---
title: "Tax Policy in East Asia and the Pacific"
subtitle: "A Regional Overview and Future Directions"
author: "Panayiotis Nicolaides"
date: "May 2026"
date-format: "MMMM YYYY"
format:
  revealjs:
    theme: [default, wb_reveal_theme.scss]
    logo: wb_logo.jpg
    slide-number: c/t
    transition: none
    incremental: false
    progress: true
    chalkboard: false
    embed-resources: true
    width: 1280
    height: 720
    fig-align: center
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execute:
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---

```{r setup}
library(here)
library(knitr)

s1_fig <- here("segment_1_tax_advisory_history", "output", "figures")
s2_fig <- here("segment_2_taxation_trends", "output", "figures")
s3_fig <- here("segment_3_inequality", "output", "figures")
s4_fig <- here("segment_4_tax_mix_future", "output", "figures")
```

## Conceptual framework

We take a broad view of tax policy in EAP and consider three key interrelated determinants of effectiveness:

1. **WB current and past tax advice** — what has the WB advised on, and how does this align with tax revenue outcomes?
2. **Taxation trends and inequality patterns** — how have tax revenues evolved, and what was the role of taxation for making growth inclusive?
3. **Structural characteristics** — are there features in EAP economies that limit tax potential?

We draw conclusions by putting together three novel datasets, one for each dimension, and by looking for patterns across them.

*To the extent that we can identify patterns in these three areas, we can draw conclusions on how to reorient the WB's tax strategy in EAP to be more effective.*

# Taking stock of tax advice in EAP

## WB PFR/DPO recommendations, 2015–2025

We collect and categorize all (105) DPOs/PFRs recommendations from FY2015 to FY2025.

We classify them by tax instrument and by country, and plot patterns.

We compare 59 Prior Actions to the broader portfolio of tax advice in other regions.

## 67% of advice targeted consumption and corporate taxes

```{r}
include_graphics(file.path(s1_fig, "fig1_tax_category_stacked.png"))
```

## Country breakdown by PFR/PER and DPO recommendations

```{r}
include_graphics(file.path(s1_fig, "fig5_country_by_source.png"))
```

## Country × tax category recommendation heatmap

```{r}
include_graphics(file.path(s1_fig, "fig7_heatmap.png"))
```

## DPF advice compared to other regions

```{r}
include_graphics(file.path(s1_fig, "fig_regional_dpf_tax_total_pres.png"))
```

## Tax DPF prior actions per country with active DPF engagement

```{r}
include_graphics(file.path(s1_fig, "fig_regional_dpf_tax_per_country_pres.png"))
```

## 11 EAP countries with active engagements as of FY2025

```{r, out.width="95%"}
include_graphics(file.path(s1_fig, "fig_current_engagements_map_static.png"))
```

## Country overview {.vline-after-4}

| Country          | Total | Lending | ASA | Policy | Compliance |
|:-----------------|------:|--------:|----:|-------:|-----------:|
| Philippines      |    11 |       2 |   9 |      7 |          3 |
| Lao PDR          |     7 |       1 |   6 |      3 |          3 |
| Cambodia         |     7 |       1 |   6 |      4 |          2 |
| Indonesia        |     7 |       0 |   7 |      4 |          3 |
| Papua New Guinea |     5 |       1 |   4 |      3 |          1 |
| Viet Nam         |     4 |       0 |   4 |      1 |          3 |
| Tonga            |     4 |       1 |   3 |      2 |          1 |
| Marshall Islands |     4 |       0 |   4 |      1 |          2 |
| Mongolia         |     2 |       0 |   2 |      2 |          0 |
| Malaysia         |     2 |       0 |   2 |      1 |          1 |
| Vanuatu          |     1 |       0 |   1 |      1 |          0 |
| **Total**        |    54 |       5 |  49 |     29 |         19 |

## Findings:

- WB tax advise was active across EAP, with 10 countries receiving DPF advice and 17 receiving PFR/PER advice.
- Advice has focused on consumption and corporate taxes, with less attention to direct personal taxation.
- Significant variation in the number of recommendations across countries; some receive many, others none despite similar tax patterns.
- We don't seem to take a regional view on issues; country advice prevails.

*Reflection: To what extent do recommendations reflect WB advice capacity, country comfort and political economy, compared to the structural conditions and tax needs of EAP economies?*

# Tax revenue trajectories <br/> (or, what was the impact of tax advice?)

## From advice to outcomes

We plot tax-to-GDP ratios over the past 20 years.

We check Prior Action alignment with realised tax revenue at country and instrument level.

**Two patterns:**

- Tax/GDP has not moved in EAP, despite high growth.
- Some Prior Actions misaligned with realised tax revenue at country level.

## Tax-to-GDP ratios have been broadly flat across EAP

```{r, out.width="95%"}
include_graphics(file.path(s2_fig, "fig_s2_1a_tax_gdp_trend_full.png"))
```

## Tax composition (% of GDP) by country, 2004–2020s

```{r}
include_graphics(file.path(s2_fig, "fig_s2_2_composition_by_year.png"))
```

## Tax revenue change after reform

```{r}
include_graphics(file.path(s2_fig, "fig_s2_3_composition_change.png"))
```

## Prior actions are not clearly aligned with realised tax revenue

```{r}
include_graphics(file.path(s2_fig, "fig_s2_4_alignment_year_pres.png"))
```

# Taxation and inequality: <br/> data and methodology exist, but not yet fully applied in EAP

## What the WB has done so far on tax incidence

The framework for linking taxation and inequality is mature.

Mostly a measurement issue: pre-tax inequality, growth incidence, top-share dynamics, and effective tax rates by income group.

