Generating Larger Tax Revenue in South Asia

Despite repeated attempts, South Asian countries have managed only limited and sporadic success in mobilizing larger tax revenue. Tax-to-GDP ratios in most countries in the region remain below cross country averages and are considered inadequate to meet their financing needs. Underperformance in tax revenue generation does not seem due to paucity of tax policy reforms. South Asian countries have undertaken considerable reforms in the last decade, and their tax structures have converged with the rest of the world. But they have been less successful in widening their tax base, in strengthening tax administration, and in improving compliance. Additionally, structural factors such as large share of agriculture, low literacy, and large informal sectors have hindered tax collection. Further efforts in the region to increase tax revenue ought to be wider in scope than before and should extend to the subnational and local governments. They should focus on simplifying tax systems, strengthening tax administration, and broadening the tax base. These efforts should be situated within a wider reform program that aims to strengthen governance, improve business environment and help formalize their economies.