Chapter 1. Tax revenue trends in Asian and Pacific economies

In light of the United Nations 2030 Agenda for Sustainable Development, awareness is increasing of the need to mobilise government revenue in developing countries to fund public goods and services. Taxation provides a predictable and sustainable source of government revenue, in contrast with official development assistance and the volatility of non-tax revenues with respect to commodity prices.

This report presents detailed and internationally comparable data on tax revenues in 17 Asian and Pacific economies: Australia, the Cook Islands, Fiji, Indonesia, Japan, Kazakhstan, Korea, Malaysia, New Zealand, Papua New Guinea, the Philippines, Samoa, Singapore, the Solomon Islands, Thailand, Tokelau and Vanuatu; and on non-tax revenues for five Pacific Islands (the Cook Islands, Papua New Guinea, Samoa, Tokelau and Vanuatu). This chapter discusses key tax indicators for this group of economies: the tax-to-GDP ratio, the tax structure and the share of tax revenue by level of government; and non-tax revenue for selected Pacific economies. The discussion is supplemented by detailed information for each economy in Chapters 4 and 5.

1.1. Tax ratios

Tax-to-GDP ratios in 2017

In 2017, tax-to-GDP ratios in the Asia and Pacific region ranged from 11.5% in Indonesia to 32.0% in New Zealand. Eight of the 17 economies had tax-to-GDP ratios above the Latin American and the Caribbean (LAC) average of 22.8% in 2017, and all economies in the publication had lower ratios than the OECD average of 34.2%. All of the Asian countries covered in this publication had a tax-to-GDP ratio below 20%, with the exception of Japan at 30.6% (2016 figure) and Korea at 26.9% respectively. Among the Pacific economies, six of the nine economies included in this publication had a tax-to-GDP ratio above 24%, with the exception of Papua New Guinea (13.7%), Tokelau (14.2%) and Vanuatu (17.1%).

Structural economic factors are a key determinant of tax-to-GDP ratios across economies. These include the importance of agriculture in the economy, openness to trade and the size of the informal economy. Agriculture, for example, is a challenging sector to tax: most people in the agriculture sector in developing economies are on low incomes and many are not registered for tax purposes (PEAKS, 2013[2]). In addition, agriculture benefits from numerous tax exemptions. For example, Malaysia allows an agriculture allowance to be deducted from profits of eligible businesses (Inland Revenue Board of Malaysia, 2016[3]) and goods and services related to the agriculture sector are exempt from import duty and excise duty (Ministry of International Trade and Industry, 2016[4]).

In addition to structural economic factors, tax policy and tax administration settings also strongly influence the level of tax revenues. These include the power of tax administrations, the levels of corruption within these administrations and tax morale (i.e. willingness of people to pay taxes) (OECD, 2014[5]). For example, (Aizenman, 2015[6]) found that in Asia, government effectiveness and institution quality are positively correlated with the level of tax-to-GDP ratio. Finally, in general, GDP-per-capita is also related to tax-to-GDP ratios. Tax-to-GDP ratios tend to be higher in high-income economies, although the relationship is not direct and is less pronounced at lower levels of income due to the influence of other factors. It is in particular less pronounced in Asian and Pacific economies (Figure 1.2).

Figure 1.1. Tax-to-GDP ratios in Asian and Pacific Economies, 2017

A relatively high share of agriculture in Indonesia’s economy (above 10% of GDP) compared to the other Asian countries in this publication as well as a low openness to trade contribute to its low tax-to-GDP ratio, together with high levels of informality (estimated to amount to around 57.6% of employment), tax evasion and narrow tax bases (OECD, 2019[10]). Indonesia has undertaken reforms to strengthen tax administration, increase tax revenues and reduce its dependence on oil revenues. It has set a goal of increasing its tax-to-GDP ratio to 17% of GDP by 2019 (OECD, 2018[11]).

These reforms have focused on modernising processes and systems, building human capacity and enhancing the tax administration’s integrity (OECD, 2018[11]). Since 2014, Indonesia has also reformed its social insurance system. It has created or restructured several social security programmes, including work accident insurance, and pensions for formal and non-formal workers. A new health insurance programme for all Indonesians covered 78% of the population in 2018 (OECD, 2019[10]). Further details are provided below.

Figure 1.2. Tax-to-GDP ratios and GDP per capita (in PPP) in Asian and Pacific economies, Latin America and the Caribbean, OECD and African countries, 2017

Box 1.1. Enhancing domestic resource mobilisation in Small Island Developing States through revenue statistics

Small Island Developing States (SIDS) comprise a diverse group of the smallest and most remote economies in the world. They are located across the African, Asian, Latin American and the Caribbean, and Pacific regions. They share a common and unique set of development challenges owing to their small populations and landmasses, spatial dispersion and remoteness from major markets, and exposure to severe climate-related events and natural disasters. With small and undiversified economies, SIDS are highly vulnerable to external shocks, as they rely strongly on the global economy for financial services, tourism, remittances and concessional finance.