EAP countries are advanced enough to develop it and underlying data exist, yet either guard them closely or lack interest on the topic.

## What we did here:

For the 8 EAP economies with sufficient publicly available data — IDN, PHL, VNM, THA, MYS, LAO, MNG, PNG — we built a stylised pre-tax to post-tax decomposition.

For the remaining 9 economies, even the stylised decomposition is not feasible from public data.

Key challenge: Distributional National Income Accounts (DINA) absent in all 17 EAP countries; major gap for understanding the distributional implications of growth and taxation in the region.

## Top 10% has captured 40–60% of cumulative growth, 1995–2023

```{r}
include_graphics(file.path(s3_fig, "fig_s3_2c_growth_share_captured.png"))
```

## Latest-year inequality: EAP-10 vs rest of world

```{r}
include_graphics(file.path(s3_fig, "fig_s3_3_eap_vs_donor_boxplots.png"))
```

## Bottom incomes have grown, yet income differences have not narrowed

```{r, out.width="92%"}
include_graphics(file.path(s3_fig, "fig_s3_2b_income_levels.png"))
```

## Stylised post-tax simulation — small change at the bottom 50%

```{r}
include_graphics(file.path(s3_fig, "fig_s3_pt_2_pre_post_tax_shares_pres.png"))
```

## Findings:

Benefits of growth captured by the top 10% and even more by the top 1% in most EAP economies, with the bottom 50% capturing only a small share of growth.

The role of taxation in redistributing income is not clear, but the stylised simulation suggests that it has plays a limited role.

We cannot answer how much consumption tax, income tax, excise tax, CIT or property each decile pays as a share of its income.

*Not only fairness reasons to care about this, but also efficiency and political reasons: Citizens find it hard to consent to a tax system whose distributional consequences they cannot see.*

# Structural characteristics <br/> (or, are there features in EAP economies that limit tax potential?)

## We put together some Structural Indicators to understand the tax potential of EAP economies

**Approach**

- A combined score from 6 indicators known to bound the tax base
- GDP per capita, urbanization, trade openness, agriculture share, informal employment, ATMs per 100k adults
- Equally weighted; min–max normalised on a 99-country sample
- Computed for EAP-16 against an 83-country LMIC/UMIC peer pool

**This gives:**

- A combined score per country to rank structural characteristics that affect tax potential
- A component view to see which dimension binds in each country

**Limitations**: List is indicative and not exhaustive, does not capture all relevant dimensions and does not capture the political economy of reform.

## Structural indicators by country

```{r}
include_graphics(file.path(s4_fig, "fig_s4_3_tsrs_components_pres.png"))
```

## Structural characteristics can affect revenue potential

```{r}
include_graphics(file.path(s4_fig, "fig_s4_2_tsrs_ranked_pres.png"))
```

## Structural reforms that affect taxation — a direction for further work

Several EAP economies sit well below the donor-pool median on the combined score.

The binding constraint differs by country: informality, agricultural employment, urbanisation, financial infrastructure.

A decade of WB advisory focused on instrument design.

Where structural characteristics bind, instrument design alone hits a ceiling — this may be one reason why the needle on tax/GDP has not moved.

# Four strategy directions

## 1. We need to develop an awareness of what's important for the countries

**Shift the question**

- Not: *what can we offer that is easy to implement?*
- But: *what does this country actually need?*
- We need a list that follows country needs, not WB or country comfort.
- We should build arguments with sound, modern, data-driven economic analysis.

**Structural reforms that affect taxation**

- Promote reforms aware of the economic structure and fundamentals that bound revenue potential
- Informality, urbanisation, financial infrastructure, sector mix, etc.
- Where these bind, instrument design alone is not enough; we need to address the economic fundamentals in conjunction.

**Important tax instruments not promoted enough in WB's EAP portfolio**

- Direct taxes (PIT, property, capital) come second
- Cooperation between countries on tax information exchange
- Capital taxation and wealth taxation absent
- PIT base broadening and using third-party information

## 2. Monitoring in DPO cycles should be linked to tax revenue outcomes without fear of being wrong

**We should develop a systematic approach to:**

- Track recommended instrument's revenue trajectory
- Window: 1 / 3 / 5 years
- Where the response is absent, feedback should be encouraged

**Generating data, publications, op-eds is a crucial way of building narrative:**

- Publish portfolio outcome dashboards (region or instrument level)
- Surface what worked and what did not — visibly
- Invite external peer review
- Engage with wider public more closely necessary to explain rationale of reforms and understand what works

## 3. Tax distributional analysis + encourage countries to build DINA

**Every tax reform has large distributional implications that go unnoticed**

- Stylised pre-tax vs post-tax decomposition in country reforms
- Help countries build DINA: requires expert knowledge with country cooperation
- Underlying data often exists but not fully utilized

## 4. Build effective tax rate estimates across the distribution

**We currently don't know:**

- How much tax is paid by whom
- How growth is distributed across the population
- What to do to correct this

**Why this matters**

- Prerequisite for any credible distributional reform conversation
- Foundation of the fiscal social contract and political stability

# Key Takeaways

## Key Takeaways

- High growth and stable period, but surprisingly no impact on tax/GDP
- Top 10% has captured most of the income growth in most EAP economies
- We cannot analyse fully who benefited from growth and assess the redistributional elements of taxes, but these might not have been substantial, enabling little change in real incomes of many citizens in EAP countries
- EAP economies face structural characteristics that shape their tax revenue potential; these should be identified and targeted in PAs
- We need a reorientation of WB tax engagement to tilt both us and countries towards novel measurement techniques (ETRs, DINA, targets per tax instrument) and on the identification of key structural elements in the economies that affect revenue potential
