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Tax policy analysis

Tax revenues in Asia and the Pacific hit by pre-COVID economic slowdown

 

21/07/2021 – Tax revenues fell in 2019 in two-thirds of economies across Asia and the Pacific as a result of an economic slowdown prior to the COVID-19 pandemic, according to a new OECD report.

 

Revenue Statistics in Asia and the Pacific 2021, launched today at an Asia-Pacific Economic Cooperation (APEC) workshop on tax policy responses to the COVID-19 pandemic, shows that the average tax-to-GDP ratio for the 24 economies in the Asia-Pacific region covered by the report was 21.0% in 2019. This is below the average tax-to-GDP ratio for Latin America and the Caribbean (22.9%) and the OECD (33.8%) in 2019 but above the African average (16.6% in 2018).

 

Tax-to-GDP ratios in Asia and the Pacific ranged from 10.3% in Bhutan to 48.2% in Nauru in 2019. Most of the 14 Asian economies in the report had a tax-to-GDP ratio below the Asia-Pacific (24) average of 21.0% except for Japan, Korea, Mongolia, and China. Meanwhile, six of the ten Pacific economies had a tax-to-GDP ratio above 21.0%, except for Papua New Guinea, Vanuatu, Tokelau, and the Solomon Islands.

 

Of the 15 Asia-Pacific economies where tax-to-GDP ratios fell from the previous year, six registered a decline in excess of 1 percentage point (p.p.): China (exclusive of social security contributions), Fiji, Samoa, Bhutan, the Cook Islands and the Solomon Islands. The figures for Bhutan and the Cook Islands, where tax-to-GDP ratios fell by 2.3 p.p. and 3.0 p.p. respectively, include part of 2020 in the 2019 fiscal year and thus reflect the impact of the early stages of COVID-19 on these economies.

 

Of the seven economies whose tax-to-GDP ratios increased in 2019 from the previous year, the largest increase (equivalent to 12.9 p.p.) was in Nauru following an increase in income tax rates for employees and service providers of the Regional Processing Centre. In the other six economies, the increase amounted to less than 1 p.p. with the exception of Tokelau (1.2 p.p.).

 

Over a longer timeframe, tax-to-GDP ratios rose in 14 of the 24 economies during the past decade, with Korea, Japan, Samoa, the Maldives and Nauru registering the largest increases. The largest decreases between 2010 and 2019 were registered in Viet Nam, Papua New Guinea and Kazakhstan, in each case largely due to falls in revenues from corporate income tax (CIT) as a percentage of GDP. On average, taxes on goods and services are the main source of tax revenues in the Asia-Pacific region (49.8%). As regards taxes on income and profits, Asian economies tend to be more reliant on CIT while Pacific economies are more reliant on personal income taxes.

 

The report also includes data on non-tax revenues for 16 economies in Asia and the Pacific. In 2019, non-tax revenues were greater than 10% of GDP in Samoa (11.0%), the Cook Islands (15.3%), Bhutan (19.2%), Vanuatu (24.2%), Nauru (85.2%) and Tokelau (220.1%). Grants exceeded 30% of total non-tax revenues in Bhutan, the Cook Islands, Lao PDR, Papua New Guinea, Samoa, Tokelau and Vanuatu, while property-related income accounted for more than 40% of non-tax revenues in Singapore, Kazakhstan, Nauru, Thailand, Tokelau, the Philippines, Fiji and Mongolia.

 

A special feature in the publication, written by the Asian Development Bank (ADB), discusses emerging fiscal challenges for the Asia-Pacific region in the post-COVID era. It shows how active involvement in international tax initiatives can assist economies in the region to deal with challenges to domestic resource mobilisation following COVID-19 and to fill the financing gap to fund the sustainable development goals. It also outlines how the ADB Asia-Pacific Tax Hub, recently established to support domestic resource mobilisation and co-ordination of tax policy and administration, could help economies develop and sustain healthy government finances.

 

Revenue Statistics in Asia and the Pacific is jointly produced by the OECD’s Centre for Tax Policy and Administration and the OECD Development Centre with the co-operation of the ADB, the Pacific Island Tax Administrators Association (PITAA), and the Pacific Community (SPC) and support from the governments of Ireland, Japan, Luxembourg, Norway, Sweden, Switzerland and the United Kingdom.

 

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