Determinants of Tax Revenue in South Asian Countries

Abstract

Taxation is a fundamental facet of a modern-day economy and the effort of government remains to maximize revenue via tax collection to support its financial spending. This article examines the impact of economic, productive specialization and social factors along with banking sector development on tax revenue, across South Asian countries over the period 2008–2017 by employing static panel data­techniques. The findings show significant positive impact of trade openness and life expectancy, whereas a negative impact of infant mortality rate to determine tax revenue in South Asian countries. The results also revealed the importance of FDI and banking sector development in determining tax ­revenue. Gross domestic product per capita growth rate and agriculture showed positive relationships with tax revenue, although the relationships are not significant. South Asian countries should focus on ­expansion of trade with the outside world to generate different forms of taxes and thereby tax ­collection. Conducive environment for the inflow of foreign investments would also enhance tax-generating activities, thereby increasing tax revenue in the South Asian countries. Attention is also needed on social factors such as quality of life, health and economic welfare of the population to ensure greater workforce entering tax paying sectors.