MORE AND BETTER JOBS IN SOUTH ASIA
FIGURE 4B.1
Cross-country comparison of reported severity of tax rate constraint
4
3 severity of constraint
156
Pakistan Sri Lanka 2 Bangladesh
Afghanistan India Nepal
1
Bhutan Maldives
0 6
7 8 9 log of per capita GDP at purchasing power parity dollars
10
11
Source: Carlin and Schaffer 2011b (based on World Bank enterprise surveys). Note: The cross-country regression line shows the relationship between the reported severity of the constraint for a benchmark firm and the log of per capita GDP. The shaded area is the 95 percent confidence interval band around the regression line. Vertical bars show confidence intervals of 95 percent around the reported severity of the constraint for countries in South Asia. The lack of overlap between the South Asian country confidence interval and the regression line confidence interval is a conservative test of the statistically significant difference between the reported severity of a constraint for the South Asian country and the average reported severity of constraint for countries at the same level of per capita GDP. The reported severity could still be significantly different even when there is an overlap. Analysis is based on a pooled sample of enterprise surveys conducted between 2000 and 2010. The severity of constraint is rated by firms on a 5-point scale, with 0 being no obstacle, 1 being a minor obstacle, 2 being a moderate obstacle, 3 being a major obstacle, and 4 being a very severe obstacle.
elsewhere in the region, fi rms consider tax rates less of an obstacle than do firms in other countries at the same income levels.
only 0.85 million out of a registered tax base of 1.25 million are actually taxpayers.
Statutory and effective tax rates Total tax revenues to GDP ratio The ratio of total tax revenues to GDP is low in many countries in the region—just 9 percent in Bangladesh, for example, and 10 percent in Pakistan (figure 4B.2). These ratios do not necessarily reflect low taxes, however. Rather, they represent a lower level of development and very narrow tax bases. In Pakistan, the tax base is very small, and firms that are in the tax base bear a heavy tax burden. The same is true for Bangladesh, where only 1.4 million of the country’s 145 million people are registered in the tax base. In 2004,
Although tax rates in India, Pakistan, and Sri Lanka are lower than they were in the 1990s, these countries still have the highest marginal corporate tax rates in the region. Rates are higher than comparator countries such as Brazil, China, Ghana, Indonesia, the Philippines, and Thailand (figure 4B.3). Because of poor compliance, however, and system of exemptions and loopholes, there is a significant divergence between statutory and actual average effective tax rates in South Asia. There is also a wide variance in effective tax rates across activities and sectors, which