One common challenge faced by SIDS is the achievement of adequate domestic resource mobilisation and debt sustainability. Domestic revenues are often erratic due to narrow economic productive bases, often concentrated in sectors that are exposed to external fluctuations, such as natural resources or tourism. At the same time, SIDS typically have large current expenditures, as the high unit costs of providing services to small and scattered populations increase public sector expenditures above the average levels of other developing countries (29% of GDP in SIDS, compared to 22% in other developing countries in 2014 (Horscroft, 2014[12])). Severe climate events and natural disasters also tend to have heavy fiscal and economic impacts. These factors lead to high levels of public debt for many SIDS (57% of GDP compared to 47% for all developing countries in 2015) and reduce the fiscal space to invest in development.

Taxes are an important and more stable source of revenues in many SIDS economies, although economies’ ability to raise domestic revenues varies significantly. The Global Revenue Statistics publications and database (OECD, 2019[9]) shows that among the Pacific SIDS, tax-to-GDP ratios ranged from 13.7% in Papua New Guinea to 27.6% in the Cook Islands in 2017. Among African SIDS, Cabo Verde had a tax-to-GDP ratio of 19% and Mauritius of 20% in 2016 (OECD/ATAF/AUC, 2018[13]). Finally, SIDS in Latin America and the Caribbean had the biggest variation, from Dominican Republic’s tax-to-GDP ratio of 13.9% to Cuba’s ratio of 40.6% in 2017 (OECD et al., 2019[14]).

Opportunities exist in many SIDS to expand domestic resource mobilisation and improve the stability of domestic revenues through enhanced management of key sectors, including fisheries, tourism and natural resource extraction. Policies to reduce “leakages” from these sectors – especially tourism – and to support backward and forward linkages with other domestic sectors (e.g. food and agriculture, consumer goods and construction) could expand the taxable production base.

Improving the efficiency of revenue collection, enlarging the tax base and employing efficient tax policies are also essential to increase the resources required to sustain development. The Global Revenue Statistics project supports 17 SIDS1 in these efforts by providing accurate, comparable and detailed data on their tax revenues. This information is essential for tax policy making and administrative reforms, and forms a common evidence base for mutual learning across SIDS on how to scale up domestic resource mobilisation. The OECD is deepening analysis on the role of domestic revenue mobilisation in financing sustainable development in SIDS.

By Piera Tortora and Talita Yamashiro Fordelone, based on Making Development Cooperation Work for Small Island Developing States (OECD, 2018[15]) and on the Global Revenue Statistics database (OECD, 2019[9])

← 1. The SIDS included in Global Revenue Statistics as at July 2019 are: the Bahamas, Barbados, Belize, Cabo Verde, the Cook Islands, Cuba, the Dominican Republic, Fiji, Guyana, Jamaica, Mauritius, Papua New Guinea, Samoa, Singapore, the Solomon Islands, Trinidad and Tobago, and Vanuatu.

The relationship between GDP-per-capita and tax levels across the Asian and Pacific economies in this publication is more varied and less direct than seen across LAC or OECD countries. Five Asian and Pacific economies have broadly similar GDP-per-capita and tax-to-GDP ratios as the majority of LAC countries. Papua New Guinea, Vanuatu and the Solomon Islands have similar per capita levels of income but their tax-to-GDP ratios differ markedly. In contrast, Australia, Japan, Korea and New Zealand have higher per capita income and tax-to-GDP ratios. Finally, Singapore has the highest GDP-per-capita of the 17 economies and one of the lowest tax-to-GDP ratios. The high GDP-per-capita in Singapore results from significant inward flows of foreign direct investment (FDI) due to its attractive business climate and stable political environment (UNCTAD, 2012[16]); whereas the tax-to-GDP ratio is explained by lower income tax rates (particularly on corporate income) and VAT rates compared to other Asian and Pacific economies (UNESCAP, 2014[17]).

Changes in tax-to-GDP ratios in 2017

Since 2016, nearly two-thirds of the economies in this publication for which 2017 data is available have experienced increases in their tax-to-GDP ratios (Figure 1.3). Nine economies had higher tax-to-GDP ratios in 2017 relative to 2016, whereas six economies had lower ratios in 2016. The largest increases were seen in Fiji and Vanuatu, at 1.7 percentage points (p.p.) and 1.9 p.p. respectively. Three other economies (Kazakhstan, 1.5 p.p.; the Solomon Islands, 1.1 p.p. and Singapore, 1.0 p.p.) had increases greater than 1.0 percentage point. Most of the decreases were comparatively small: Malaysia and Papua New Guinea experienced the largest decreases between 2016 and 2017, at -0.7 percentage points for both economies.

