More progressive taxes can address South-east Asia's inequality, raise revenues: ADB chief

INTRODUCING more progressive income tax and property tax systems can help address the worsening income gaps that have proliferated after the pandemic, said Masatsugu Asakawa, Asian Development Bank's (ADB) president, on Wednesday.

He also called for cooperation among countries to close tax loopholes that multilateral businesses can use to avoid tax burdens, and mooted carbon taxes to accelerate green investment. Besides helping governments to secure sufficient funding, such measures could also create positive conditions for a greener and more inclusive recovery, he added.

"In addition to collaboration, knowledge and innovation, governments need reliable streams of revenue," said Mr Asakawa, speaking at the ADB's second Southeast Asia Development Symposium. "This is a sobering reality.

"Countries in South-east Asia have already allocated over US$420 billion for Covid-19 response measures. This unparalleled fiscal expenditure has been accompanied by a substantial reduction in the tax base. This is due in part to subdued economic growth. But there are also underlying public finance management issues that have been exacerbated by the pandemic.

"In fact, even before the pandemic, the average tax yield of most South-east Asian countries was far below the 15 per cent of GDP (gross domestic product) threshold required for sustainable development. With long-term interest rates rising in the US, this may put further pressure on many ADB developing member countries, in terms of macroeconomic management and fiscal policy," he highlighted.

Against this backdrop, Mr Asakawa called on governments to begin preparing measures to strengthen domestic resource mobilisation. He listed more progressive tax systems, a carbon tax, and cross-border cooperation to close corporate tax loopholes, as examples.

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On Wednesday, the ADB also released a policy brief on strengthening domestic resource mobilisation in South-east Asia.

The brief highlighted relatively low tax yields in South-east Asia, despite strong and steady GDP growth in many countries. The ADB's scan of available data suggested that South-east Asian countries' tax revenues as a percentage of GDP ranged from about 8 per cent in Myanmar, to 24 per cent in Timor-Leste.

Cambodia, Thailand, the Philippines and Vietnam have higher tax yields of about 16 to 19 per cent of GDP. In the middle are Singapore, Indonesia and Malaysia, with tax revenues ranging from about 12 to 13 per cent. Laos and Myanmar collect about 11 per cent and 8 per cent of GDP in tax revenues respectively.

Broadening personal income tax, wealth and property taxes, and environmental taxes were identified as measures that could help governments generate more revenues. The ADB also called for closer cooperation to manage aggressive tax planning and combat tax evasion, adding that it had made addressing Base Erosion and Profit Shifting and international tax cooperation a "major priority".

The ADB plans to launch a regional hub for domestic resource mobilisation and international tax cooperation at a regional conference this May. "The hub will promote greater collaboration among the region's fiscal authorities as they pursue needed reforms," said Mr Asakawa in his speech. "The hub will also serve as a platform for countries and development partners to exchange ideas, knowledge and best practices; and to better coordinate their actions."