Tax administration is a complex and critical issue for countries in Asia and the Pacific. An efficient and effective tax system allows a country to mobilize local resources and target them toward economic and social development.
Based on the latest available data surveyed by ADB, the average tax-to-GDP ratio for 28 economies in the region was only 17.5% in 2015, just a little over half the average tax ratio among OECD economies, 34%. Almost a third of Asian countries have a tax-to-GDP ratio of less than 15%, the minimum threshold required for sustainable development in the absence of other sources of government revenue.
Studies have shown that setting up modern tax collection systems through the use of electronic services, such as e-filing and e-payment of taxes, is one way of improving tax compliance. Simple services—such as providing comprehensive information on the website, tools and calculators on website, integrated tax payment accounts, online applications for taxpayers, electronic invoice systems for business, data capture from third parties, and digital mailbox capability—can make a huge difference.
Many citizens and business owners are often unfamiliar with the technical jargon of tax-related topics. That is why it is imperative for revenue agencies to have plans to reduce taxpayers’ compliance burden by making it easy for them to understand the system.
It is good to note that many Asian economies are gradually making progress in transforming their tax administration in the digital age.
The identification and registration of both individual and corporate taxpayers is fundamental to a revenue body’s system of managing all aspects of taxpayers’ affairs. The systematic recording and updating of taxpayers’ identifying and updating of information, and the allocation of a unique high-integrity taxpayer identifier number (TIN) enables the efficient conduct of all downstream administration processes.
While the challenges of tax administration are many, several countries in the region have useful models that others can adapt to their own circumstances. For instance, considerable progress has been made with the use of electronic filing of tax returns for major taxes in India, Kazakhstan, Malaysia, Mongolia, Nepal, Singapore, and Taipei,China.
Electronic filing systems can facilitate the process for revenue bodies and taxpayers alike to collect the most basic and important data that taxpayers are required to provide to revenue bodies. One outstanding example here is Bhutan, where the rate of e-filing of personal income tax jumped from 23% to 70% in just one year in 2015.
As for tax payment, again the use of modern payment systems can deliver significant benefits to taxpayers, revenue bodies, government, and the finance sector. Mandatory electronic payments are required by revenue bodies in the People’s Republic of China, Indonesia, Mongolia, and Viet Nam.
Fully electronic payment methods have been shown to be significantly less costly to administer, and typically enable quicker updating of taxpayers’ accounts.
An example of an e-payment initiative recently implemented by Indonesia is the so-called “Mini ATM” – an electronic payment device initiated by the Directorate General of Taxes (DGT) to facilitate and to expand access in tax payments. The Mini ATM uses an electronic data capture machine on which the taxpayer can simply swipe a debit card to pay tax.
The payment process starts with taxpayers obtaining an electronic billing code from several channels, including through the official DGT website, internet banking, application service providers, and short messaging service. Once obtained, taxpayers can use the billing code to complete the tax payment procedure using the Mini ATM.
This new feature is expected to deliver good results so that it can be implemented nationwide. It can also be integrated with other tax services, such as the mobile tax unit.
Over the last four years, ADB has made tax administration a critical area for knowledge sharing. We recently published the third edition of A Comparative Analysis of Tax Administration in Asia and the Pacific. Covering 28 economies in Asia and the Pacific, the series compares brings a comparative focus to the arrangements in place for national tax administration arrangements across much of the region.
The report surveys revenue bodies and related research and provides analyses of the frameworks, structures, processes and performance of revenue bodies, while contrasting various developments and their progress. It complements many of its observations by referencing examples of practical guidance and diagnostic materials promoted by international bodies such as the International Monetary Fund and the OECD.
Significantly, the latest study yields useful highlights enormous divergences in administrative setups and performance, in large part reflecting differences in the level of economic development of the countries covered by the series.