In a world reshaped by the COVID-19 pandemic, the Tax Hub will be instrumental in strengthening Domestic Resource Mobilization (DRM) and International Tax Cooperation (ITC) and in supporting developing member countries’ efforts to achieve the Sustainable Development Goals.
The Asia Pacific Tax Hub aims to establish a collaborative and inclusive platform to stimulate dialogue and knowledge sharing on domestic resource mobilization and international tax cooperation in the Asia and Pacific region, to support the Sustainable Development Goals, and to sustain economic recovery from the coronavirus disease (COVID-19) pandemic and other pressing demands.
The COVID-19 pandemic has brought to light serious vulnerabilities across Asia and the Pacific, giving rise to the increase in global poverty, pressure on public services especially in health and education, and the exacerbation of inequality. Governments continue to increase fiscal expenditures to address the pandemic’s health and economic impacts at a time that tax revenue are decreasing. Lacking access to international capital markets, Asia’s lower-income countries are currently heavily dependent on development partners to meet their financing needs. Thus, enhancing domestic resource mobilization is critical to broaden the tax base towards meeting the spending demands and facilitating greener and more inclusive recovery. Moreover, developing members in this region can work together to close tax loopholes that multilateral businesses can use to avoid tax burdens, as well as to combat tax evasion that can be proliferated by interconnected global financial network and sophisticated technologies. Achieving a multilateral consensus-based solution is also pivotal to address the tax challenges from the digitalized economy. These challenges are especially relevant to countries in Asia and the Pacific because their large markets and growing purchasing power will increasingly draw larger investments from multinational corporations. Therefore, international tax cooperation through international tax frameworks by G20 and OECD, such as the Global Forum on Transparency and Exchange of Information for Tax Purposes and the Inclusive Framework on Base Erosion and Profit Shifting, is also key to retaining public trust as they broaden their revenue base.
The lack of a pan-regional tax community is a significant gap in domestic resource mobilization and international tax cooperation in Asia and the Pacific. Although there are important tax communities in the region, such as the Study Group on Tax Administration and Research and the Pacific Islands Tax Administrations Association, the Tax Hub will provide a platform for strategic policy dialogue, knowledge sharing, development collaboration and cooperation, and cover all developing members in this region.
With the COVID-19 pandemic, governments had no choice but to continue to increase fiscal expenditures to address the pandemic’s health and economic impacts while tax revenue are decreasing due to exceptional measures that have been put into place to help businesses community in hardship. But now is already the time to start planning for an eventual exit strategy so as to contain potential risks to macroeconomic stability. First of all, the timing of fiscal normalization should be carefully calibrated and implemented in a phased manner. Lessons learned from the global financial crisis have underscored the importance of carefully considering the fiscal consideration. As countries redefine their revenue strategies, it is important to build on some of the more challenging areas that will require reform for more robust and sustainable domestic resource mobilization which will allow for investments in green, resilient infrastructure and inclusive recovery. Governments in the region have to work together now to achieve a coordinated policy approach and avoid unilateral measures that may only create further opportunities for abuse, result in conflicts, such as double taxation, and create obstacles for the entry of foreign investments that directly contribute to expanding a developing members’ tax base, necessary to restore fiscal balance.
In this regard, the Tax Hub will aim at developing awareness on the value and importance of domestic resource mobilization and international cooperation, and at stimulating regional dialogue and knowledge sharing on critical reforms.
In Asia and the Pacific, there are some important commonalities. On tax policy side, these include (i) a tax structure that can be improved to address a reliance disproportionately on specific revenue, (ii) a lack of progressivity in tax system, (iii) limited efforts at tapping subnational taxation, and (iv) excessive and at times unaccountable tax expenditure measures. On tax administration side, these include (i) weaknesses in tax compliance due in part to a large scale of informal economy, (ii) limited scope to monitor taxpayers including through risk-based auditing, and (iii) inefficient tax administrations with different degrees of digitalization. International tax cooperation will help ADB members retain public trust as they broaden the revenue base, but such a cooperation in this region is still lagging. For example, there are still many of developing member countries which have not participated in the Global Forum on Transparency and Exchange of Information for Tax Purposes and the Inclusive Framework on Base Erosion and Profit Shifting.
The Asia Pacific Tax Hub will have to support each developing member countries based on their specific needs and will develop DRM and ITC programs that are tailored to the specific circumstances and level of development of developing members, that is why the tax hub will be articulated around three building blocks: (i) the development of a medium-term revenue strategy, (ii) the design of a roadmap for the digital transformation of tax administrations and (iii) assistance to achieve the participate effectively in the international tax initiatives.
The Asia Pacific Tax Hub aims at being inclusive, and all ADB members are welcomed and encouraged to join. Any ADB members may contribute to or participate in the Tax Hub activities, including in its capacity building and knowledge sharing activities. ADB member representatives interested in joining the Tax Hub may contact the secretariat for further information by filling in the contact form.
The Asia Pacific Tax Hub will facilitate strategic dialogue on critical reforms in the areas of domestic resource mobilization and international tax cooperation, organize high-level regional conferences that will bring together policy makers and practitioners from both tax policy and tax administration agencies to discuss a regional tax agenda, and organize capacity building activities to enhance ADB developing members’ institutional capacity. These activities will be organized in synergy with development partners to ensure that ADB developing members receive the most efficient support, taking advantage of the best expertise available.
ADB works closely with various development partners in strengthening taxation across Asia and the Pacific. The wide range of skills that already exists at the level of the various development partners will be more effectively disseminated to ADB developing members through an enhanced collaborative approach developed under the auspices of the Asia Pacific Tax Hub. A stock-take on the planned activities is frequently undertaken to ensure coordination and non-duplication of efforts on the activities which will be conducted under the Tax Hub.
The Asia Pacific Tax Hub is a regional and collaborative initiative led by ADB. Donors such as Republic of Korea e-Asia and Knowledge Partnership Fund, as well as ADB’s funding sources such as Technical Assistance Special Fund and Domestic Resource Mobilization Trust Fund, will be the first ones to inject finances into the Tax Hub to strengthen the secretariat functions and develop a user-friendly portal to disseminate information and support its launch and future activities.
The Asia Pacific Tax Hub is led by a dedicated secretariat composed of ADB staff and consultants. For any questions on Asia Pacific Tax Hub related activities, the secretariat may be contacted via the contact form.
At the initial stage of operation and while pandemic restrictions remain in place, the Asia Pacific Tax Hub will be lean and nimble and virtually operated from ADB headquarters. Once the Tax Hub has become fully operational, members will decide the best place to host it physically.