A Comparative Analysis of Tax Administration in Asia and the Pacific: 2016 Edition

CHAPTER ONE

INTRODUCTION

This report, the second in this series, analyzes the administrative frameworks, functions, and performance of revenue bodies in selected economies in the Asia and Pacific region. The analysis and practical guidance provided in the report are based on surveys of revenue bodies conducted in 2014 and 2015, along with accompanying research of revenue bodies’ corporate documents, and guidance and diagnostic materials published by international organizations that seek to promote improvements in tax administration (e.g., the European Commission’s Fiscal Blueprints, the International Monetary Fund’s Tax Administration Diagnostic Assessment Tool [TADAT], and the Organisation for Economic Co-operation and Development [OECD]).

Twenty-one economies in Asia and the Pacific are included in the study, although not all of these participated in both years’ surveys. The economies are Australia; Brunei Darussalam; Cambodia; the People’s Republic of China (PRC, or China); Hong Kong, China; Indonesia; Japan; the Republic of Korea; the Kyrgyz Republic; the Lao People’s Democratic Republic; Malaysia; the Maldives; Mongolia; Myanmar; New Zealand; Papua New Guinea; the Philippines; Singapore; Taipei,China; Tajikistan; and Thailand.

Survey data for 10 economies (i.e., Australia; the People’s Republic of China; Hong Kong, China; Indonesia; Japan; the Republic of Korea; Malaysia; New Zealand; Singapore; and Thailand) are based on the OECD’s comparative information series, Tax Administration 2015. Data for the remainder of the economies were obtained from surveys conducted by the Asian Development Bank (ADB) in 2013 and 2015, and accompanying research. ADB’s survey instrument is based largely on the OECD’s survey model, albeit in a slightly abbreviated format.

The objective of the series is to help revenue bodies and governments to identify opportunities for enhancing the operation of their tax systems by sharing internationally comparable data on aspects of tax systems and their administration. However, considerable care needs be taken with international comparisons of tax administration setups and performance-related data. The functioning of tax systems is influenced by many factors, including the size and composition of the tax base, tax reforms, the level of economic development, the structure and openness of economies, business cycle fluctuations, and the rate of political, economic, and social development. All of these factors and others are likely to be relevant to varying degrees to the information presented in this series, particularly as it includes a mix of advanced, emerging, and developing economies.

The remainder of the report is structured as follows: Chapter II provides a general overview on tax revenue collections (for all levels of government) and tax structure, while Chapter III describes the institutional and organizational arrangements in place to administer national tax laws. Chapter IV addresses aspects of strategic management, while Chapter V looks briefly at some aspects of human resource management. Chapter VI analyzes the resources used by revenue bodies to administer tax laws, while Chapter VII deals with key aspects of tax administration operations. Chapter VIII deals with the use of electronic services, while the concluding Chapter IX addresses selected aspects of the legislated administrative framework in place in each economy. An appendix to the report includes various statistical data (e.g., GDP, currency, and population) and details of participating revenue bodies.

CHAPTER TWO

TAX SYSTEM REVENUE COLLECTIONS AND STRUCTURE

An important consideration in understanding the administrative frameworks, functions, and performance of national revenue bodies is the size and composition of their respective tax bases. This chapter briefly reviews the revenue performance (i.e., tax burdens) and structure of the tax system for the economies included in this series.

A.Tax System Revenue Collections

1.Tax Ratios

Information on aggregate net tax revenue collections for all levels of government, often expressed in terms of a country’s tax ratio or tax burden is typically presented, for cross-country comparative purposes, as a percentage share of gross domestic product. In practice, most tax revenue is collected by the national revenue body, although the relative proportion of tax collected by tax bodies at the various levels of government can vary significantly from economy to economy. This is due to a variety of factors, such as the degree of reliance on taxes on imports (which are collected by customs bodies) as opposed to subnational taxes, and institutional design issues.

For the purpose of presenting internationally comparable data on the tax revenues of the economies included for all levels of government, this series generally follows the Organisation for Economic Co-operation and Development’s (OECD) definition of taxes (i.e., taxes are confined to compulsory, unrequited payments to general government). As outlined in the Interpretative Guide to its publication Revenue Statistics, taxes are unrequited in the sense that benefits provided by government to taxpayers are not normally in proportion to their payments. Applying this definition, regimes of social security contributions (SSC) that have been established by governments in many developed economies, including a number covered by this series, are generally regarded as a tax and form part of a country’s computed tax ratio or tax burden.

It is also important to recognize that the tax ratios computed for each economy rely as much on the denominator (GDP) as the numerator (net revenue collected), and that the denominator is subject to periodic revision by the statistical body of the economy concerned.

2.Revenue Productivity

Tax system performance can also be viewed across economies by contrasting the revenue productivity of individual taxes. The revenue productivity of a tax is calculated by dividing its tax ratio by the statutory (standard) rate of the tax. For example, a value-added tax (VAT) with a 10% standard rate of tax that produces tax revenue equivalent to 5% of GDP will have a rate of revenue productivity equal to