Beyond collection:

Reforming tax systems for inclusive growth in ASEAN+3

- Yasuto Watanabe and Seung Hyun (Luke) Hong

ACROSS the ASEAN+3 region (comprising 10 members of the ASEAN and China; Hong Kong, China; Japan; and Korea), governments are facing mounting pressure to raise revenue. Even before the COVID-19 pandemic, many economies were seeing tax-to-GDP ratios drift downward. Since then, revenue collection has struggled to keep pace with post-pandemic recovery, while public spending needs have only grown. Aging populations, climate adaptation, infrastructure financing, and social investment are placing ever greater demands on national budgets. The central question now is: how can policymakers strengthen and adapt revenue systems to meet growing needs and safeguard fiscal stability?

The situation is not without hope. There is still significant room to broaden tax bases, modernize collection systems, and improve fairness and efficiency. Doing so would not only create fiscal space to meet rising demands but also strengthen trust in public institutions. This moment offers a window for reform — one where decisive action can secure long-term fiscal sustainability and more inclusive growth.

DIVERGING TRENDS ACROSS THE REGION

A closer look at the data reveals diverse trajectories over the past decade. Indonesia, Malaysia, and Singapore saw tax-to-GDP ratios fall and then rebound, while Thailand and Vietnam experienced a longer decline before stabilizing more recently. Cambodia and the Philippines gradually increased revenues, though momentum has eased recently. Among the Plus-3 economies, China’s ratio declined gradually, Japan’s rose steadily until FY2022 before dipping, and Korea’s has remained largely stable, with a brief peak in FY2022 followed by a recent decline.