Growth prospects in most Asia Pacific countries are projected to remain subdued requiring them to step up productive and countercyclical spending, both as a short term stimulus to the economy and to help remove long term structural constraints to sustaining economic dynamism according to Survey 2014. It advocates government expenditure targeting three key impediments to growth : (i) Socio-economic inequality (ii) infrastructure gaps in connectivity and energy and (iii) environmental degradation and climate change.

Given limited Government funds and declining international development assistance, Asia Pacific developing countries will have to increase fiscal space for productive spending by stepping up financial resource mobilization survey 2014 examines options for this, including higher borrowing and repriotizing public spending towards development. Borrowing carries risks such as high debt servicing costs, maturity mismatches and limited room for macroeconomic policy manoeuvre to revive growth. Nothing the political constraints to reducing government subsidies, which are sizeable in many countries in the region, Survey 2014 advocates strengthening tax revenues.

Overall tax collection in the region is relatively weak in 2011 central government tax revenues averaged 14.8% of GDP in Asia Pacific developing countries against 17.1% in Latin America and the caribean and 16.3% in sub Saharan Africa. This is far from 25-35% of GDP i.e. considered one of the perquisites for being able to provide in the financing and expenditure to become a developed country in Survey 2014.

The good news is that there is a significant gap between potential and actual tax revenues, announcing to more than 5% of GDP in some countries in the region. Survey 2014 estimates that harnessing the additional tax potential in 16 Asia-Pacific developing countries would increase total tax revenues by over 300 billion, boosting tax revenues by over 70% in some countries.

Survey 2014 also notes that although indirect taxes levied on goods services and trade are the main revenue source in more than ½ of Asia-Pacific  countries, these are not only regressive but also affect prices and thereby influence resource reallocation. Direct taxes are more equitable as they can be progressive with higher rates at higher levels of income, it says Survey 2014, therefore suggests strengthening direct taxes revenues by broadening the tax base rationalizing rates, tackling evasion, making tax administration efficient and carefully sequencing tax reforms. Instead of high tax rates and import tariffs, which lead to tax evasion, smuggling and reduced international competitiveness countries should aim for a large tax base with relatively low and consistent rates.

Survey 2014 also emphasizes the urgency of tackling tax fraud and calls for the establishment of special tax courts for this purpose. Doing so is especially important considering that the region for over 60% of the estimated upto 5.9 trillion in illicit financial outflows from the developing world between 2001 & 2010.

A key recommendation of Survey 2014 is the need for regional cooperation on tax issues, including harmonization of taxes, elimination of tax competition and combating cross border tax crimes. It purposes the creation of an Asia-Pacific tax forum under the aegis of ESCAP to monitor tax legislation and regulations across the region, help develop regional best practice and address issues such as avoidance of double taxation and tax competition to attract foreign investment.


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