Abstract
In South and South-West Asia, tax systems face several challenges which are reflected in poor efficiency in trying to mobilize and manage public financial resources. The complexity of tax structures and the granting of exceptions undermine effectiveness, introduce regressiveness in tax systems and hinder the social contract, all of which take a toll on tax morale and promote informality. Tax reforms are necessary to avoid this vicious circle, while streamlining the tax systems to make them simpler, faster and more effective. Special attention should be paid to coordination of tax administration at different administrative levels, increasing the tax base and strengthening transparency to deter corruption—which may thrive due to the many possibilities for interpreting tax systems. Reforms may not be easy to undertake because the costs of implementing them are borne in the short term, but their benefits are realized in the medium to long run. However, reforms will be the only way to go if South and South-West Asia is to implement the 2030 Agenda.
From the Economic and Social Survey of Asia and the Pacific 2018, by United Nations ESCAP, © (2018) United Nations. Reprinted with the permission of the United Nations.
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Notes
- 1.
The countries considered in South and South-West Asia are: Afghanistan, Bangladesh, Bhutan, India , the Islamic Republic of Iran, Maldives, Nepal, Pakistan, Sri Lanka and Turkey.
- 2.
The IMF standard recommendation for low income countries, which for South and South-West Asia includes only Afghanistan, is an arbitrary 15% to fuel development growth sprints. Recent reports by the World Bank and GIZ reinforce recommended ratios in this range (Long and Miller 2017).
- 3.
The ratio could increase potential/gap: Afghanistan 15.0/6.2; Bangladesh 18.0/7.5; Bhutan 16.0/6.7; Islamic Republic of Iran 13.1/7.2; Maldives 16.5/5.8; Nepal 16.1/0.9; and Pakistan 12.1/1.8. Estimates do not include India (ESCAP 2014).
- 4.
For example, in Brazil, increases in municipal taxation were used to improve both the quality and quantity of education infrastructure, while increases in federal grants had no impact on infrastructure spending at all (Gadenne 2016).
- 5.
For example, in India the first goods and services tax proposal contained one universal rate and no exemptions. The final legislation contains five rates (Economic Times 2018) and various exempted categories that must be defined, categorized and reported in tax returns.
- 6.
As an unweighted average. Latest data available are from the IMF Government Finance Statistics. Available from www.imf.org/en/Data.
- 7.
Rising income levels translate into higher tax intake when there is deliberate government action to modernize the tax system and incentivize formalization of the economy (Besley and Persson 2014).
- 8.
The master file and Country-by-Country (CbyC) reporting requirements predominantly enforce the principles of BEPS Actions 8 to 10 and Action 13 on transfer pricing.
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The authors are grateful to Hamza Ali Malik and Aswini Kumar Mishra for useful comments and guidance.
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Hammill, M., Pedrosa-Garcia, J.A. (2018). Reforming Tax Systems: Key Policy Considerations from South and South-West Asia. In: Mishra, A., Arunachalam, V., Patnaik, D. (eds) Current Issues in the Economy and Finance of India. ICEF 2018 2018. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-99555-7_13
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