Asian and Pacific economies could increase tax revenue to stave off the economic effects of the COVID-19 pandemic by focusing on environmental taxes, an OECD report says.
Only six of the 13 countries for which data are available collect environmentally related tax revenue from three bases or more — China, Japan, Korea, Kazakhstan, Mongolia, and the Philippines — according to the organization's 2020 report on revenue statistics for the Asia-Pacific region, released July 23. For the first time, revenue data from China were available for analysis in the report.
Environmental tax revenues vary more widely among Asian and Pacific countries than in African, Latin American and Caribbean, and OECD countries, which rely more on transportation taxes, the report says. Because their usage is so low in many Asian countries, the OECD report says there is “significant scope” to expand this type of taxation.
An OECD release on the report says that in 2018 environmental tax revenues ranged from 0.05 percent of GDP in Papua New Guinea to 8 percent of GDP in the Solomon Islands, compared with the OECD average of 2.3 percent of GDP.
“The underutilization of environmental taxes in the Asia-Pacific region needs also to be understood in the context of the extensive use of fossil fuels subsidies. Reforming energy subsidies is considered by [the Asian Development Bank] as ‘one of the most important policy challenges for developing Asian economies,’” the report says.
The OECD recommends that governments phase out energy subsidies and implement environmental taxation while taking steps to assist vulnerable groups and maintain sustainable international competitiveness.
Singapore is the only country in Southeast Asia to have introduced a carbon tax. The first payments are being made this year based on emissions in 2019. The report says the carbon tax works well with Singapore’s other green tax reforms, including an emissions-based vehicle scheme that taxes all new cars, taxis, and newly imported used cars based on their carbon emissions per kilometer.
Two-thirds of the Asian and Pacific economies covered in the report — including China — saw their tax-to-GDP ratios rise since 2017. The highest increases were in Mongolia (2.5 percentage points), Nauru (6.4 percentage points), and Tokelau (3.8 percentage points), largely as a result of tax rate increases, according to the report.
In 2018, while 10 of the 21 countries in the report had tax-to-GDP ratios above the Latin American and Caribbean average of 23.1 percent, all economies except Nauru had lower ratios than the 34.3 percent OECD average. The ratios ranged from 11.9 percent in Indonesia to 35.4 percent in Nauru, according to the report.
Taxes on goods and services made up the largest share of tax revenues in 2018 for 10 of the 21 economies in the report. Income taxes represented the largest share of tax revenues in remaining countries, except for Japan, which relies on social security contributions as its main source of tax revenue.