Measuring the Tax Buoyancy: Empirics from South Asian Association for Regional Cooperation (SAARC)

Audi, Marc and Ali, Amjad and Roussel, Yannick (2021): Measuring the Tax Buoyancy: Empirics from South Asian Association for Regional Cooperation (SAARC).

Abstract

Taxes are the backbone of an economy, therefore, an effective tax system is very necessary for the survival of an economy. All the modern and developed economies have a higher rate of taxes as a percentage of GDP e.g. UK 33%, the USA 24.5%, Germany 38.8%, and France 45.4% (OECD, 2019). So, it is always important to measure the tax buoyancy among and within countries. This article has examined the buoyancy of taxes among the selected South Asian Association for Regional Cooperation (SAARC) countries from 1990 to 2019. Pooled regression has been applied for measuring the tax buoyancy coefficients for sales tax, income tax, customs duty, excise duty, and total tax revenue. The findings show that sales tax, income tax, and total tax revenue are significant with the buoyancy coefficient of 1.30, 1.12, and 1.01, respectively. Whereas the excise and customs, duties show a positive but insignificant buoyancy coefficient of 0.81 and 0.62, respectively. Among all revenue generation taxes, income tax and sales tax are leading; this indicates that South Asian countries prefer a progressive tax system. But the overall tax system in South Asia is inclined towards proportional response and needs strict checks for the improvement of the tax system. Finally, the revenue collection through taxation can be further enhanced with the help of an improved domestic tax system, as customs duties and excise duties are discouraged by the World Bank, IMF, and WTO.

• Item Type: MPRA Paper
• Language: English
• Keywords: tax buoyancy; income tax; customs duty; excise duty
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue

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