strengthening public finance in north and central asia 2 - domestic... · india’s reform of good...
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Strengthening public finance in North and Central Asia
An overview
Public finance is the financing backbone for sustainable development and infrastructure investment
The financing demand for the implementation of the 2030 Agenda for Sustainable Development is enormous •$1.4 trillion of incremental spending annual would be required for low and lower-middle income countries alone to achieve the Sustainable Development Goals (SDGs) by 2030; •The public sector is expected to shoulder half of this financing demand.
Public finance still provides the bulk of the infrastructure financing in Asia-Pacific countries •In most countries of the region, private investment in infrastructure remain limited; •Public sector provides important seed investment, guarantees and grants for PPP projects, and in many cases remains the final payer for private sector services; •Strong public credit also lower the borrowing cost for PPP projects;
Tax reform initiatives to strengthen revenue mobilization and improve tax administration
A number of Asia-Pacific developing countries have made ambitious reforms to meet the fiscal challenges in the aftermath of the global economic crisis and the financing demand for sustainable development
•India’s reform of Good and Services Tax (GST) •Indonesia’s tax amnesty campaign •Cambodia’s elimination of the Estimated Tax Regime to integrate the informal sector into formal tax systems
India’s reform of Good and Services Tax (GST)
The landmark good and services tax (GST) bill became effective in April 2017
•Aim to streamline the country’s fragmented tax system and contribute to the creation of an unified domestic market; •Integrate 17 different central and state taxes in to a streamlined and more transparent GST system and reduce internal frictions caused by fragmented local tax regimes; •Introduce the VAT principle to eliminate the cascading impact, reduce the tax burdens of manufacturers, and create incentives for honest reporting through input credit; •Reduce tax exemptions at the same time.
Indonesia’s tax amnesty campaign
Indonesia implemented a 9-month tax amnesty (from July 2016 to March 2017) program In an effort to increase its tax base
•Offer incentives and immunity from prosecution to tax evaders who declare and repatriate offshore funds; •The incentives were also extended to Indonesians who decide to repatriate their funds and keep their money in the country for at least three years; •The Tax Amnesty proved partially successful.
Cambodia’s elimination of the Estimated Tax Regime
In 2016, Cambodia eliminated the Estimated Tax Regime (ETR), one of the country’s most significant tax reforms in years
•ETR was designed to encourage small taxpayers in the informal regime to pay taxes. But in practice, it discouraged firms from entering the real tax system; •The reform aims to streamline tax administration and more importantly better integrate the country’s large informal sector into the formal tax regime. •It established an integrated cooperate tax system with three tiers for small, medium, and large taxpayers; •It also introduced a progressive tax rate regime based on profit levels and measures to ease the burden of small and median firms transitioning into the formal tax system;
An overview of public revenue mobilization in Central Asia
and how it compares to other Asia-Pacific sub-regions.
-10
-5
0
5
10
15
20
25
30
Afg
han
ista
n (
20
13)
Mic
ron
esia
(ce
ntr
al g
ov)
Tim
or-
Lest
e
Bh
uta
n
Aze
rbai
jan
Uzb
ekis
tan
Mo
ngo
lia (
20
13)
Mar
shal
l Isl
and
s (c
entr
al g
ov)
Cam
bo
dia
Lao
, PD
R (
cen
tral
go
v)
Kyr
