KUALA LUMPUR – Reforms to fiscal policy that increase tax collection and income can assist Asian economies in achieving sustainable and inclusive economic growth.
Abdul Abiad, director of macroeconomic research at the Asian Development Bank (ADB), said such reforms must be implemented on a case-by-case basis and in ways that do not hinder growth or impose undue obligations on taxpayers.
“As Asia’s population ages, increased spending on pensions and healthcare will be necessary, while rising affluence will raise expectations for more and better public goods and services.
“Large investments in clean energy are required to combat climate change. To satisfy these and other needs, countries will need to use the full spectrum of private and public financial resources,” he said during the Asian Impact Webinar on Asian Development Outlook 2022.
He suggested that governments consider methods on improving value-added tax collection, revising tax incentives, bringing more enterprises into the formal sector, and optimising personal income and property taxes.
According to the ADB, developing Asian economies may boost tax revenue collection by an average of three to four percentage points as a result of the reforms.
Aside from that, he reiterated that making it easier to register a business and cutting transaction costs, for example, could increase the number of small enterprises in the formal sector which in turn increases tax revenue.
Abdul highlighted that as of 2020, micro, small, and medium-sized businesses in Southeast Asia will made up 98% of all enterprises and 41% of gross domestic product (GDP).
“Governments can also boost tax collection from Asia’s rising digital services industry, which has more than tripled in value since 2005 to US$1.4 trillion (US$1=RM4.22) in 2020,” he added.
He then explained that carbon pricing and fossil fuel taxes have been shown to reduce pollution, and that taxes on alcohol, cigarettes, and unhealthy food and beverages can generate up to 0.6% of GDP while improving health outcomes and lowering medical expenses.
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