revenue collection and/or expenditure
management? If participation has increased, is there any
evidence of corresponding improved systems of accountability?
Where there has been an increase in local democracy, has it helped
the poor? There is some evidence that middle and upper classes
use well-financed lobbying to secure resources, despite demo6
ADBI Executive Summary Series No. S65/02
cratic structures. The poor have difficulties exercising political
rights because of poor information, geographic dispersion, weak
communication infrastructure, and fear of reprisals.
52. In order to plan its assistance to developing member countries,
the ADB carries out three types of governance assessments:
governance checklists, governance reviews, and
performance based allocation ratings. The ADB then works
with other agencies such as the IMF and the World Bank to
provide coherent packages of assistance for improving public
financial management and other aspects of governance.
53. Assessments of tax systems are important to carry out prior
to designing such assistance programs. These assessments look
at four main areas: policy formulation, accountability, service
delivery effectiveness, and service delivery efficiency.
54. In the area of policy formulation, topics include performance
of the policy function, including simplicity, equity and
comprehensiveness of administrative law and taxpayer procedures.
There are also capacity issues, including human resource
quality and quantity for policy formulation and
research, and institutional issues such as autonomy, budget,
laws, organizational structure, no political interference in administrative
decisions, and an appropriate tax structure.
55. In the area of accountability, topics include performance
issues such as corruption, revenue loss due to administrative
lapses, and quality and frequency of taxpayer surveys. There
are also capacity issues such as quantity and quality human
resources and other resources for management inspection, audit,
anticorruption, training, and participation, as well as institutional
issues such as internal and external audit programs,
the availability of an ombudsman, the use of taxpayer surveys,
the application of penalties, and the provision of incentives.
56. In the area of service delivery effectiveness, topics include
performance indicators (same before and after reform).
There are also capacity issues including quantity and quality
human resources and other resources for management inspection,
audit, anticorruption, training, participation, budget, and
appropriate outsourcing, and institutional issues such as taxpayer
identification, taxpayer education and services, appeals,
information exchange and sharing, and clearance procedures.
57. In the area of service delivery efficiency, topics include
performance indicators (same before and after reform), timeliness,
convenience. Capacity and institutional issues are the
same as for effectiveness.
58. Finally, assessments of tax policy and administration need
to take into account relevant constraints such as the level of
development, openness, the standards of the accountancy profession,
financial and banking regulations, literacy, compliance
attitudes of taxpayers, credibility of government, and
civil service conditions.
59. The second presentation on the theme of good governance
and combating corruption was by Mr. Jak Jabes, Advisor for
Governance in the Regional and Sustainable Development Department
of the Asian Development Bank. He explained the
“Asia-Pacific Region’s Anti-Corruption Action Plan”.
60. Reaction towards corruption is not only because it is a
nuisance. Economists estimate that corruption can cost up to
17% of a country’s gross domestic product in Asia, robbing
the population of precious resources that can be used to reduce
poverty and promote sustainable development.
Corruption’s devastating effects on political stability and economic
growth are further reinforced when money does not
come or simply moves out. For instance, many countries with
low scores on Transparency International’s Corruption Index
have significant problems in attracting foreign investment.
61. The Anti-Corruption Action Plan’s origins date from 1999
when the ADB and the OECD commenced cooperation on
raising awareness on corruption in the Asia-Pacific region.
Two conferences had brought together civil servants, politicians,
academics, media, civil society and business representatives
to learn from each other the extent of the corruption
problem in the region. During 2001, participants to these
events mandated the two organizations to develop a useful
instrument for the region. Working with experts from some
dozen countries along with international civil society and the
business community, the ADB and OECD facilitated the drafting
of an action plan to address corruption in the region.
62. The plan, an historical first for the Asia-Pacific region,
was adopted by 17 countries from the Asia-Pacific region
meeting in Tokyo in November 2001. In May 2002,
Kazakhstan became the 18th country to endorse the Action
Plan. By endorsing the Action Plan, the participating governments
pledged to undertake reforms that would curb corruption
in their countries and to report the outcomes of these
reforms to their peers, the other endorsers of this Plan.
63. The Action Plan is based on three pillars of action: developing
effective and transparent systems for public service, strengthening
anti-bribery actions, and supporting active public
involvement in the process. One can view tax administration
reform as taking place both at a policy level as well as at the
administrative and management level. Much information from
countries that have already undertaken reforms is available when
it comes to tax policy. Developing countries often try to emulate
such policy measures and pass the necessary legislation to
allow changes in tax collection systems. Unfortunately, the problem
often lies in implementation of policy, which has to be done
through tax administrations at the national and local (regional,
provincial, municipal) levels. Good tax policy that remains on
books and cannot be implemented, because of administrative
culture, low salaried personnel ‘seeking rents’, lack of appropriate
information technology or lack of training which leads to
low morale in civil servants working in tax areas. Furthermore,
corruption in tax does not get reduced.
