Priorities for strengthening key revenue sources in Asia

This paper discusses the evolution of key taxes in the past 20 years in developing Asia and fiscal challenges that these countries face in light of the coronavirus disease (COVID-19) pandemic. It presents estimates of tax capacity and tax potential, and discusses the productivity of key taxes in the region. The paper finds that developing Asia has potential to raise more revenues-of up to 4% of gross domestic product on average. While corporate income tax productivity is high vis-a-vis other regions, the same does not apply to personal income tax or the value-added tax. There is potential to raise more revenues by improving the compliance and design of the value-added tax. It is important to ensure that the tax systems in developing Asia become more progressive with expansion of personal income and property taxes. Increased allocations and better targeting of social spending would help offset some of the regressivity stemming from indirect taxes. An important source of revenue leakage is tax expenditures granted by countries in the region.

Fiscal policy for inclusive growth in Asia

This paper discusses how fiscal policy can help foster more inclusive growth in developing Asia. On average, government expenditures in developing Asia are higher, as a share of gross domestic product, than those in Latin America and the Caribbean. Relative to Latin America, developing Asia spends more on social benefits, but less on education and health. While general government revenues have risen since 2000, they are still not sufficient to fully fund targeted transfer programs and provide adequate in-kind benefits to the population. Against this background, this paper discusses priorities for policy reforms as countries in the region seek more inclusiveness and confront the effects of the coronavirus disease (COVID-19). The paper finds that eliminating inefficiencies in health, education, and public investment, for example, would generate the equivalent of 3 percent of gross domestic product. Savings from curtailing subsidies for fossil fuels would also generate resources for expanding redistributive spending. Reallocating health spending toward primary care, and education spending toward primary and secondary education, would help lead to more equitable growth. There is also scope to raise spending on social benefits and better target them to the poor.

Can COVID-19 induce governments to implement tax reforms in developing countries?

We estimate that the short- to medium-term fiscal impact of previous pandemics has been significant in 170 countries (including low-income countries) during the 2000-2018 period. The impact has varied, with pandemics affecting government expenditures more than revenues in advanced economies, while the converse applies to developing countries. Using a subset of 45 developing countries for which tax reform data are available, we find that past pandemics have propelled countries to implement tax reforms, particularly in corporate income taxes, excises and trade taxes. Pandemics do not drive revenue administration reforms.