On 20 July 2017 the OECD published the latest edition of its publication Revenue Statistics in Asian Countries. This covers trends of revenue statistics in Indonesia, Japan, Kazakhstan, Korea (Rep), Malaysia, Philippines and Singapore between 1990 and 2015. The publication looks at tax ratios, tax structures and taxes by level of government, with a special feature on electronic services in tax administration. Of the countries covered Japan and Korea are members of the OECD but the other countries are not OECD members.
Developing countries need to mobilize government revenue to provide funds for public goods and services including health, education and infrastructure. Taxation is a reliable source of revenue compared to diminishing levels of development assistance and volatility of non-tax revenues relating to commodities. The tax-to-GDP ratio measures the total tax revenue of a country as a proportion of GDP. According to UNESCAP in 2014 a minimum tax-to-GDP ratio of 25% is essential for a country to become a developed economy.
The report points out that tax-to-GDP ratios tend to be lower in Southeast Asia compared to Japan and Korea. The main factors explaining this are low tax compliance in many of the countries (apart from Singapore) and narrow tax bases due to a high number of tax exemptions and incentives introduced to attract foreign investment. The survey shows that tax-to-GDP ratios in the surveyed countries range from 11.8% in Indonesia to more than 32% in Japan, all lower than the OECD average of 34.3% in 2015. All the countries other than Japan and Korea had tax-to-GDP ratios below 18%.
Tax-to-GDP ratios are affected by various domestic and international factors including the importance of agriculture in the economy; the presence of natural resources; openness to trade; the size of the informal economy; powers of the tax administration; levels of corruption; and tax morale. International factors such as tax policies of other countries can also affect the tax-to-GDP ratio.
The tax structure refers to the different taxes that contribute to total revenue. This is an important indicator because different taxes have different social effects. The structures in Japan and Korea are evenly divided between the main categories of tax revenue. In Korea 30.3% of tax revenue is from taxes on income and profits; 26.6% from social security contributions and 28% from taxes on goods and services. This structure is similar to the OECD average. In Japan almost 40% of total tax revenue is from social security contributions and a little below 20% of revenue was from tax on goods and services in 2014.
Indonesia, Malaysia, Philippines Singapore and Kazakhstan derive their tax revenue mainly from taxes on goods and services and taxes on incomes and profits. Together these make up more than 75% of their total tax revenue.
The share of value added tax (VAT) in total tax revenues increased significantly in most Asian countries between 2000 and 2015 including in five of the seven countries surveyed. However the percentage share of VAT revenue in Kazakhstan has decreased mainly owing to a decrease in the VAT standard rate from 20% in 2000 to 12% in 2015. The percentage contribution from VAT also decreased in Korea. The share of VAT to total revenues in the countries remains smaller than the OECD average of 20% (except in Indonesia) partly owing to lower VAT rates in many countries.
In all the countries surveyed the share of corporate income tax revenue in their total tax revenue is higher than the OECD average of 8.8% in 2014. The figures is around 13% for Japan and Korea and higher in the other countries, ranging from 23% in Indonesia to 42.5% in Malaysia. The share of personal income taxes to total revenue rises from 9.4% in Kazakhstan to 21.5% in Indonesia. The Southeast Asian countries and Kazakhstan receive a higher proportion of total tax revenue from corporate income taxes than from personal income taxes, whereas Japan and Korea have a higher proportion from corporate income tax.
VAT Revenue Ratios
The VAT Revenue Ratio (VRR) is the difference between VAT revenue collected and the VAT that could be raised if the VAT standard rate was applied to the whole potential VAT base and all revenue was collected. Of the countries surveyed Japan, Korea and Singapore have quite high VRRs above 65%, mainly owing to the relatively broad VAT base in those countries. The report notes that these countries do not have many reduced rates whereas many OECD countries have one or more reduced VAT rates. This leads to a lower average VRR among OECD countries generally, currently measured at 56%.