Southeast Asia's Tax Policy Discussion Needs Some Counterintuitive Thinking

The Diplomat

a day ago

The two most important underlying economic factors of the next decade in Southeast Asia will be taxation and demography. Most countries will face a decline in working-age adults (taxpayers) and a major increase in retirees (sappers of state money). People are living longer, yet the elderly are going to have fewer relatives to look after them. In many countries in the region, pension systems are either non-existent or already at breaking point, while the intended pension-by-property solution has backfired in most countries. Most healthcare systems are certainly not ready for the pending increase in demand.
All of this comes as governments need to get creative with revenue collection. One little-spoken-about impact of the Trump tariffs is that with most Southeast Asian governments agreeing to cut duties on U.S. imports to nearly zero, they're losing a significant chunk of their revenue. Indeed, this and the boom in free trade agreements mean that Southeast Asian governments are having to rely far more on domestic taxes, instead of customs and excise (the usual source of funds), at the same time as revenue collection must massively increase.
The expected rational response will be to coerce people into paying higher taxes. However, cheaper, more effective ways are available. For instance, taxpayers could be given a list of five areas in which they want their money to be spent. For example: education, healthcare, defense, public infrastructure, and social development. From the five, they would select three. A ministry would collect all the votes and aggregate them. At a national level, 50 percent of all taxes would be allocated into a common fund, from which the government could spend as it sees fit. But the other 50 percent would be divided up based on how taxpayers voted. This wouldn't significantly alter how governments allocate their expenditures since the percentages involved would be relatively small. And if only a small percentage of people voted for defense spending, say, then the government could still allocate more towards security from the 50 percent common fund.
First, this system would make taxpaying seem like a personal investment. If you're particularly aggrieved by the state of your country's education system (maybe you've got young kids) or healthcare system (you're getting old) but aren't bothered by issues such as transport infrastructure or the military, you would be more inclined to think that your money is going to be returned to you in the future. This could alleviate the negative sentiment that your money will be wasted by the government. Second, it would be a useful way of learning what public services the masses actually want their government to deliver. Third, it would greatly reduce a government or leader's ability to indulge in wasteful megaprojects. Yes, they might have 50 percent of the revenue to play with, but they won't control all of it.
Another idea. Most human activity is unconsciously motivated by two main things: status-seeking and social copying. For smaller businesses, plaques could be given to display on their premises, indicating that they have paid their taxes for that year. Thus, the absence of a plaque would show customers that the owner hasn't done their duty, making taxpaying a socially reinforced practice. One might combine this with some other form of social embarrassment. In Pakistan, I'm told the authorities have for centuries hired transgender people as tax collectors: the idea is to embarrass business owners into paying, which apparently works quite well.
Additionally, state titles could be given to the highest taxpayers. Thailand already does this in a way. So, too, does the Philippines. It also exists in a somewhat different guise in Cambodia, where the honorific oknha (lord) is given to individuals who donate money to the ruling party. Such titles could instead be conferred on people who pay their taxes. There could be fancy awards parties for the rich to flaunt their status as taxpayers. Importantly, titles should be given and taken away each year. For example, they would only be given to the top 50 taxpayers for that year. If you drop out of this index the following year, your title is taken away and given to someone else.
When I moved to Phnom Penh, it took me a while to realize why tycoons would drive around in the city's potholed, asphalt-stripped streets in Lamborghinis and Ferraris. People think of 'conspicuous consumption' as showing off luxury and wealth, but it's actually about conspicuous impracticality. By traveling in the least practical way, the tycoons were signalling that they could easily afford the costly repairs. It's the same reason why a male peacock grows such a big, cumbersome plumage that makes them more liable to be attacked by predators. It's also why deer grow the most debilitating antlers and why some people choose to walk around the most violent neighborhoods in expensive jewellery that screams, 'try to rob me if you think you're tough enough.'
I also suspect it's the root motivation behind philanthropy. Maybe giving your money away is virtue status-signalling, but it's also a public display that you have enough money that you can afford to spaff some of it on other people. Given this universal impulse, a government could include an option for people or businesses to pay more tax than is required. A 10 percent, 20 percent, or 30 percent surcharge on top of what's expected, for instance. Those who pay this voluntarily would receive some sort of public recognition, a way for them to peacock their seemingly self-effacing act: 'I am so rich that I can afford to pay more taxation than I should.'