In most countries, the bulk of public revenues is raised through taxes. Governments levy taxes on a range of activities across the economy and make different policy choices on both their tax rates and their tax base, i.e. the mix of activities, actors and income sources subject to taxation. Governments typically aim to spread taxes across a broad base to help limit the impacts and disincentive effects they may generate in any one area of the economy or society.
General government tax revenues in SEA countries averaged 14.3% of GDP in 2023 (Figure 2.13). This accounts for 80% of the total government revenue in the region (17.8% of GDP; see Figure 2.10). In four of eight SEA countries, tax revenues as a percentage of GDP declined between 2019 and 2023, remaining slightly below the 2019 average of 14.8%. Tax revenues as a percentage of GDP in SEA countries also remain significantly below the OECD average (34.0% of GDP in 2022). Further tax policy and administration reforms will be necessary in the future if SEA governments aim to collect a greater proportion of GDP and enhance the provision of public services, public investment and/or income redistribution. This may involve revising tax policy to remove unnecessary tax exemptions and taxing new activities effectively as their economies continue to grow and develop. It may also involve improving the capacity of their revenue authorities.
Tax structures vary across the SEA region, in line with the differing economies of the SEA countries (Figure 2.14). Lao PDR and Cambodia, both lower-middle-income economies, derive a greater proportion of tax revenue from taxes on goods and services. These are often administratively simpler to implement than other types of taxation, though they can also be more regressive. Both countries have made progress in lessening the proportion of tax revenue raised from this source since 2019, with Lao PDR cutting it from 76% to 72% in 2022, and Cambodia from 72% to 64%. Thailand, the Philippines, Indonesia, and Malaysia, most of which are upper-middle-income economies, collect a greater proportion of revenue from taxes on income and profits, which are more administratively complex but also generally more progressive. Thailand slightly increased the proportion of revenue from this source from 36% of taxation in 2019 to 37% in 2022. Taxes on income and profits accounted for 33% of revenues in the Philippines in 2022, and 42% in Indonesia. This is similar to the OECD average of 37%. Malaysia has a distinct tax structure compared to others in the region, with 67% of tax revenues from taxes on income and profits. Recent or ongoing measures to expand the tax base have included expanding the scope of taxable services, introducing a capital gains tax on unlisted shares and exploring a high-value goods tax (ADB, 2024). Singapore, as a geographically small and highly urbanised country, raises 13% of its revenue from property taxes (including stamp duties). This is above the OECD average of 5%. Brunei Darussalam generates most public revenues from non-tax sources (oil and gas sales) and is not shown.
Social security contributions average only 7% of tax revenue in SEA countries, compared to 25% across the OECD. This may reflect differing policy choices. A contributing factor may also be the higher levels of informal employment and economic activity in SEA countries. This limits the extent to which social benefits such as unemployment insurance can be made available by governments in SEA countries.
