ADB BRIEFSNO. 290FEBRUARY 2024ISBN 978-92-9270-605-0 (print)ISBN 978-92-9270-606-7 (electronic) ISSN 2071-7202 (print)ISSN 2218-2675 (electronic)Publication Stock No. BRF240041DOI: http://dx.doi.org/10.22617/BRF240041Mobilizing Taxes for DevelopmentYuho MyodaEconomistEconomic Research and Development Impact Department (ERDI)Asian Development Bank (ADB)Donghyun ParkEconomic AdvisorERDI, ADBDonna Faye BajaroConsultantERDI, ADBIn this publication, “$” refers to United States dollars.KEY POINTS:• Developing Asia faces significant expenditure pressures in its transition to more sustainable and inclusive growth.• Weaker revenues and higher spending to respond to the coronavirus disease (COVID-19) pandemic erased fiscal surpluses or widened deficits in many regional economies.• New indicative estimates of tax capacity suggest that, on average, developing Asia has the potential to raise tax revenues by the equivalent of 3.6% of gross domestic product.• Developing Asia should explore the potential of untapped tax sources like property, environmental, and health taxes that can directly contribute to development goals and raise additional tax revenues.• Apart from the efforts to increase the levied tax revenues, it is also important to reduce the informal sector and improve taxpayers’ compliance through fair taxation and wiser spending.Developing Asia faces significant spending pressure as it transitions toward more sustainable and inclusive growth. The wake of the COVID-19 pandemic amplified the public fiscal pressure as it lowered tax revenues and increased public spending. Now is the appropriate time to administer fiscal consolidation strategies tailored to country-specific circumstances—with tax policy playing a vital role. Timely implementation of changes in the tax system and strong leadership and political will at the highest levels of government—in tandem with efforts to strengthen tax administration and improve taxpayer morale—will yield tax reform success.FISCAL PRESSURES ON THE RISEDeveloping Asia faces significant spending pressure as it transitions toward more sustainable and inclusive growth. Even before the COVID-19 pandemic, achieving the Sustainable Development Goals (SDGs) by the target year 2030 necessitated the region to spend an additional $1.5 trillion annually, equal to 5% of gross domestic product (GDP) (UNESCAP 2019). Moreover, additional spending needs are typically larger in the poorest countries (Gaspar et al. 2019). A stark illustration of this trend is spending needs for climate finance: the Pacific region, with just 0.1% of regional GDP, accounts for over 1.1% of the current total climate finance in the entire region to meet the nationally determined contribution target of 2030 (ADB 2023). On the other hand, the wake of the pandemic likely widened the fiscal shortfalls as the collapse in activity lowered revenue even as spending needs increased (Ben...
