Asia-Pacific's developing nations raise low govenment revenue: United Nations

NEW DELHI: Developing countries in Asia Pacific region are less successful in raising government revenue but greater regional cooperation can strengthen resource mobilisation, a report has said.

"Countries across the Asia-Pacific region have significant potential for enhancing tax revenues ... taxation is primarily a domestic policy issue, there are also many regional dimension," the report by the United Nations Economic and Social Commission for Asia and Pacific (UN-ESCAP) said.

"Greater regional cooperation can strengthen domestic resource mobilisation-particularly by enabling countries to avoid tax competition and to harmonise tax rates," it said.

The countries can exchange information on cross-border capital flows into tax havens, tackle illicit transfers of funds and sign agreements on double taxation.

"In 2011, while overall government revenue for developed economies was 39.7 per cent of GDP, for developing countries it averaged only 26.1 per cent," it said.

The potential to raise direct tax from individuals is low in these countries because of tax exemption to low income groups, difficulty in collecting tax from farm activities, avoidance of tax by wealthy people and non-compliance.

"In Bangladesh, only around 1 per cent of the population pays income tax. In India, the proportion is only 3 per cent. In Pakistan, less than 1 per cent of the population filed income tax return in 2011. In Vietnam only 0.3 per cent of the total population is estimated to have paid personal income taxes," the report said.

Overall, developing countries in the region collect more tax from corporations than from individuals, it added.

"In some countries, such as Bhutan, Cambodia, Iran, Kazakhstan, Maldives and Vietnam, corporate income tax accounts for more than three quarters of direct tax revenues."

Corporate tax rates are often low because Asia-Pacific countries have reduced taxes competitiveness in order to attract foreign direct investment.

They attract foreign direct investment by offering special tax exemptions and allowances. However, if foreign investors can offer something extra compared with domestic investors, it may be useful to offer them special incentives.

"If they do not, preferential tax treatment only distorts competition and puts local companies at a disadvantage. Industrial policy in developing countries should instead aim to attract foreign investors by offering more extensive modern infrastructure and a more highly skilled workforce," it said.