64. The Action Plan requires each country to identify a limited
set of actions within the three pillars and to report on the
reforms undertaken to a peer group within 12 to 18 months. A
Secretariat of ADB and OECD provides support to help each
country in implementing the Plan, and especially finding resources
to facilitate reform. The endorsing countries constitute
the Steering Group.
65. The Steering Group has met in 2002 and started examining
projects being submitted by endorsing countries. Discussion
has revolved around the necessity to reinforce actions at
ADBI Executive Summary Series No. S65/02 7
the regional level and to continue the dialogue on anti-corruption
among neighbouring countries. A medium-term strategy
has also been agreed upon.
66. Tax reform requires political will, an administrative culture
that emphasizes good governance, and the right reward
structure for civil servants. There are examples of countries
which have achieved this, such as Singapore, over a short
period of time. Singapore’s success is mainly due to political
leaders committed to an anti-corruption strategy which reduces
opportunities and incentives for corrupt behavior.
67. While every international organization has positions against
corruption and remedies for curbing it, experience suggests that
in the Asia-Pacific region, an inclusive approach such as this
one may have a real chance of success. Countries have endorsed
a plan that was drafted by them on the basis of extensive consultation
with their governments and revised to reflect a general
consensus that provides a broad palette of reforms that
participating countries can work on in the coming years.
68. The countries which have endorsed the Anti-Corruption
Initiative, Bangladesh, Cook Islands, Fiji, India, Indonesia, Japan,
Kazakhstan, Kyrgyzstan, Korea, Malaysia, Mongolia,
Nepal, Pakistan, Papua New Guinea, Philippines, Samoa,
Singapore, and Vanuatu, are working hard to meet the Plan’s
implementation obligations. The Secretariat has started to work
with countries which have not yet endorsed the Plan to seek
their concurrence. The U.S. State Department has funded an
advisor to work with endorsing countries and support them in
their implementation efforts. The ADB believes that with realistic
expectations and concerted effort, the Asia-Pacific region
will embrace the fight against corruption in this new millennium
and that this Action Plan will be a useful instrument.
69. A third session on Good Governance and Combating
Corruption organized by Mr. Jak Jabes and Dr. Clay Wescott
was based on roundtable contributions by conference participants.
Participants were divided into five groups and each group
identified priority policy measures they would recommend to
attack corruption and to improve the integrity of tax administration
in their jurisdictions. The results were plotted in a table
and revealed a striking consistency. In particular, clear and
comprehensive rules in lieu of ambiguity and discretion and
open and transparent rule-making and administrative processes
were nominated time and again as first priorities.
70. Subsequent roundtable discussions looked at a number of
related issues including the question of whether revenue collection
agencies should be constituted as independent entities
or as government departments. The general consensus appeared
to be that independence from political interference was the key
to good governance and the form of the legal entity was not as
important as its ability to operate free of such interference.
71. Another issue raised in the roundtable discussion was
whether revenue authorities should be permitted to pay bonuses
to staff for meeting collection targets. It was pointed out that
such an approach is difficult to implement as the success of an
agency rests on contributions by all levels of staff, not only the
inspectors in the field, and in an efficiently operating agency it
would be difficult to impossible to identify which aspect of the
collection process had been most effective. More importantly,
adoption of a system that tied remuneration to collections would
indicate that officers had some discretion in the application of
the law. Bonus based remuneration would not be possible under
a regime based on a transparent and comprehensive law as
there would be no scope for tax officers to exercise discretions
in the interpretation or application of the law. Adoption of a
bonus system thus presumed ambiguities and uncertainty in
the law that invited discretion and ultimately corruption.
72. Finally, the fourth session on the theme of good governance
and combating corruption was again by Dr. Wescott
who looked at the role of information and communication
technology as a tool to support reform in a paper entitled “Egovernment:
Supporting Tax and Other Public Sector Reforms
in the Asia-Pacific Region”.
73. E-government is the use of information and communications
technology (ICT) to promote more efficient and costeffective
government, facilitate more convenient government
services, allow greater public access to information, and make
government more accountable to citizens.
74. A number of basic principles are important to consider in
adopting e-government. First, ICT is a tool, potentially powerful
yet essentially no different from a photocopier or a car,
in the sense that user needs and requirements must come first
and dictate whether and how the ICT tool should be used. For
certain functions, pencil and paper, or a telephone, or a faceto-
face meeting, or a visit to the library is far more effective
than computers or the internet.