Figure 1.3. Annual changes in tax-to-GDP ratios

Different factors accounted for the large increases in the tax-to-GDP ratios of Vanuatu and Fiji in 2017. The increase in Vanuatu reflected a recovery of tax revenues after the country was hit by Cyclone Pam in March 2015. After the cyclone, the tax-to-GDP ratio fell from 17.4% in 2014 to 15.3% in 2016, recovering to 17.1% in 2017. In Fiji, the increase of 1.7 percentage points was due to increases in revenue from taxes on goods and services (0.9 percentage points) and from corporate income taxes (0.8 percentage points), driven by:

Strong economic performance and improved compliance of corporations (Fiji Revenue & Customs Service, 2017[18]). Tax audits by the Fiji Revenue and Customs Administration allowed recovery of one-off tax debts equivalent to 0.5% of GDP (IMF, 2018[19]);
Reforms to the VAT system (e.g. reduction of the number of exemptions and zero-rated products), reducing the underreporting of VAT (Fiji Revenue & Customs Service, 2017[18]);
Revenue from the environmental levy, which was introduced in 2016, nearly doubled in 2017.

The decreases in the tax-to-GDP ratios of Papua New Guinea and Malaysia were driven by changes in taxes on corporate income and on goods and services in both countries:

In Malaysia, revenues from taxes on corporate income and taxes on specific goods and services decreased by 0.2% and 0.3% of GDP respectively. Between 2016 and 2017, nominal GDP growth was double than that of tax revenues. Even though tax revenues increased in nominal terms in most of the main categories (with the notable exception of taxes on specific goods and services), all decreased as a percentage of GDP between 2016 and 2017. To strengthen tax revenues, the IMF has recommended a number of measures such as broadening the base of personal income tax (PIT), increasing excise rates, implementing a capital gains tax, strengthening the recently reintroduced the sales and services tax (SST)1 and reviewing tax incentives for corporate investment (IMF, 2018[20]).
In Papua New Guinea, revenue from corporate income tax (CIT) decreased by 0.5% of GDP between 2016 and 2017 while VAT revenues decreased by 0.3% of GDP. Between 2016 and 2017, there was a general downturn in economy in Papua New Guinea which lowered oil prices and disrupted the largest mine projects. Shortages in foreign currency negatively impacted business activities (World Bank Group, 2017[21]).

Figure 1.4. Net changes in tax-to-GDP ratios between 2016 and 2017

Evolution of tax-to-GDP ratios since 2007

Across a longer time horizon, ten economies in the publication have increased their tax-to-GDP ratios since 20072, whereas seven have not (Australia, Indonesia, Kazakhstan, Malaysia, Papua New Guinea, New Zealand and Vanuatu).

Figure 1.5. Changes in tax-to-GDP ratios, 2007-17 and 2012-17

Across the period, the largest decreases in tax-to-GDP ratios were in Kazakhstan and Papua New Guinea (respectively by 9.7 percentage points and 7.0 percentage points), which were both affected by the fall in mineral resource prices between 2007 and 2017. By contrast, the tax-to-GDP ratios of Fiji, Samoa and the Solomon Islands grew by over 3.0 percentage points over the same period. The change in the tax-to-GDP ratio for the remaining economies ranged from a decrease of 1.9 percentage points in New Zealand and Vanuatu to an increase of 3.0 percentage points in Japan.

Across the Asian countries included in the publication, the change in tax-to-GDP ratios ranged from -9.7 percentage points in Kazakhstan to 3.0 percentage points in Japan, with three of the Asian countries covered decreasing, four increasing and one country (Thailand) showing no change. Across the Pacific economies in this publication, tax-to-GDP ratio changes ranged from -7.0 percentage points in Papua New Guinea and 4.5 percentage points in the Solomon Islands. The distribution of changes across the period was similar to those of the Asian countries: ratios in four Pacific Island economies decreased; one (Tokelau) had no change; and four increased.

Changes in tax-to-GDP ratios from 2007-17 by tax category

Between 2007 and 2017, CIT revenues were the driver of the major decreases observed in tax-to-GDP ratios in many economies, whereas VAT contributed to several of the increases, although to a lesser extent. These changes reflect a diverse range of policy measures and economic developments in Asian and Pacific economies over this period.

Of the six economies where tax-to-GDP ratios declined between 2007 and 2017, lower CIT revenues contributed in four (the exceptions being Australia and New Zealand). The declines in the tax-to-GDP ratio in Papua New Guinea (7.0 percentage points) and Kazakhstan (9.7 percentage points) both resulted from lower CIT revenues, which declined by around 8.0 percentage points in both. As noted, both economies were strongly affected by declines in natural resource prices. Kazakhstan also reduced its corporate tax rate from 30% in 2008 to 20% in 2009. Malaysia’s overall tax-to-GDP ratio declined by 1.3 percentage points between 2007 and 2017 due to a decrease in income tax revenues caused by a fall in petroleum prices and a decrease of the CIT rate over several years, from 27% in 2007 to 24% in 2016 (World Bank, 2016[22]).

