Asian and Pacific economies: decreases in tax revenue highlight need to broaden tax bases

Unsplash 2018 EU

(Unsplash, 2018)

This article is brought to you in association with OECD.


The fifth edition of Revenue Statistics in Asian and Pacific Economies  – released today – shows that tax-to-GDP ratios fell in most of the 16 Asian and Pacific economies covered by the report between 2015 and 2016 due to a combination of policy reforms and decreasing natural resource prices.

While tax revenues have increased in a majority of Asian and Pacific economies over the last decade, the report finds that only three out of the 16 economies increased their tax-to-GDP ratios between 2015 and 2016 compared to nine in the previous year.

For the first time, Revenue Statistics in Asian and Pacific Economies includes six Pacific Island economies – the Cook Islands, Fiji, Papua New Guinea, Samoa, the Solomon Islands and Tokelau – as well as Australia, New Zealand and Thailand, bringing the total number of countries included in the report to 16. The report is a joint publication by the OECD Centre for Tax Policy and Administration and the OECD Development Centre with the co-operation of the Asian Development Bank (ADB), the Pacific Island Tax Administrators Association (PITAA) and the South Pacific Community (SPC) and the support of the European Union. Revenue Statistics in Asian and Pacific Economies 2018 also includes a special feature that explores the management of taxpayer compliance which varies widely in Asian and Pacific economies.

Tax-to-GDP ratios in 2016 varied widely across Asian and Pacific economies. In the Pacific Islands included in the report, tax-to-GDP ratios ranged from 12.2% in Papua New Guinea to 30.0% in the Cook Islands. All but two Pacific economies had tax-to-GDP ratios above 24% while Australia and New Zealand had ratios over 27%. In comparison, the tax-to-GDP ratios in Asian countries ranged from 11.6% in Indonesia to 30.6% in Japan, with all Asian countries other than Japan and Korea having ratios of less than 19%. All countries in the report had a lower tax-to-GDP ratio than the OECD average of 34.0% in 2016. Scope exists in Asian and Pacific economies to broaden tax bases in order to mobilise higher levels of domestic revenues and to reduce vulnerability to external shocks.

The changes in tax-to-GDP ratios observed between 2015 and 2016 were most pronounced in the Pacific Islands. Fiji, Papua New Guinea and the Solomons Islands experienced the largest decreases (of over 0.9 percentage points) and the Cook Islands recorded the largest increase (of 1.5 percentage points). Most Pacific economies maintained high tax-to-GDP ratios relative to many of the Asian economies covered by the report.

Tax structures differ between the Asian and Pacific economies included in the publication. Across all countries, revenues from corporate income tax (CIT) were high by international standards, ranging between 9.4% of total tax revenue in Samoa and 41.1% of total tax revenue in Malaysia in 2016 (in each case higher than the OECD average of 9.0%). However, with three exceptions, Asian countries generated a higher level of CIT revenues than personal income tax revenues in 2016, whereas the reverse was observed for Pacific economies with the exception of Fiji.

Taxes on goods and services are also an important source of revenues in the Asian and Pacific economies. Where levied, value-added taxes (VAT) played a significant role in the tax revenues of Pacific economies in 2016, accounting for more than 25% of revenues except in Australia and Papua New Guinea. VAT was less significant in Asian countries, generating less than 25% of total tax revenue in all Asian countries except Indonesia.


KEY FINDINGS

Tax revenues as a percentage of GDP

  • In 2016, tax-to-GDP ratios varied across the 16 economies, from 11.6% in Indonesia to 31.6% in New Zealand. Tax-to-GDP ratios in the 16 countries were all lower than the OECD average tax-to-GDP ratio of 34.0%.
  • Six of the eight Asian economies in this publication had a tax-to-GDP ratio lower than 19% in 2016 whereas among the Pacific economies, six of the eight economies included in this publication had a tax-to-GDP ratio above 24%.
  • Nearly two-thirds of the economies included in this publication experienced decreases in their tax-to-GDP ratios between 2015 and 2016.
  • The largest changes between 2015 and 2016 in tax-to-GDP ratios were recorded in Papua New Guinea and the Solomon Islands (decreases of 2.2 and 2.1 percentage points, respectively) and in the Cook Islands and Korea (increases of 1.5 and 1.1 percentage points, respectively).
  • Ten economies recorded increases in their tax-to-GDP ratios between 2007 and 2016 whereas decreases were registered in six economies (Kazakhstan, Papua New Guinea, New Zealand, Australia, Malaysia and Indonesia)

Tax structure

  • In 2016, income taxes were the predominant source of tax revenue for Australia, Indonesia, Korea, Malaysia, New Zealand, Papua New Guinea, the Philippines, Singapore and Tokelau. Among these economies, the share of income tax revenues varied from 31.2% in Korea to 61.5% in Papua New Guinea
  • Taxes on goods and services were the main source of tax revenue in Kazakhstan,Thailand, Fiji, the Cook Islands, the Solomon Islands and Samoa in 2016, contributing between 48.2% (Kazakhstan) and 77.2% (Samoa) of total tax revenue.
  • Within this category, revenue from value added taxes (VAT) ranged from 12.9% of total tax revenue in Australia to 46.1% of total tax revenue in the Cook Islands (the Solomon Islands and Tokelau do not impose VAT).
  • Social security contributions were the principal source of tax revenues for Japan (40.4% of total tax revenues). Social security contributions play a small role in tax revenues for the remaining Asian economies, with the exception of Korea (26.2%) and do not exist in Pacific economies.

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