- Tax revenue can be increased by improving the collection of existing taxes as well as tapping new areas. We estimate that on average, economies in the region could boost tax revenues by up to 3% to 4% of GDP.
- More revenue can be raised through personal income and property taxes. Governments can also raise taxes on harmful products, put a price on carbon emissions, formalize the shadow economy, and collect taxes on the fast-growing digital economy.
- Fiscal reforms in developing Asia should be supported by better tax administration to make it easier for taxpayers to pay taxes, as well as high-quality public spending to secure public support.
The theme chapter of ADB’s flagship economic publication, Mobilizing Taxes for Development, looks at the urgent need to mobilize fiscal resources in developing Asia, not just to restore fiscal sustainability after COVID-19, but also to fund the vast public spending needed to build a more inclusive and sustainable future. It discusses the potential for the region’s economies to increase often low tax revenues to fund needed investments in areas such as health, education, and the environment.
Why do developing economies in Asia and the Pacific need to mobilize tax revenue?
The region faces a growing demand for public spending on health care, education, and environmental protection, not to mention recovery from the COVID-19 pandemic. There's a need for vast investment in clean energy to fight climate change.
Tax revenues in the region today are relatively low, and without better mobilization, economies will not have the funding to meet these demands.
How can tax revenue be strengthened?
Tax revenue can be increased by improving the collection of existing taxes as well as tapping into new areas. We estimate that on average, economies in the region could boost tax revenues by up to 3% to 4% of GDP, from an average level of 16% before COVID-19.
What are some ways to do this?
The specific solutions will be different for each economy. But all governments in the region can collect value-added tax more efficiently, and they can optimize tax incentives. More revenue can be tapped from personal income and property taxes, which would also improve equity. They can raise taxes on harmful products, like alcohol and tobacco, as well as put a price on carbon emissions—which would generate revenue and directly improve health and the environment.
Governments can encourage small businesses to leave the shadow economy and pay taxes simply by reducing business registration costs. Finally, they can collect taxes on the fast-growing digital economy.
How can tax reforms promote sustainable and inclusive growth?
Taxes are the main way that governments pay for programs and projects that are necessary for sustainable development. Two prominent examples are mitigating the effects of COVID-19 and climate change, which hurt the poor and women disproportionately and threaten growth.
We know from international experience that political will and appropriate reforms can enable even very poor countries to mobilize additional revenues. Reforms should be supported by better tax administration to make it easier for taxpayers to pay taxes, as well as high-quality public spending to secure public support.