Figure 1.6. Net changes in tax-to-GDP ratios between 2007 and 2017

Eight economies recorded increases in their tax-to-GDP ratios between 2007 and 2017. The highest increases were seen in Fiji and the Solomon Islands. Increased revenue from the service turnover tax, the introduction of an environmental levy and a departure tax as well as higher revenue from CIT contributed to the overall increase of the tax-to-GDP ratio in Fiji between 2008 and 2017 (Fiji Revenue & Customs Service, 2017[18]), (Parliament of the Republic of Fiji, 2018[23]). The increase of 4.5 percentage points in the tax-to-GDP ratio for the Solomon Islands was mainly driven by increases in other taxes on goods and services (1.9 p.p.) and taxes on income (1.6 p.p. from corporates and 1.1 p.p. from individuals). The growth in revenues from taxes on income can be explained by favourable conditions in the Solomon Islands’ economy. A consistently strong performance of the logging sector, which accounts for over 50% of the country’s GDP, contributed to large increases in revenue from export duties (IMF, 2018[24]).

Levels of revenues from tax categories in 2017 (percentage of GDP)

Looking at the share of individual tax categories, Australia, New Zealand and Tokelau had the highest levels of PIT revenues as a percentage of GDP in 2017. Revenue from PIT equated to 12.1% of GDP in New Zealand and 11.3% of GDP in Australia (2016 figure). Tokelau, with a ratio of 7.9% of GDP, had a similar level of PIT revenue as the OECD average in 2016 (8.2%). In all other Pacific economies covered in this publication, revenue from PIT was above 3.0% of GDP except in Fiji (2.3%) and Vanuatu (which does not have a PIT). In the Asian countries included in this publication, with the exception of Japan and Korea, revenue from PIT in 2017 ranged between 1.4% of GDP in Kazakhstan and 2.5% of GDP in the Philippines.

Figure 1.7. Tax structures as percentage of GDP, 2017

Revenues from CIT were higher than revenues from PIT in 8 of the 15 economies in this publication for which data was available in 2017. In 2017, CIT revenues ranged from 2.6% of GDP in Indonesia to 5.6% of GDP in Malaysia (excluding Tokelau and Vanuatu, which do not have a corporate tax). The only economies that had corporate tax revenues of more than 5% of GDP were Fiji and Malaysia.

Social security contributions play a small role in the tax revenues of Asian and Pacific economies. Eleven of the economies in this publication, and all Pacific economies, do not levy social security contributions. In the remaining economies, revenue from social security contributions were relatively low in 2017: including in Malaysia (0.3% of GDP), Indonesia (0.4% of GDP), Kazakhstan (0.5% of GDP), Thailand (1.0% of GDP) and the Philippines (2.4% of GDP). These levels are significantly below the LAC average (3.9% of GDP) and the OECD average (9.2% of GDP in 2016). Among the Asian and Pacific economies in this publication, only Korea and Japan have high shares of revenue from social security contributions (6.9% and 12.4% of GDP, respectively).

Although the level of social security contributions remains relatively low in Indonesia (0.4% of GDP), the government has recently undertaken intensive reforms to increase the level of social security contributions:

A new pension system (Jaminan Pensiun [JP]) was introduced in 2014 and is a compulsory insurance for formal workers in the private sector (OECD, 2019[10]).
New institutions responsible for health and employment related social security were created to replace the previous institutions. The Badan Penyelenggara Jaminan Sosial (BPJS) is responsible for policy development, implementation of social security schemes, and monitoring of social security funds. The BPJS has two independent management bodies: the BPJS Kesehatan (Health); and BPJS Ketenagakerjaan (Labour). They began operations in January 2014 and July 2015 respectively (OECD, 2019[10]).
The coverage and the contribution rates for these programmes (both for employees and employers) have increased, which has led to higher social security contributions (The United States Social Security Administration, 2018[25]).

Revenue from taxes on goods and services is below 8.5% of GDP in most Asian countries in the publication, ranging from 4.0% of GDP in Singapore to 8.4% in Kazakhstan. The exception is Thailand, which raised revenues equivalent to 10.1% of GDP in 2017. Revenues from taxes on goods and services in Asian countries are therefore lower than on average in other regions, as represented by the Africa, LAC and OECD averages. In most Pacific economies, taxes on goods and services raised higher levels of revenues, ranging from 12.3% of GDP (New Zealand) to 18.8% of GDP (Samoa). Among Pacific economies, only Australia (7.5% of GDP in 2016) and Tokelau (6.3% of GDP) had revenues from goods and services taxes below 10% of GDP in 2017.

1.2. Tax structures

The tax structure, measured as the composition of tax revenues of different types, is the second key indicator in Revenue Statistics. Different taxes have different economic and social effects. Across the 17 economies in this publication, the composition of taxes varies widely, reflecting economies’ different policy choices, economic structures and conditions, tax administration capabilities and historical factors.

