Metro Manila (CNN Philippines, April 6) — Developing Asian economies must enact reforms to boost tax revenues for spending in areas like health, education and environment that promote sustainable economic growth, especially after public finances took a hit from the pandemic, the Asian Development Bank said in a report released Wednesday.

"By enacting reforms, developing Asia’s economies could increase tax revenue from a pre-pandemic average of around 16% of GDP by 3 to 4 percentage points on average, according to ADB estimates," the bank's annual Asian Development Outlook added.

Even prior to the health crisis, the United Nations Economic and Social Commission for Asia and the Pacific already projected that the region must increase annual spending by about $1.5 trillion to meet the Sustainable Development Goals come 2030.

"The costly challenge of managing COVID-19 may persist, particularly where vaccine rollout has been slow. Stimulus measures will continue to weigh on government finances," the report noted.

While the bank acknowledged that options to bolster revenues are economy-specific, it listed two priorities with broad promise—better optimization of tax expenditures and more efficient collection of Value Added Tax (VAT).

It cited that making it easier to register a business and lowering transaction costs could bring more small enterprises into the formal economy, enhancing tax collection. In Southeast Asia alone, 98% of all enterprises and 41% of gross domestic product are comprised by micro, small, and medium enterprises (MSMEs) as of 2020.

Governments can also improve tax collection from Asia and the Pacific’s burgeoning trade in digital services, which it said more than tripled since 2005 to $1.4 trillion in 2020.

"VAT on digital imports bolsters revenue, ensures a level playing field for domestic suppliers and is gradually being introduced across developing Asia," the ADB said, stressing the importance of careful management for digital commerce in the region.

Other taxes can raise revenues while promoting protection of the environment and public health, like carbon pricing instruments and fossil fuel taxes to reduce pollution, it added.

The lender also acknowledged how personal income taxes can be used to raise state revenues while promoting equity. However, governments must address the key challenge of prevalent self-employment to increase revenue from these taxes, added the ADB.

It also cited how property taxes could promote equity, as these are "progressive, efficient, and difficult to evade" if designed well.

"Tax liability on immovable property cannot be readily shifted, making property tax less distortive than many others. The tax burden generally falls on property owners, who tend to be wealthier, though pass-through to renters," the report explained, adding that property taxes could help drive up revenues of local governments.

The regional lender said restoring fiscal sustainability after the global health crisis "adds to the urgency of making all forms of fiscal resource mobilization more effective, especially taxes."

Source:

Pilar Manuel, CNN Philippines
https://www.cnnphilippines.com/business/2022/4/6/ADB-Developing-Asia-weakened-finances-COVID-19.html/