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Economy

Lift taxes for Southeast Asian infrastructure push: OECD

Free trade agreements also key to boosting growth, annual outlook says

Work is underway on a 5.58km elevated highway in Caloocan City, Metro Manila.   © Reuters

MANILA -- Southeast Asian governments need to collect more taxes to sustain the region's infrastructure expansion, the Organization for Economic Development Development Center said in a report published Wednesday.

In the OECD's latest outlook for emerging Asia, the Philippines is forecast to outpace the region's five largest emerging economies over the medium term. Consumer spending, helped by remittances from overseas workers and a planned tax reform, is expected to fuel average annual economic growth of 6.4% from 2018 to 2022.

The share of tax revenue to gross domestic product among Southeast Asian countries is highest in the Philippines, at 17%, followed by Malaysia (15.3%), Singapore (13.6%) and Indonesia, based on OECD data. That is far below the OECD average of 34.3%.

"The possibility to reach a higher level of fiscal revenue exists. If we compare across developing countries, it's possible," said Mario Pezzini, the center's director.

In Latin America, emerging economies such as Brazil and Argentina have tax levels around the OECD average.

Kensuke Tanaka, head of the center's Asia desk, said increasing infrastructure spending will benefit the region's economies, particularly Indonesia and the Philippines.

"These countries have a certain fiscal space to do this. But in terms of challenges, we still [doubt], in the long run, whether these two countries can sustain or provide [for] its long-term financing," Tanaka said.

Government spending on infrastructure projects should likewise brighten the Philippines' growth prospects over the medium term. In general, Tanaka said broadening the tax base by curbing corporate tax deductions should help improve revenue collection in Southeast Asian countries.

In addition to higher fiscal spending, boosting trade in the region will likewise drive the region's growth prospects. "Imbalances exist in different areas and places. As we said before, better integration in terms of trade would be helpful [rather than] detrimental," Pezzini said.

The Regional Comprehensive Economic Partnership, although it faces stumbling banks, has the potential to deepen the region's integration more than traditional trade agreements. "It will have a significant economic impact at both the regional and global levels, especially as it aims to improve the existing global value chains to become a more seamless hub, with decreased trade costs once the [nontariff barriers] are eliminated," the OECD said in its medium-term outlook.

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