Tax structures in 2017 and evolution since 2007

The tax structure of the economies covered in this publication varied greatly in 2017. In nine economies, the main source of tax revenue was taxes on goods and services, while seven economies obtained the primary share of tax revenues from income taxes. Japan is the only country in this group in which the greatest share of revenues was derived from social security contributions.

In 2017, income taxes were the largest source of revenue for Australia, Korea, Malaysia, New Zealand, Papua New Guinea, Singapore and Tokelau. Among these economies, the share of income tax revenues varied from 32.1% in Korea to 60.9% in Papua New Guinea. CIT revenues were higher than PIT revenues in two Asian countries (Malaysia and Singapore), while all Pacific economies in this group (Australia, New Zealand, Papua New Guinea and Tokelau) as well as Korea raised higher shares of revenue from PIT.

Taxes on goods and services were the main source of tax revenue in the Cook Islands, Fiji, Indonesia, Kazakhstan, the Philippines, Samoa, the Solomon Islands, Thailand and Vanuatu in 2017, contributing between 51.1% (Kazakhstan) and 97% (Vanuatu) of total tax revenue. Taxes on goods and services also contributed the largest share of revenues for the LAC and African regions, on average, amounting to nearly 50% of total tax revenue. Within this group of Asian and Pacific economies, revenues from taxes on goods and services other than VAT, such as excises and import duties, were typically higher than VAT revenues, ranging from 19.0% of total tax revenues in the Cook Islands to 69.8% in the Solomon Islands. Among these economies, only the Cook Islands and Samoa received a larger share of revenue from VAT (40.0% and 44.4% of total tax respectively).

As discussed earlier, social security contributions played a small role in revenues for most Asian and Pacific economies, with a few exceptions. Japan derived the largest share of total tax revenues from social security contributions, at 40.4% in 2016. Social security contributions also played a significant role in revenues in Korea (25.7%) and in the OECD on average (26.2% in 2016).

Figure 1.8. Tax structures as percentage of total tax revenue, 2017

Across most economies in this publication, VAT is an important and increasing source of revenues. Excluding Tokelau and the Solomon Islands, which do not have value added taxes, VAT revenue ranged from 12.9% of total tax revenue in Australia (in 2016) to 44.4% of total tax revenue in the Cook Islands in 2017. In addition, VAT revenues as a share of total taxes are typically higher in Pacific than in Asian economies. In the Asian countries in this publication, VAT revenue was less than 25% of total tax revenue in 2017 except in Indonesia (ranging from 13.2% in the Philippines to 24.1% in Malaysia). In the Pacific economies that apply a VAT system, only Australia and Papua New Guinea had shares of VAT of less than 25% in 2017 (12.9% and 17.6%, respectively); Vanuatu and the Cook Islands had the largest shares (42.5% and 44.4% of total tax revenues, respectively).

Figure 1.9. Revenue from value added tax and other taxes on goods and services

Revenues from other goods and services contributed between 7.1% of total tax revenue in Japan (2016 figure) and 69.8% in the Solomon Islands in 2017. The high share in the Solomon Islands is derived from general taxes on goods and services, such as the goods tax and the sales tax, as the Solomon Islands does not apply a VAT. Shares of non-VAT taxes in total revenue are also comparatively high in Thailand, Fiji, Samoa, Tokelau and Vanuatu, where they are larger than 35% of total tax revenues.

In 2017, revenue from other taxes on goods and services played a more prominent role in the Pacific economies than in Asian countries covered in this publication. Five of the nine Pacific economies generated more revenue from other taxes on goods and services than from VAT, whereas five of the eight Asian countries received more revenue from VAT. For the Africa, LAC and the OECD averages, revenue from VAT contributed a larger share to total tax revenue than other goods and services.

Figure 1.10 shows the change in revenue from VAT and other taxes on goods and services between 2007 and 2017. Economies are ordered by their main source of revenue (i.e. taxes on goods and services, income taxes, social security contributions, as shown in Figure 1.8). Several observations emerge:

Of the nine Asian and Pacific economies that obtain the majority of their tax revenues from taxes on goods and services, five experienced an increase in revenue from non-VAT taxes on goods and services over the period 2007 to 2017. This contrasts with trends observed in the economies whose main share of revenue is derived from income taxes or social security contributions, where revenue from non-VAT taxes declined in most cases.
The share of VAT in total tax revenues has increased in all but three economies between 2007 and 2017 and the increases can be largely attributed to policy changes. Three economies increased their VAT rate between 2007 and 2017: New Zealand, increasing the rate from 12.5% to 15% in 2010 (OECD, 2012[26]); Japan, from 5% to 8% in 2014 (OECD, 2014[27]); and the Cook Islands, from 12.5% to 15% in 2014 (Cook Islands News, 2013[28]). In addition, Malaysia replaced its sales tax with a VAT at 10% in 2015 (Bloomberg, 2015[29])3, and VAT revenues increased from 15.8% of total tax revenues in 2015 to 24.1% in 2017.

