Taxation in Asia

Jorge Martinez-Vazquez

• Publisher: Asian Development Bank
• Year: 2011
• Print ISBN: 9789290922988
• eBook ISBN: 9789290923374
• Edition: 1
• Topic: Law
• Subtopic: Tax Law
• Index: Law

This publication presents an overview of tax policy and tax administration issues---how countries in Asia and the Pacific compare with the rest of the world in main taxes, revenue collections, tax morale, and others. The implications of reducing reliance on customs tariff revenues and of using the value-added tax on a broader basis, especially in the services sector, have been analyzed. This note suggests an agenda for reform by discussing whether there is space to increase national revenue collections, how to improve tax administration and enforcement, and how these reforms interact with the decentralization paradigm. The individual country performances, the extent of the shadow economy, and lessons on reforming tax administration have been referenced.

The Singularity of Asia’s Tax Systems

When compared with other areas of the world’s economy, the case of Asia is somewhat peculiar. The region is highly integrated from an economic viewpoint, as is the case in, for example, North America or Western Europe. However, the participant countries are not entirely homogeneous, as is the case in South America or, to a lesser degree, in Eastern Europe. On the other hand, no supranational authority serves to coordinate single countries’ policies and harmonize their institutions, as in the case of Europe. In this section, we look at how these peculiarities are manifested in terms of overall tax burdens and the use of different taxes.

Our review plainly acknowledges that any uniform analysis of Asian countries’ tax policy issues would be quite futile. In fact, we will see that there is large variation in the practice of tax policy across Asian countries. Nevertheless, we are able to focus on some of the tax policy issues which commonly arise within the whole region. Our discussion also highlights specific tax issues for many countries in the region.

Overall Tax Burdens

A significant feature of tax systems in Asia is that tax burdens at a regional scale are among the lowest in the world. However, this statement does not necessarily hold for a number of individual Asian countries.

In Figure 1, we show the evolution of total revenue to gross domestic product (GDP) by region of the world covering the period 1972 to 2005. In the most recent years, the average tax–GDP ratio in Asia has been approximately half that of European Union 15+ countries;² it is also below the ratio for Africa and the Middle East, and for the Americas.

Figure 1 Total Revenue to Gross Domestic Product by Region, 1972–2005

Notes: Consolidated General Government Data; EU15+ includes EU15, Iceland, Norway, and Switzerland.

Source: IMF Government Finance Statistics Database.

Determination of the tax–GDP ratio is a complex process involving many variables but it ultimately reflects a political decision of how much economic activity should be channeled through the public sector. The advantages of a low tax–GDP ratio include a more business-friendly environment and attracting foreign direct investment. Disadvantages include possible lack of resources to provide adequate public services, including those for building human capital (education and health) and public infrastructure. It may also mean lower welfare services and less equitable outcomes.

As shown in Figure 2, there are significant disparities among Asian countries in the tax–GDP ratio. For example, the ratio for Viet Nam is twice that for Pakistan. But note, nevertheless, that even the ratio for Viet Nam is approximately half of that observed in most European Union countries.

Figure 2 Total Tax to Gross Domestic Product Ratio in Selected Asian Economies, 1990–2005

Note: Consolidated General Government Data.

Sources: IMF Government Finance Statistics Database; World Development Indicators.

Tax Composition: Direct versus Indirect Taxes in Asia and the World

The composition or relative reliance on different taxes in Asia is quite different from that observed in other regions of the world. As shown in Table 1, direct taxes (personal income tax [PIT], corporate income tax [CIT], ...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Tables and Figures
• Abbreviations
• Acknowledgments
• Introduction
• The Singularity of Asia’s Tax Systems
• General Scope for Tax Policy Reform
• Centrality of Tax Administration Issues for Improving Performance
• General Tax Administration Reform
• Some Common Lessons for Tax System Reform
• References
• Back Cover