On 25 July 2019, the Organisation for Economic Cooperation and Development (OECD) published (the Report). The Report, in its sixth edition, is part of a long-standing series of similar regional reports from the OECD and covers 17 jurisdictions.1 The Report includes tax revenue data from 2007 to 2017,2 and also provides non-tax revenue data for five Pacific economies – the Cook Islands, Papua New Guinea, Samoa, Tokelau and Vanuatu.
The Report, also available in Japanese,3 is a joint publication of the OECD Centre for Tax Policy and Administration and the OECD Development Centre. It was produced with the co-operation of the Asian Development Bank (ADB), the Pacific Islands Tax Administrators Association and the Pacific Community and the financial support of the European Union. The Report also includes a special feature exploring the operations of tax administrations in the region, which was produced in collaboration with the ADB.
According to the Report, the ratios of tax revenues, including social security contributions, to gross domestic product (tax-to-GDP ratios) increased from 2016 to 2017 in 9 of the 15 economies for which 2017 data was available in the Report (it was not available for Australia or Japan), compared with increases in only 3 of the covered economies between 2015 and 2016.
Tax revenues as a percentage of GDP
Tax-to-GDP ratios in all 15 Asian and Pacific economies in the Report for which 2017 data was available (it was not available for Australia and Japan) were lower than the OECD average tax-to-GDP ratio of 34.2% in 2017.
Tax-to-GDP ratios in 2017 across the 15 jurisdictions varied considerably, ranging from 11.5% in Indonesia to 32.0% in New Zealand. In general, tax-to-GDP ratios were higher in the Pacific economies than in the Asian economies; the Pacific economies had tax-to-GDP ratios in 2017 higher than 24%, with the exceptions of Tokelau (14.2%) and Vanuatu (17.1%), while the Asian economies reported tax-to-GDP ratios in 2017 below 18%, with the exception of Korea (26.9%).
In comparing annual results, 9 of the 15 Asian and Pacific economies with 2017 data in the Report had higher tax-to-GDP ratios in 2017 than in 2016, whereas 6 of the 15 economies had lower ratios in 2017. The largest increases were in Fiji and Vanuatu, at 1.7 percentage points (p.p.) and 1.9 p.p. respectively. Three other economies had increases of 1 percentage point or more (Kazakhstan, 1.5 p.p.; Solomon Islands, 1.1 p.p. and Singapore, 1.0 p.p.). Most of the decreases were relatively small: Malaysia and Papua New Guinea had the largest decreases between 2016 and 2017, at -0.7 p.p. for both economies.
Taking a longer-term view of the data, the highest increases between 2007 and 2017 (2016 for Australia and Japan where that was the latest data available) were in Fiji and the Solomon Islands (4.4 and 4.5 p.p., respectively), which the Report attributes primarily to increases in revenue from income tax and other taxes on goods and services in both countries. Across the same period, Kazakhstan and Papua New Guinea experienced the largest decreases in their tax-to-GDP ratios (9.7 and 7.0 p.p., respectively), driven in both cases by decreases in corporate income tax revenues which the Report attributes to the impact of declining prices of natural resources (during the global financial crisis and also in 2014-15) on the profitability of companies in the mining and oil sector in both countries, as well as to a reduction of corporate income tax rates in Kazakhstan.
In 9 of the 15 Asian and Pacific economies covered in the Report for which 2017 data was available, taxes on goods and services accounted for the largest share of tax revenues in 2017. The Report further notes that within goods and services taxes, value-added tax (VAT) is an important and increasing source of revenues in most Asian and Pacific economies.
Income taxes provided the main share of tax revenues in the eight remaining countries. Across all the covered economies (with the exception of Tokelau, which does not impose corporate income tax, and Vanuatu, which does not impose income taxes), revenues from corporate income tax ranged in 2017 from 9.1% of total tax revenue in Samoa to 41.5% in Malaysia.
Overall, the Report notes that the tax structure of the Asian economies tends to differ from that of the Pacific economies; In 2017, VAT accounted for at least 25% of total tax revenue in the Pacific economies with the exception of Papua New Guinea, but less than 25% in the Asian economies except Indonesia. Revenues from VAT ranged from 13.2% of total tax revenue in the Philippines to 44.4% in the Cook Islands (the Solomon Islands and Tokelau do not impose VAT) and was higher as a share of total taxes in the Pacific compared to Asian economies.
The Report also contains a special feature titled Tax administration operations, which is based on Chapter VI of the 2018 Comparative Analysis of Tax Administration in Asia published by the ADB. This part of the Report provides a summary of key functions of revenue body operations, either as observed in one or more jurisdictions or as recommended. For each function observed, the summary includes several specific examples from around the region. The functions discussed are:
- Taxpayer registration
- Taxpayer education
- Taxpayer services
- Tax return and payment processing
- Verification programs
- Dispute resolution
- Enforced return filing and debt collection
- Support functions
The Report indicates that structural economic factors are a key determinant of tax-to-GDP ratios; these include the importance of agriculture in a jurisdiction, overall openness to trade and the size of any informal economy. Furthermore, the Report notes that the tax policy and tax administration structure the jurisdiction uses also strongly influences the level of tax revenue. This includes the power and approach of the tax administration, including whether they seek to have a constructive, trust-based relationship with taxpayers in general and with multinational enterprises in particular.
Overall, the tax mix in these Asian and Pacific countries tend to differ quite considerably from other OECD countries. First, VAT is an important and increasing source of revenues in most of these Asian and Pacific economies. Second, across all the Asian and Pacific economies covered (with the exception of Tokelau and Vanuatu, which do not impose it), corporate income tax revenues as a share of total tax revenues are higher – almost five times higher, in the case of Malaysia – than the OECD average.
Companies should closely monitor tax policies in countries where they have operations. They also may want to review how tax policy has evolved in other countries that have had similar tax mixes in the past.
1. The 17 economies covered are Australia, Cook Islands, Fiji, Indonesia, Japan, Kazakhstan, Korea, Malaysia, New Zealand, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Thailand, Tokelau and Vanuatu.
2. For Australia and Japan, the most recent data included in the report is from 2016.
EYG no. 003521-19Gbl
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