Figure 1.10. Changes in revenue from value added tax and other taxes on goods and services

The only economies in this publication that experienced a decline in the share of VAT revenues over this period were Fiji, Singapore and Vanuatu. In Fiji, the share of VAT revenue declined by 8.4 percentage points in 2017 to 27.8% of total tax revenue, following a decrease of the VAT rate from 15% to 9% in 2016. Similarly, the share of VAT revenue in Vanuatu declined by 14.5 percentage points in 2017 to 42.5% of total tax revenue due to higher revenue from excises and other taxes on goods and services. The share of VAT revenues to total tax revenue in Singapore declined by 0.3 percentage points between 2007 and 2017.

The composition of income taxes between corporate and personal income taxes also varied in Asian and Pacific economies (Figure 1.11). In 2017, all Asian countries except Japan and Korea had a greater share of CIT revenues relative to PIT. In contrast, all Pacific economies covered in this publication except Fiji had a greater share of PIT than CIT.

Figure 1.11. Revenue from corporate income tax and personal income tax

In 2017, revenues from CIT varied between 9.1% of total tax revenue in Samoa and 41.5% of total tax revenue in Malaysia. Three economies with the highest shares of CIT revenues (Kazakhstan (27.4%), Papua New Guinea (26.5%) and Malaysia (41.5%)) received significant shares of CIT revenue from companies in the oil and mining sector. By contrast, revenues from PIT ranged between 7.6% of total tax revenues in Fiji to 40.8% in Australia (2016 figure) and 55.8% in Tokelau. Tokelau does not have a CIT and obtains the majority of its tax revenue from PIT.

Between 2007 and 2017, revenues from CIT were more variable as a share of total tax revenues than revenues from PIT in all economies covered in this publication. The share of CIT revenues was lower in 2017 than in 2007 in ten economies, by between 0.7 p.p. of total tax revenues in the Philippines and 29.4 p.p. in Papua New Guinea (Figure 1.12).

Figure 1.12. Changes in revenue from corporate income tax and personal income tax

By contrast, the share of revenues from PIT decreased for only four Asian and Pacific economies between 2007 and 2017, and the scale of the decreases was comparatively small, ranging from 1.1 percentage points of total tax revenues in Thailand to 7.6 percentage points in the Cook Islands. Revenue from PIT increased as a share of total taxation for all other economies in this period, from 0.3 percentage points in Samoa to 17.4 percentage points in Papua New Guinea.

Box 1.2. VAT revenue ratios in Asian countries

The VAT revenue ratio (VRR) measures the difference between the VAT revenue collected and what would theoretically be raised if VAT was applied at the standard rate to the entire potential tax base in a “pure” VAT regime and all revenue was collected. A VRR of 1 suggests no loss of VAT revenue as a consequence of exemptions, reduced rates, fraud, evasion or tax planning. This section describes the VRR levels in the Asian countries in this publication.

There was a wide disparity of VRRs in Asian countries in 2016. The Philippines had the lowest VRR ratio at 0.23 and Malaysia and Thailand had the highest at 0.87 and 0.84. Of the countries in this publication, Japan, Korea and Singapore have relatively high VRR (exceeding 0.6), above the OECD average of 0.56. This is partially because of the relatively broad-based VAT in each country: Japan does not have any reduced rates while in Singapore, only international services are zero-rated, with the only exemptions applying to the sales and leases of residential properties and to most financial services (MOF, 2017). Korea has a reduced rate on a number of goods and services. In comparison, many OECD countries have one or more reduced rates (OECD, 2016[49]), which partly explains the lower average VRR in the OECD region.

The VRR needs to be interpreted with caution and can be affected by several factors that inflate it. One reason can be where exemptions on products and services relating to intermediate consumption can lead to a cascading effect that increases VAT revenue (IMF, 2017). For example, in Thailand, excessive exemptions may cause “cascading”, which artificially increases the VRR. Another reason the VRR may be inflated is that refund processes do not work correctly, which may discourage taxpayers from claiming their VAT refunds, resulting in artificially higher VAT revenue and VRR.

Figure 1.13. VAT revenue ratio (VRR) in Asian countries, 2016

1.3. Taxes by level of government

This section discusses the relative share of tax revenues attributed to different levels of government in 2017: central government, regional or provincial government (including state government, where relevant) and local government as well as social security funds.

In many economies included in this publication, the share of sub-national taxes was comparatively small as a share of total tax revenues in 2017. Shares of sub-national government tax revenue in the Asian countries ranged from 5.1% of total revenues in the Philippines and 8.6% in Thailand to 17.3% in Korea, 23.9% (2016 figure) in Japan and 22.1% in Kazakhstan. In Indonesia, revenues attributed to sub-national governments are rising and were over 10% in 2017, following the shift of property taxation to the local level in 2014. In New Zealand, sub-national government revenues were 6.5% and in Australia subnational revenues (including both state and local tax revenues) amounted to 20.5% of total tax revenues (2016 figure).