75. This obvious point must be strssed because governments,
consultants, or donor agencies often encourage computerizing
anything in sight. Indeed, it could be argued that ICT innovation
is now largely supply- and marketing-driven rather than dictated
by the needs and requirements of the users. Thus, as for any
tool, it is essential to assess realistically and compare the costs
of a given ICT change with the actual benefits expected from it.
76. Second, the ICT “techie” and the “public manager” should
not work in isolation from one another. Improvements in public-
sector effectiveness stem largely from better rules and procedures
in the sector concerned. To apply advanced ICT to
obsolete or inefficient rules and processes means in effect to
computerize inefficiency. Doing the wrong thing faster is not
progress. On the other hand, the absence of relevant ICT
knowledge risks either costly mistakes or missed opportunities
for dramatic service improvements.
77. Third, ICT cannot substitute for good public management
and internal controls. When Algeria’s state-owned banks
introduced a computerized system, the result was not to improve
the banking system, but to make more visible the inadequate
accounting system and frequency of manual errors. In
this way, ICT can contribute to structural reforms, but is only
part of the process.
78. Fourth, the introduction of ICT can reduce corruption by
better enforcing rules, reducing discretion of officials, and
increasing transparency. Indeed, officials may resist new ICT
systems for fear of losing corrupt incomes. Yet, while ICT
8 ADBI Executive Summary Series No. S65/02
eliminates many opportunities for corruption for those who
do not understand fully the new technology, it opens up new
corruption vistas for those who understand the new systems
well enough to manipulate them. In a sense, ICT permits an
intergenerational shift in corruption and rent seeking.
79. Fifth, there is considerable public and private sector experience
showing that the acquisition of large ICT systems is
a complex matter. For example, a study of ICT projects in the
United States in 2000 found that only 28 percent were completed
on time, within budget, and with full functionality; 23
percent were cancelled, and 49 percent were late, over budget
or delivered with less than full functionality.
80. That said, ICT’s wonderful potential has been hardly used
in most Asia-Pacific countries to increase government accountability,
transparency, and participation; to improve the efficiency
and effectiveness of public-sector operations; to widen access
to public services; and to disseminate information to the public
and get feedback from relevant stakeholders and service users.
81. Reasons for slow adoption of ICT by the Asia-Pacific public
sector include the difficulty of attracting ICT professionals
to public service, weak legal framework dealing with such
matters as digital signatures, inadequate intellectual property
protection, a lack of e-commerce rules, security issues, weak
procurement procedures and standards for ICT, and the prevalence
of silo systems where most communication is vertical
rather than horizontal. Other factors include inadequate ICT
infrastructure, high user charges, weak ICT planning, project
management, support and monitoring of results, and supply
driven projects, with weak assessment of user requirements.
82. Some jurisdictions, such as Singapore, Hong Kong, China
and Andhra Pradesh state in India are quite advanced in egovernment,
but they are the exceptions. In the tax area, many
other governments have websites providing tax information,
and some (e.g. Philippines, Indonesia) are experimenting with
e-filing for large taxpayers.
83. E-commerce presents a potential challenge to tax authorities
because of loss in tax revenues as products are shipped
electronically instead of physically. Issues include how to define
the product, and thus relevant trade treaty (GATT vs.
GATS) that applies, opportunities for consumption vs. income
taxes, and the need for international cooperation and harmonization
of tax rules to encourage expansion of e-commerce,
and to prevent tax competition.
84. The risks of e-government need to be carefully managed,
including the difficulties of carrying out organizational change.
Governments may need to change the way public agencies do
business to accommodate off-the-shelf software (or face the
cost and even potential drawbacks of customized software).
This may mean changing laws and regulations, improving ICT
awareness, and even shaking up important persons’ roles and
85. Governments also have to manage the risk of overly complex,
customized and time-consuming procurement by carefully
reviewing latest off-the-shelf products, starting small and
scaling up fast, using success of pilots to secure commitment
to change by management and staff, ensuring clear accountability
in ICT projects, and recruiting and retaining talent.
86. Finally, there are major risks of possible alteration or loss
of records during migration from manual to electronic systems,
and the chance that essential functions will not be performed
as new systems have teething problems. To minimize these risks,
organizations can maintain manual backup until integrity of
electronic system is assured, ensure the capture/creation of reliable
records to serve as evidence of accountable acts and transactions,
safeguard the integrity and authenticity of all records
within the regime for as long as they are required, and provide
for the accessibility and updating of records.