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Corporate tax remains a key revenue source, despite falling rates worldwide

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Taxes paid by companies remain a key source of government revenues, especially in developing countries, despite the worldwide trend of falling corporate tax rates over the past two decades, according to a new report from the OECD.

A new OECD report and database, Corporate Tax Statistics, provides internationally comparable statistics and analysis from around 100 countries worldwide on four main categories of data: corporate tax revenues, statutory corporate income tax (CIT) rates, corporate effective tax rates and tax incentives related to innovation.

The new OECD analysis shows that corporate income tax remains a significant source of tax revenues for governments across the globe. In 2016, corporate tax revenues accounted for 13.3% of total tax revenues on average across the 88 jurisdictions for which data is available. This figure has increased from 12% in 2000.

Corporate taxation is even more important in developing countries, comprising on average 15.3% of all tax revenues in Africa and 15.4% in Latin America & the Caribbean, compared to 9% in the OECD.

Corporate tax revenues have also held up when considered as a percentage of GDP, where the average share increased from 2.7% of GDP in 2000 to 3.0% in 2016 across the jurisdictions included in the database.

The new OECD analysis shows that corporate tax remains a key source of revenue, despite a clear trend of falling statutory corporate tax rates – the headline rate faced by companies – over the last two decades. The database shows that the average combined (central and sub-central government) statutory tax rate fell from 28.6% in 2000 to 21.4% in 2018. More than 60% of the 94 jurisdictions for which tax rate data is available in the database had statutory tax rates greater than or equal to 30% in 2000, compared to less than 20% of jurisdictions in 2018.

Comparing statutory corporate tax rates between 2000 and 2018, 76 jurisdictions had lower tax rates in 2018, while 12 jurisdictions had the same tax rate, and only six had higher tax rates. In 2018, 12 jurisdictions had no corporate tax regime or a corporate income tax rate of zero.

The OECD analysis highlights that CIT revenues are influenced by many factors, and therefore focusing on headline statutory tax rates can be misleading. For example, jurisdictions may have multiple tax rates with the applicable tax rate depending on the characteristics of the corporation and the income. Progressive rate structures or different regimes may be offered to small and medium-sized companies, while different tax rates may be imposed on companies depending on their resident or non-resident status. Some jurisdictions tax retained and distributed earnings at different rates, while some impose different tax rates on certain industries. Lower tax rates are often available for firms active in special or designated economic zones, and preferential tax regimes offer lower rates to certain corporations or income types.

Another factor influencing CIT revenues is the definition of the corporate tax base. The OECD Corporate Tax Statistics database assesses how standard components of the corporate tax base reduce the effective tax rate faced by taxpayers, including the effects of fiscal depreciation and several related provisions, such as allowances for corporate equity.

Taking these provisions into account, the database shows that “forward-looking” effective tax rates are generally lower than statutory tax rates, with an average reduction of 1.1 percentage points observed in 2017 across the 74 jurisdictions analysed in the database. Targeted tax incentives, such as for research and development (R&D) expenditures and intellectual property (IP) income, are widely used to reduce the corporate tax burden for specific activities.

The new database is intended to assist in the study of corporate tax policy and expand the quality and range of statistical information available for analysis under the OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative. In 2015, the OECD reported that base erosion and profit shifting was having significant effects on the corporate tax base, estimating revenue losses to governments from BEPS in the range of USD 100-240 billion (2014 figures), equivalent to 4-10% of corporate tax revenues.

The new database, which will be updated annually, aims to improve the measurement and monitoring of BEPS. Future editions will also include an important new data source – aggregated and anonymised statistics of data collected under country-by-country reporting now being implemented under BEPS Action 13 – that will allow “backward-looking” assessment of effective tax rates actually paid by firms.

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‘Concerted efforts’ needed to meet 2030 Global Goals in Asia-Pacific region

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Action to reverse the depletion and degradation of the environment across Asia and the Pacific is a top priority if the region is to stay on course to meet the Sustainable Development Goals (SDGs), according to a new United Nations report launched online, for the first time, on Tuesday.

In the Asia and the Pacific SDG Progress Report 2020, the UN Economic and Social Commission for Asia and the Pacific (ESCAP) draws attention to the region’s poor performance on most of the measurable environmental targets of the 2030 Agenda for Sustainable Development, to determine where additional effort is needed and where momentum for future progress is building.

“Our analysis finds that the Asia-Pacific region has struggled the most with two Goals: advancing responsible consumption and production, and climate action”, observed UN Under-Secretary-General and ESCAP Executive Secretary Armida Salsiah Alisjahbana.

