How Technology Can Help Southeast Asian Countries Improve Tax Collection

  Southeast Asia is beginning to recover from COVID-19, with the region’s growth outlook projected at a healthy 5.1% in 2022. The costs of recovery efforts have been extensive, however, and the region’s rebound is still fragile due to the lingering effects of the pandemic.

Countries need to shore up state coffers to ensure adequate resources are available to build back better and reclaim the economic and development gains chipped away by COVID-19.

  To more effectively mobilize resources, tax authorities in Southeast Asia need to utilize technology to improve service and enhance taxpayer compliance.

Deploying digital technology can help tax authorities reduce transaction costs and enhance transparency, removing some of the barriers normally discouraging taxpayers’ compliance with regulations. Improved tax compliance also means more taxpaying individuals and firms entering the tax system, thereby enhancing tax revenues.

“Technology offers “low-hanging” tax policy and administration measures that can help governments quickly boost revenues without amending existing rules and regulations.”

Formalizing the shadow economy

Southeast Asian countries were already struggling to improve tax collection even before the pandemic struck. Most countries were falling short of the desired tax yield of 15% of gross domestic product (GDP)—a level widely regarded as the minimum required for sustainable development.

  Southeast Asia has traditionally been contending with a narrow tax base due to a relatively large informal sector, which constitutes 43% of GDP in Thailand, 35% in Cambodia, 28% in the Philippines, 25% in the Lao People’s Democratic Republic, and 23% in Indonesia.

Technology offers “low-hanging” tax policy and administration measures that can help governments quickly boost revenues without amending existing rules and regulations.

The high costs of tax compliance, including time-consuming tax registration, tax filing, accounting, and tax payment, discourages many small taxpayers, especially micro, small, and medium-sized enterprises, from complying with tax regulations. Shifting towards an online tax system can simplify tax filing, ease the tax payment process, and enhance communication with taxpayers.

A 2020 report from accounting firm PwC and the World Bank observed that the Asia Pacific is among the most proactive regions in introducing online platforms for filing tax returns and payments, which improves administration and compliance. Better internet access has enabled countries to offer online services, and some even offer mobile apps to better serve taxpayers.

Within Southeast Asia, Indonesia, Malaysia, Singapore, and Thailand have the most advanced e-filing systems. Malaysia has made e-filing mandatory for corporate taxpayers, resulting in 97% of individual tax returns being filed electronically. In Thailand, 40% of corporate income tax returns and 77% of personal income tax returns are now filed electronically. Cambodia’s e-filing system went live last year.

Deploying new technologies

Beyond e-filing and payment systems, tax authorities are also now exploring the use of new technologies like big data, blockchain, biometrics, and artificial intelligence to improve tax administration, provide better service to taxpayers, and better monitor taxpayer compliance.

Singapore, one of the most digitally savvy countries in the region, has deployed new technologies to better manage tax systems. In 2014, the Inland Revenue Authority started using text-mining techniques to analyze taxpayer e-mails for insights on the public’s concerns about tax rulings. Data from the project has helped the tax agency identify priority concerns, allowing it to better provide needed guidance to taxpayers.

In 2020, Thailand launched a mobile app that allows tourists to claim their value-added tax (VAT) refunds. The system uses blockchain to record and track claims and purchases, shortening processing times and reducing administration costs. The app is touted to be the first blockchain-based VAT refund system in the world. Now tourists no longer have to queue at the airport to receive VAT refunds for their purchases, and can even submit their claim once they return home.

Thailand’s Revenue Department has also deployed data analytics to speed up processing of tax refunds for individual and corporate income tax payers.

ADB Tax Hub

Not all countries in Southeast Asia are currently well-positioned to easily adopt new technologies to aid tax administration. This requires digital transformation within revenue body operations and, in some cases, also across the broader ecosystem. Transitioning toward digital may also require the further development of business processes, infrastructure, and capabilities.

To support countries in transitioning to digitalized tax administration, last year ADB launched the Asia Pacific Tax Hub. The Hub will promote strategic policy dialogue, improve knowledge sharing, and strengthen coordination on tax policy and administration among ADB, its members, and development partners. The Hub will also support developing countries in preparing medium-term revenue strategies, roadmaps for the automation of tax administration, and participation in international tax initiatives.

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