Southeast Asia Symposium on Domestic Resource Mobilization for COVID-19 Economic Recovery - Ahmed Saeed

Speech | 1 December 2020

First of all, I would like to warmly welcome all of you to the Southeast Asia Symposium on Domestic Resource Mobilization for COVID-19 Economic Recovery.

This symposium marks our strong partnership with the governments and tax authorities in the Association of Southeast Asian Nations (ASEAN) and Timor-Leste to shape domestic resource mobilization strategies for addressing the evolving COVID-19 challenges and building the foundation for rapid economic recovery. This event signifies ADB’s commitment under our long-term Strategy 2030 to strengthening governance and institutional capacity to help our developing member countries build resilience and respond to economic shocks.

Like any other parts of the world, Southeast Asia has felt the detrimental impacts of COVID-19. In September 2020, the Asian Development Outlook 2020 Update revised downward the region’s growth forecast in 2020 from 1.0% to a contraction of 3.8%, before bouncing back to 5.5% growth in 2021.

In the context of Southeast Asia, domestic revenues were considered insufficient to support the Sustainable Development Goals (SDGs) even before the pandemic hit. In 2018, the average tax-to-GDP ratio in Southeast Asia stood at 14.8%, well below average 17.6% in developing Asia and 24.9% in OECD countries. Many economies in the region did not achieve a minimum tax yield of 15% of GDP—the level considered to be the minimum for sustainable development—and declining tax-to-GDP ratios are not uncommon in the region.

The COVID-19 crisis has adversely impacted the tax revenue collections in Southeast Asia. The data on tax revenue reported for the first few months of the calendar year indicates substantial fall in tax revenue across the entire region. Countries such as Brunei Darussalam, Indonesia, Lao PDR, Malaysia, Singapore, Thailand, and Viet Nam, which generate significant public revenues from production, tourism, or commodity exports, will likely experience a sharp drop in revenues as a result.

With the current revenue compression, the fiscal challenge becomes even greater. High levels of public debt, coupled with additional fiscal pressure induced by the pandemic, pose unprecedented challenges for policymakers and tax authorities to mobilize domestic revenues to finance much needed public spending such as healthcare, education, and basic infrastructure, and reinstate strong growth trajectories.

These developments remind us of the importance of broadening the tax base and enhancing tax compliance. At the same time, we must also address the issue of tax revenue mobilization and administration, including institutional capacity, from a longer-term perspective.

Against this backdrop, the symposium offers a unique opportunity for representatives from the Finance Ministries and tax authorities to discuss and exchange ideas on how to address the emerging and evolving issues of domestic resource mobilization (DRM) and international tax cooperation (ITC) to usher in sustainable and inclusive economic recovery.

There are at least four main issues and challenges of domestic resource mobilization that have emerged from the COVID-19 crisis.

First, it is critical to contemplate the right timing for and approaches to unwinding tax and fiscal stimulus measures in the aftermath of COVID-19. One of the key lessons from the 2008 Global  Financial Crisis is that once recovery is underway, governments should shift from crisis management to fiscal consolidation, including through more structural tax reforms. However,
they must be careful not to act prematurely as this could jeopardize recovery.

Second, as Southeast Asian economies begin to enter the early stages of recovery, tax policy will be an important part of country strategies to restore public finances in a fair and sustainable way after the crisis. Countries are expected to explore a wide range of options such as expanding the tax base, improving tax compliance, and diversifying sources of government revenues. The policy consideration may be extended to identify tax policy measures to achieve development outcomes including getting SDGs on track.

Third, as the pandemic places renewed emphasis on revenue strategy, tax administrations are finding themselves on the front lines of a rapid and intense digital transformation. Tax administrations must shift the focus from simply processing taxpayers’ data to proactively improving compliance, policies, and efficiency. Modern revenue strategies will increasingly count on digital platforms because they are necessary to effectively pursuing critical policy objectives and strengthening tax enforcement in a rapidly growing digital economy.

Finally, the fiscal impact of the pandemic makes the pursuit of ITC a timely agenda to advance. Efforts to protect corporate income tax bases against corporate tax avoidance by multinationals have continued with the adoption of significant reforms in line with the OECD/G20 Base Erosion and Profit Shifting (BEPS). This challenge becomes more imminent given the digital transformation—which has accelerated due to COVID-19 mobility restrictions—will continue to increase. There have been emerging needs for re-designing domestic tax frameworks to support membership of international cooperative forums as well as the steps required to become part of the global standard. Some countries in the region may also need to focus on building internal capacity to take full advantage of the new opportunities.

On 17 September 2020, ADB announced the establishment of a regional hub on DRM and ITC in Asia and the Pacific. This hub will serve as an open platform where countries and development partners can collaborate closely to share experiences and practical knowledge and can coordinate on development support. I believe that closer and stronger collaboration among tax policy and revenue administration bodies and development partners will be crucial to address the emerging domestic revenue mobilization challenges in the aftermath of COVID-19 pandemic.

ADB will mainstream DRM and ITC in our operations in Southeast Asia. We will proactively use our technical assistance and lending modalities, such as project loans and policy-based lending (PBL), to promote DRM and adoption of international tax standards.

We will support the formulation of national action plans to set directions under a country-specific medium-term revenue strategy, including planning for eventual fiscal consolidation over the medium term. We will help Southeast Asian DMCs create an enabling environment for businesses and strengthen institution for addressing BEPS and tax evasion. ADB can also help revenue agencies make stronger investments in technology for tax administration.

The symposium will shed light on ways forward for ADB to step up our support through the regional hub. I look forward to productive discussions and successful outcomes of the symposium.

Thank you.