The flagship report sounded the alarm for the Asia-Pacific region to “urgently” foster sustainable resource usages, improve waste management, increase natural disaster resilience and enact policies to adapt to climate change impacts.

For example, the report reveals that the region emits half of the world’s total greenhouse gases which add to carbon emissions – a number which has doubled since 2000. Around 35 per cent of countries there continue to lose areas of forest, and the share of renewable energy has dropped to 16 per cent, one of the lowest rates globally.

A ray of light

On a positive note, many countries are showing remarkable progress on SDG 4 by improving the quality of education, as well as on SDG 7 – providing access to affordable and clean energy – making these two Goals well within reach.

And according to the report, the region is also making good progress on economic targets, although the data for report pre-dates the arrival of the coronavirus pandemic, which has caused a global economic slowdown.

It points out that in 2017, the real gross domestic product per capita growth in the region was more than double the world average, while at least 18 countries in the region were experiencing less income inequality.

Yet, to grow more sustainably and equitably, the current economic progress of the region must be aligned with human well-being and a healthy environment. 

The report reveals that progress has been far too slow in areas such as SDG 5, gender equality, and SDG 11, building sustainable cities and communities. 

Moreover, ESCAP warned that without concerted and extra efforts from all concerned, the region remains unlikely to meet any of the 17 SDGs by 2030.
“The region is not even moving in the right direction”, underscored Ms. Alisjahbana. 

Asia-Pacific subregions

Progress has also been uneven across the five subregions of Central, East, South, Southeast and Western Asia.

Singled out as areas where progress has been mixed, were SDG 10 to reduce inequalities; SDG 12 for responsible consumption and production; and SDG 16, which highlights the need for peace, justice and strong institutions.
However, steady improvement in electricity was a positive example of collective progress across the five subregions, particularly in rural areas. 

Gathering data 

While SDG data for each indicator has substantially increased in Asia and the Pacific -– from 25 per cent in 2017 to 42 per cent in 2020 -– it is still lacking in relation to half of the Global Goals indicators, especially those with slow progress. ESCAP flags that this highlights the urgent need to strengthen the policy-data nexus in the region. 

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Mongolia Poverty Update: Report

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The National Statistics Office of Mongolia (NSO) and the World Bank today launched a new joint poverty report, Mongolia Poverty Update, which draws on the 2018 Household Socio-Economic Survey (HSES).

According to the report, the pace of poverty reduction slowed down despite robust macroeconomic growth, indicating that Mongolia is struggling to translate the benefits of macroeconomic growth into improvements in household welfare, especially for the poor.

The report also highlights the uneven progress in poverty reduction between urban and rural areas during 2016-2018. Overall, these were good years for most rural herders as a result of higher livestock product prices. By contrast, urban residents in the poorest group were most negatively affected. Out of all the consumption classes, only the poorest urban households experienced negative real income growth (-1.0 percent, YoY) during this period due to sluggish wage and business income growth. Higher food price inflation also disproportionately affected urban poor and vulnerable households which spend a majority of income on food and purchase food items out of their own pockets. As a result, the rural poverty rate fell by 4.1 percentage points while the urban poverty rate was little changed from 2016 to 2018.

“This poverty report provides us with the latest updates of poverty status and profile of people in Mongolia and highlights the challenges and opportunities to tackle poverty reduction going forward,” said Ms. A. Ariunzaya, Chairperson of the National Statistics Office. “We strongly hope that the analysis and findings of this report shall serve as reference material not only for policy- and decision-makers, but also for researchers and a diverse range of audiences interested and working in poverty and socio-economic studies.”

The updated poverty profile shows that poverty is most prevalent among low-skilled wage workers, the unemployed and economically inactive individuals, large families and children. Important challenges are also seen in service delivery, particularly with regard to proper sanitation and reliable heating sources.

Mongolia’s education attainment level, particularly among youth, is the highest in the East Asia region, but for women, having a university diploma does not necessarily mean that they can obtain a better-paying job. The gender gap in labor force participation has barely improved over the past decade. Furthermore, despite a great improvement of herders’ welfare level, they remain highly vulnerable to livestock price shocks and harsh winters, which could have a profound impact on their well-being without adequate safety nets.

Mongolia is one of the youngest countries in the region in terms of the demographic structure. To harness the upcoming demographic dividend opportunity for inclusive growth and poverty reduction, the report suggests that the country will need to create a sufficient number of job opportunities in a wide variety of productive sectors in order to absorb these new workers.