The types of taxes levied by local governments vary between countries. Local governments in the Philippines have a narrow range of taxes under their jurisdiction, relying on property taxes and taxes on income and profits. Sub-national governments in Japan and Korea raised revenue from taxes on income and profits, property taxes, taxes on goods and services, payroll (Korea only) and other taxes. The share of sub-national government revenue also depends on the range of services which local governments are expected to provide: for example, local revenues are higher in Japan since local governments finance a wide range of goods and services including public welfare and are responsible for financing some education and debt servicing (Beshho, 2016[30]).

Between 2000 and 2017, the share of revenues collected by sub-national governments in Asian and OECD countries was stable, with the exception of Indonesia and Kazakhstan. In Indonesia, the share of revenues attributed to sub-national governments increased by 8.2 percentage points, whereas in Kazakhstan the share decreased by 27.7 percentage points.

As social security contributions play a smaller role in total revenues in Asia and the Pacific than in other regions, the share of revenues attributed to social security funds was also low. The proportion of total tax revenues collected by social security funds in Australia, New Zealand and Singapore was zero in 2017, and was under 6% of total revenues in Indonesia, Kazakhstan, Malaysia and Thailand. By contrast, countries that source a greater share of their revenues from social security contributions also had higher shares of revenues attributed to social security funds: at 40.4% of tax revenues in Japan in 2016 and 25.7% in Korea in 2017. The share of tax revenues attributed to social security funds has increased in both Japan (by 5.2 p.p.) and Korea (9.0 p.p.) since 2000.

Table 1.1. Attribution of tax revenues to sub-sectors of general government
Percentage of total tax revenue, 2017
	Federal or central government				Sub-national government				Social security funds
	1995	2000	2010	2017	1995	2000	2010	2017	1995	2000	2010	2017
Australia1	77.5	81.8	80.2	79.5	22.5	18.2	19.8	20.5	..	..	..	..
Indonesia	..	96.8	92.8	90.2	..	3.2	7.2	11.3	..	..	..	3.7
Japan	41.2	38.7	33.0	35.7	25.2	26.1	25.9	23.9	33.6	35.2	41.1	40.4
Kazakhstan	..	50.1	81.3	74.6	..	49.9	16.2	22.1	..	..	2.5	3.2
Korea	69.2	68.2	60.0	57.0	18.7	15.1	16.6	17.3	12.1	16.7	23.3	25.7
Malaysia	100.0	98.0	98.2	98.1	..	..	..	..	..	2.0	1.8	1.9
New Zealand	94.7	94.3	92.8	93.5	5.3	5.7	7.2	6.5	..	..	..	..
Philippines	90.8	81.5	82.2	81.5	..	5.3	5.2	5.1	9.2	13.1	12.7	13.4
Singapore	..	100.0	100.0	100.0	..	..	..	..	..	..	..	..
Thailand	..	88.9	86.3	85.6	..	7.5	6.6	8.6	..	3.7	7.1	5.7
Note: Australia, Japan, Korea and New Zealand are part of the OECD (36) group. Data for Australia, Japan, Korea, New Zealand and the OECD average are taken from OECD (2018), Revenue Statistics 2018, https://doi.org/10.1787/rev_stats-2018-en-fr.
The figures do not include sub-national tax revenue for the Cook Islands, Fiji, Malaysia, Papua New Guinea, Samoa and the Solomon Islands.
Data for 2016 are used for Australia, Japan and the OECD average.
← 1. Sub-national figures in Australia include data of state and local government.
Source: OECD (2019), “Revenue Statistics - Asian and Pacific Economies: Comparative tables”, OECD Tax statistics (database).
StatLink https://doi.org/10.1787/888933962780

1.4. Non-tax revenues in selected Pacific economies

This publication also includes information on non-tax revenues for selected Pacific economies for which data are available. Non-tax revenues are defined as all revenues received by general government that do not meet the OECD definition of taxes, as set out in the Interpretative Guide (Annex A). They are further divided into five categories according to the definitions set out in Annex B: grants; property income; sales of goods and services; fines, penalties and forfeits; and miscellaneous and unidentified revenues.

Non-tax revenues as a percentage of GDP

Non-tax revenues were equivalent to a significant share of GDP in 2017 for three Pacific economies for which data is available. Non-tax revenues for the Cook Islands and for Vanuatu were around 14.0% of GDP in 2017 whereas they amounted to 177.9% of GDP for Tokelau. The very high level of non-tax revenues in Tokelau, measured as a share of GDP, is due to the fact that non-tax revenues derive primarily from payments by foreign vessels for access to Tokelau’s fishing waters. In the 2008 System of National Accounts, these revenues are recorded as part of GNI, but they do not add to GDP. By contrast, non-tax revenues are comparatively low in Papua New Guinea and Samoa (3.7% and 5.5% of GDP in 2017, respectively).

