Priorities for Strengthening Key Revenue Sources in Asia

This paper discusses the evolution of key taxes during the past 20 years in developing Asia and the fiscal challenges that the region’s economies face in light of the coronavirus disease (COVID-19) pandemic. It presents estimates of tax capacity and tax potential, and discusses the productivity of key taxes in the region. The paper finds that developing Asia has the potential to raise more revenues–reaching up to 4% of gross domestic product on average. While corporate income tax productivity is high vis-à-vis other regions, the same does not apply to personal income tax or value-added tax. There is potential in many economies to raise more revenues by improving the compliance and design of the value-added tax. It is also important to ensure that tax systems in developing Asia become more progressive with the expansion of personal income and property taxes. Increased allocations and better targeting of social spending would help offset some of the regressivity stemming from indirect taxes. An important source of revenue leakage is tax expenditures granted by economies in the region.