“Monitoring and analyzing quality and timely data from the household surveys will help to track progress to date as well as shed light on where support and policy interventions are most needed,” said Andrei Mikhnev, World Bank Country Manager for Mongolia. “To accelerate poverty reduction and promote shared and sustainable prosperity in Mongolia, investment in children and youth to improve their skillsets to meet labor market needs is crucial, as is promotion of fair and equitable labor force participation for women.”

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Wastewater A Resource that Can Pay Dividends for People, the Environment, and Economies

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The world’s wastewater – 80 percent of which is released into the environment without adequate treatment – is a valuable resource from which clean water, energy, nutrients, and other resources can be recovered, according to a World Bank report released today to mark World Water Day.

The report, Wastewater: From Waste to Resource, calls for smarter wastewater management, including reuse and resource recovery, and looks at wastewater projects around the world which have paid dividends for people, the environment, and economies in the short and long-term.

Efficiently investing in wastewater and other sanitation infrastructure is crucial to achieve public health benefits, improve the environment, and enhance quality of life. Safely managed water, sanitation and hygiene (WASH) services are an essential part of preventing disease and protecting human health during infectious disease outbreaks, including the current COVID-19 pandemic.

At a time when 36 percent of the world’s population lives in water-scarce regions, wastewater treatment for reuse is part of the solution to water scarcity and pollution problems,” said Jennifer Sara, Global Director, World Bank Water Global Practice. “Once treated, it can be used to replace freshwater for irrigation, industrial processes, or recreational purposes. It can also be used to maintain the environmental flow and by-products from its treatment can generate energy and nutrients.”

Wastewater treatment offers a double value proposition, the report says. In addition to environmental and health benefits, wastewater treatment can bring economic benefits through reuse in different sectors. Its by-products, such as nutrients and biogas, can be used for agriculture and energy generation. And additional revenues generated from this process can help cover water utilities’ operational and maintenance costs.

In this sense, wastewater should not be considered a ‘waste’ anymore, but a resource. This is at the core of a circular economy, an economic system aimed at minimizing waste and making the most of resources. As cities continue to grow, future urban development requires approaches that minimize resource consumption and focus on resource recovery, following principles of the so-called circular economy,” said Diego Juan Rodriguez, the report’s author and a Senior Water Resources Management Specialist at the World Bank. “One of the key advantages of adopting circular economy principles in wastewater management is that resource recovery and reuse could transform sanitation from a costly service to one that is self-sustaining and adds value to the economy. This will help countries bridge the funding gap in sanitation to achieve the Sustainable Development Goals.”

The report casts a light on wastewater management experiences in the Latin America and Caribbean (LAC) region, which are already reaping benefits. For example:

By using treated wastewater instead of groundwater, the San Luis Potosi power plant in Mexico cut costs by 33 percent, leading to US$18 million in savings over six years for the power utility. For the water utility, the additional revenue from selling treated wastewater helped cover operations and maintenance costs.

A wastewater treatment plant in Cusco, Peru, saves US$230,000 a year in transporting biosolids (nutrient-rich organic materials resulting from the treatment of domestic sewage in a wastewater treatment facility) and landfill fees due to an agreement with the local compost producer. The compost produced with the plant’s biosolids is then used as part of the water management project to preserve the Piuray Lake.

The Brazil-based CAESB water and wastewater utility’s use of biosolids for corn production led to higher-than-average grain yields and was 21 percent more efficient than mineral fertilizers.

The operator of the La Farfana wastewater treatment plant in Santiago, Chile, after investing US$2.7 million to retrofit the plant, was able to sell biogas, accounting for an annual net profit of US$1 million for the business.

The report recommends incorporating wastewater interventions as part of river basin planning, and pairing them with policies, institutions and regulations that foster this paradigm shift. Wastewater treatment plants need to be gradually repurposed as water resource recovery facilities, while also exploring and supporting innovative financing and sustainable business models that leverage the potential revenue streams of resource recovery from wastewater.

Only 30 to 40 percent of the LAC region’s collected wastewater is treated, resulting in negative impacts on both human health and the environment.

The report shows what’s possible when governments at all levels apply circular economy principles to their wastewater challenges. For example, in the city of La Paz, Bolivia, the national and municipal governments, as well as the water utility, with support from the World Bank and other development partners, are working together to incorporate circular economy principles in the design of the La Paz wastewater treatment plant. The goal is to address water pollution and public health issues caused by low levels of wastewater treatment and unregulated use in agriculture.

We are happy to see that the necessary transformation is well under way – wastewater policies in many countries already include reuse and resource recovery, and we hope more countries will follow suit. Countries need to scale up action,” said Rodriguez.

The report was funded in part by the Global Water Security & Sanitation Partnership (GWSP) and the Public-Private Infrastructure Advisory Facility (PPIAF).

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