Further, non-tax revenues have been increasing since 2007 for the Cook Islands, Tokelau and Vanuatu, whereas they have been declining as a share of GDP for Papua New Guinea and Samoa. The upwards trend for Tokelau has been driven by the increase in revenues from property income, which is entirely sourced from fishery income. Tokelau receives support from New Zealand to strengthen the management of its Exclusive Economic Zone to maximise Tokelau’s revenue collection from its international fisheries (New Zealand Foreign Affairs & Trade, 2018[31]). Fisheries income also increased after Tokelau became a partner to the Nauru Agreement, which administers the fishing vessel-day scheme (VSD). The VSD is the system to sustainably manage the world’s largest tuna fishery in the Western and Central Pacific Ocean and has increased revenue to participating islands by over 500% in the past six years (Parties to the Nauru Agreement, 2016[32]).

The increase in non-tax revenue for the Cook Islands has been predominantly driven by an increase in grant revenues from New Zealand, Australia and the European Union. This support contributes to upgrading infrastructure, growing sustainable tourism, and supporting initiatives that strengthen the public sector and improve education, health and social services. Increases in non-tax revenues in Vanuatu can be also explained by increases in grant revenue in response to Cyclone Pam in 2015 (causing losses to the economy of over 60% of the GDP (IMF, 2016[33])) and volcano eruptions in 2017 (causing the evacuation of 11 000 people (MEAE France, 2017[34])). Besides higher grant revenue, the implementation of the government citizenship programme in Vanuatu also contributed to increases in non-tax revenue in 2017 (Government of Vanuatu, 2017[35]).

Table 1.2. Non-tax revenue of main headings as percentage of GDP in selected Pacific economies, 2007-2017
	2007	2008	2009	2010	2012	2013	2014	2015	2016	2017
Cook Islands	5.6	5.2	9.2	13.5	8.4	14.3	16.2	13.9	16.4	14.0
Papua New Guinea	4.0	4.1	3.5	4.7	3.1	2.4	3.1	3.4	3.5	3.7
Samoa	7.8	10.0	3.6	9.3	4.6	6.7	4.8	4.9	4.8	5.5
Tokelau1	149.3	157.6	165.2	154.6	192.6	246.6	173.4	252.5	236.5	177.9
Vanuatu	1.4	6.5	7.0	8.3	5.2	4.2	5.8	14.8	9.6	14.2
← 1. Tokelau receives significant revenues from foreign vessels for access to Tokelau fishing waters. In the 2008 SNA, these revenues are recorded as part of GNI, but they do not add to GDP
Source: OECD (2019), “Revenue Statistics - Asian and Pacific Economies: Comparative tables”, OECD Tax statistics (database).
StatLink https://doi.org/10.1787/888933962799

Structure of non-tax revenues

Non-tax revenues are divided into different categories: grants; property income; sales of goods and services; fines, penalties and forfeits; and miscellaneous and unidentified revenues.

In 2017, the shares of each of these categories in total non-tax revenues varied across the five Pacific economies for which this data is included:

Grants were an important source of revenues for all economies in 2017, exceeding 30% of total non-tax revenues in each. They ranged from 34.9% of non-tax revenues in Tokelau to 65.7% of non-tax revenues in the Cook Islands. In 2017, they were the main source of revenues for the Cook Islands, Papua New Guinea, Samoa and Vanuatu.
Property income was the main source of non-tax revenues for Tokelau in 2017 (62.6%), whereas it was relatively small for Samoa (5.9%). Property income in Tokelau was derived predominantly from fisheries income (i.e. fishing rents), which represented more than 80% of total property income.

Table 1.3. Non-tax revenue of main headings as percentage of total non-tax revenues in selected Pacific economies, 2017
	Grants	Property income	Sales of goods and services	Fines, penalties and forfeits	Miscellaneous and unidentified revenue
Cook Islands	65.7	25.9	5.1	0.3	3.0
Papua New Guinea	59.9	35.0	0.0	0.0	5.0
Samoa	51.1	5.9	33.8	9.2	0.0
Tokelau	34.9	62.6	2.4	0.0	0.0
Vanuatu	52.2	0.0	0.0	0.0	47.8
Source: OECD (2019), “Revenue Statistics - Asian and Pacific Economies: Comparative tables”, OECD Tax statistics (database).
StatLink https://doi.org/10.1787/888933962818

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Notes

← 1. As of 1 September 2018, the new government replaced the GST with the old system of a sales and services tax (SST). For goods, the rate is set to be between 5-10%, while the tax on services is set at a 6% rate. The new measure came into force following a three-month tax break from June 2018.

← 2. Data for Fiji are only available from 2008, so the data used for Fiji in this section are from 2008-17. In addition, 2017 data for Australia and Japan are not available in OECD (2018) so data for 2016 are used instead.

← 3. The current government has subsequently annulled the VAT and reintroduced the Sales and Services Tax (SST) in September 2018.

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