gyzs
tan
Ko
rea
Nep
al (
cen
tral
go
v)
Ru
ssia
Turk
ey
Thai
lan
d
Geo
rgia
New
Ze
alan
d (
cen
tral
go
v)
Sin
gap
ore
Fiji
(cen
tral
go
v)
Ph
ilip
pin
es (
cen
tral
go
v)
Ind
on
esia
Mal
div
es (
20
14
)
Kaz
akh
stan
Ban
glad
esh
(ce
ntr
al g
ov)
Jap
an
Sam
oa
(cen
tral
go
v)
Mal
aysi
a (c
entr
al g
ov)
Vie
t N
am (
201
3, c
entr
al g
ov)
Au
stra
lia
Arm
enia
PN
G (
cen
tral
go
v)
Pak
ista
n (
20
14
, cen
tral
go
v)
Ind
ia (
20
13
, cen
tral
go
v)
Sri L
anka
(ce
ntr
al g
ov)
Gross operating balance (% of GDP)
Central Asian countries have relatively healthy fiscal margins despite short-term difficulties and uncertainties
Public revenue levels in Central Asia
Central Asian countries have relatively high public revenue levels •Overall revenue levels out-perform Asia-Pacific average and are close to OECD levels; •There is space for tax revenues to further increase; •Dependence on volatile resource and other non-tax revenues deserves concern;
0
5
10
15
20
25
30
35
40
45
Ru
ssia
Kyr
gyzs
tan
Aze
rbai
jan
Uzb
ekis
tan
Geo
rgia
Arm
enia
Kaz
akh
stan
A-P
ave
rage
OEC
D
Other revenue
Grants
Socialcontributions
Taxes
Composition of public revenues (% of GDP)
0
10
20
30
40
50
60
70M
icro
nes
ia (
cen
tral
go
v)
Tim
or-
Lest
e
Aze
rbai
jan
Ru
ssia
Pak
ista
n (
201
4, c
entr
al g
ov)
Sin
gap
ore
Ko
rea
Mal
aysi
a (c
entr
al g
ov)
Mal
div
es (
20
14
)
Mo
ngo
lia (
20
13)
Mar
shal
l Isl
and
s (c
entr
al g
ov)
Kyr
gyzs
tan
Au
stra
lia
Kaz
akh
stan
Ind
on
esia
Bh
uta
n
Turk
ey
Thai
lan
d
Ch
ina
(20
14)
New
Ze
alan
d (
cen
tral
go
v)
Ban
glad
esh
(ce
ntr
al g
ov)
Ind
ia (
20
13
, cen
tral
go
v)
Nep
al (
cen
tral
go
v)
Jap
an
Arm
enia
Lao
, PD
R (
cen
tral
go
v)
Ph
ilip
pin
es (
cen
tral
go
v)
Vie
t N
am (
20
13
, cen
tral
go
v)
Cam
bo
dia
Sam
oa
(cen
tral
go
v)
PN
G (
cen
tral
go
v)
Uzb
ekis
tan
Fiji
(cen
tral
go
v)
Geo
rgia
Sri L
anka
(ce
ntr
al g
ov)
Afg
han
ista
n (
2013
)
Share of resource and other non-tax revenues in total public revenue (%)
Dependence on resource revenues is a source of unpredictability
Volatile exchange rates and GDP growth also changes the perception of revenue stability
2011 2012 2013 2014 2015
Russia 2032 2170 2231 2031 1326
1000
1200
1400
1600
1800
2000
2200
2400
Russian Federation
2011 2012 2013 2014 2015
Azerbaijan 66 68.7 73.6 75.2 53.1
40
45
50
55
60
65
70
75
80
Azerbaijan
2011 2012 2013 2014 2015
Kazakhstan 200.4 215.9 243.8 227.4 184.4
150
160
170
180
190
200
210
220
230
240
250
Kazakhstan
Nominal GDP (USD billion)
There is space for improved collection of direct taxes
0
10
20
30
40
50
60
70
80
0
5
10
15
20
25
30
Au
stra
liaJa
pan
Geo
rgia
Uzb
ekis
tan
Kaz
akh
stan
Ko
rea
Vie
tnam
Ru
ssia Fiji
Bh
uta
nTh
aila
nd
Sin
gap
ore
Mal
div
esTu
rkey
Ch
ina
Mo
ngo
liaA
zerb
aija
nIr
anIn
do
nes
iaA
rmen
iaIn
dia
Pak
ista
nB
angl
ades
hA
fgh
anis
tan
Sri L
anka
OEC
D
Taxes onproperty
PIT &payroll tax
CIT
% of totaltax revenue
Direct taxes (% of GDP)
0
10
20
30
40
50
60
70
0
5
10
15
20
25
30
Geo
rgia
Turk
ey
Mal
div
es Fiji
Ch
ina
Uzb
ekis
tan
Arm
enia
Mo
ngo
lia
Thai
lan
d
Au
stra
lia
Ko
rea
Jap
an
Ru
ssia
Aze
rbai
jan
Ind
on
esia
Sri L
anka
Bh
uta
n
Pak
ista
n
Vie
tnam
Sin
gap
ore
Ban
glad
esh
Kaz
akh
stan
Ind
ia
Afg
han
ista
n
Iran
OEC
D
% of GDP
% of totaltaxrevenue
Taxes on goods and services
Increase use of goods and service taxes in some cases
0
5
10
15
20
25
30
35
40
0
5
10
15
20R
uss
ia Fiji
Kaz
akh
stan
Mal
div
es
Ban
glad
esh
Uzb
ekis
tan
Afg
han
ista
n
Sri L
anka
Mo
ngo
lia
Iran
Ind
ia
Aze
rbai
jan
Arm
enia
Pak
ista
n
Thai
lan
d
Ko
rea
Au
stra
lia
Ch
ina
Ind
on
esia
Turk
ey
Geo
rgia
Bh
uta
n
Jap
an
Sin
gap
ore
Vie
tnam
% of GDP
% of totaltaxrevenue
Taxes on trade
Reduce dependence on trade taxes in some cases
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