A COMPARATIVE ANALYSIS OF TAX ADMINISTRATION IN ASIA AND THE PACIFIC
Satoru Araki and Iris Claus
April 2014
© 2014 Asian Development Bank
All rights reserved. Published in 2014.
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Cataloging-In-Publication Data
Asian Development Bank.
A comparative analysis of tax administration in Asia and the Pacific.
Mandaluyong City, Philippines: Asian Development Bank, 2014.
1. Tax administration. 2. Comparative analysis. 3. Asia and the Pacific. I. Asian Development Bank.
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Abstract
A robust and sustainable tax system requires good tax administration. This report compares the administrative frameworks, functions, and performances of revenue bodies in 22 economies in Asia and the Pacific. The descriptive analysis is based on surveys of revenue bodies conducted in 2012 and 2013. The surveys are an attempt to provide internationally comparable data on aspects of economies’ tax systems and their administration that can be used in empirical analysis. The comparative analysis offers some tentative conclusions to help governments identify opportunities for enhancing the functioning of their tax systems.
Acknowledgments
This comparative analysis report is part of an Asian Development Bank (ADB) regional research and development technical assistance project, Tax Policy and Administration Research and Capacity Development, which was launched in September 2013.
The authors thank the Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development (OECD) for helping in the planning of the ADB tax administration survey; providing comprehensive survey data from a number of countries that are included in the OECD comparative information series, Tax Administration 2013; and reviewing a draft version of the report. ADB also acknowledges cooperation and assistance from tax authorities in Brunei Darussalam; Cambodia; the Kyrgyz Republic; Lao People’s Democratic Republic; the Maldives; Mongolia; Myanmar; Papua New Guinea; the Philippines; Taipei,China; Tajikistan; and Thailand.
The corresponding author, Satoru Araki, can be contacted at +63 2 683 1864 and [email protected].
Executive Summary
A robust and sustainable tax system requires good tax administration. This report compares the administrative frameworks, functions, and performances of revenue bodies in 22 economies in Asia and the Pacific. The descriptive analysis is based on surveys of revenue bodies conducted in 2012 and 2013. The surveys are an attempt to provide internationally comparable data on aspects of jurisdictions’ tax systems and their administration. Some tentative conclusions emerge from the comparative analysis.
Revenue bodies’ survey responses suggest that the degree of autonomy given by governments to tax administrations to carry out their functions varies across the region. Australia, New Zealand, Papua New Guinea, and Singapore have the most independent tax administrations, with autonomy in human resources management, budget, and internal organization. A number of revenue bodies in the region can be classified as a directorate within the Ministry of Finance with limited autonomy. Increasing those revenue bodies’ autonomy may help enhance their effectiveness and efficiency. Autonomy protects from political interference in day-to-day operations and gives tax administrations the flexibility in policy choices that they need to be able to respond to the rapidly changing challenges they face. Any extensive reforms, however, of the institutional arrangements between revenue bodies and ministries of finance cannot be carried out by the revenue body on its own, but require working with the government, civil service systems, and other public sector departments.
Effective human resources management is a key requirement for tax administrations where people are the most important enablers to carry out their main mandate, which is to collect tax revenue. Moreover, the environment in which tax administrations operate is rapidly changing with rising complexity of tax rules, increasing globalization and international transactions, and growing demands and expectations from taxpayers in terms of service delivery and law enforcement. Revenue bodies require an adequate level of staffing of motivated, well-trained professionals with high integrity. Some revenue bodies, such as in Cambodia, India, Indonesia, the Philippines, and Myanmar, seem to be underresourced and understaffed in proportion to the size of their populations. Moreover, the survey results suggest that some revenue bodies spend relatively few resources on human resources management, and performance management systems are lacking in a number of jurisdictions.
The allocation of staff resources by function varies across revenue bodies. A large proportion of staff resources are dedicated to verification and account management activities. Tax debt collection, another key compliance function of tax administrations, shows clear differences between Organisation for Economic Co-operation and Development (OECD) and developing economies with respect to the accumulation of tax arrears (i.e., unpaid taxes) and tax administrations’ arrears collection performance. Tax arrears tend to be a more frequent occurrence in developing economies than developed countries, reflecting lower enforcement capacity by tax administrations and taxpayer compliance. Collecting unpaid taxes is a difficult task for any tax administration, and helping taxpayers meet their obligations to avoid the occurrence of tax debt and assisting those who have accumulated liabilities to manage their debt are strategies for tax administrations to consider.
The majority of revenue bodies surveyed (16 out of 22) has a large taxpayer unit focusing on the tax affairs of large enterprises. Myanmar and Papua New Guinea currently do not have such units, but each is considering setting up one. A substantial portion of tax revenue is raised from large corporations, and having a team dedicated to large taxpayers can help improve the efficiency and effectiveness of tax administrations. A small number of revenue bodies also have a unit specializing in high net worth individuals (HNWIs), who tend to have complex tax affairs and