World Bank pushes South Asia for tax reforms, pollution levies

Lanka among SA countries with above-average shortfalls in consumption tax revenue

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South Asia is grappling with significant fiscal challenges that affect its governments’ ability to provide essential public services.

Although its tax rates are often higher than average, the region struggles with low tax revenues, said a World Bank report.

The report explores the reasons behind these low revenues and discusses potential solutions to bridge the revenue gap and strengthen South Asia’s revenue collection.

It said: South Asia faces significant fiscal challenges. At the end of 2023, gross government debt averaged 77 percent of GDP in the region—well above the average of 64 percent among emerging market and developing economies (EMDES). South Asian governments spent 26 percent of their revenues on interest payments—also well above the EMDE average of 9 percent. This heavy debt burden makes it difficult for them to fund basic government services such as healthcare and education.

At the root of South Asia’s fiscal challenges are low revenues. During 2019-23, general government revenues, excluding grants, averaged 18 percent of GDP in South Asia, the lowest among all EMDE regions.

Although tax rates are often above the EMDE average, the region’s tax revenue is below the EMDE average. All South Asian countries, except India and Nepal, collect less tax revenue as a percent of GDP than countries with similar per capita income.