Joseph, Shalini Josephine
(2019)
Impact of taxation on economic growth: evidence from Malaysia, developing and developed Asian countries.
[Dissertation (University of Nottingham only)]
Abstract
Economic growth has been a popular area of research as many authors have studied the various determinants of economic growth. In Asia, economic growth was brought when Western European capitalism started expanding their trade at a global scale. Since then, Asia started to grow rapidly and was known as one of the first regions to overcome the global financial crisis in 2008. After its rapid expansion, economic growth somewhat has remained between 5.5% to 6.0% from 2012 to 2016 without drastic changes. Taxation is one of the many determinants of growth as economic well-being of most countries are dependent on tax collection being the means for developing and providing public services.
The purpose of this research is threefold. There are three research objectives that the author would like to explore in relation to taxation and the economic growth in Asia. Since Malaysian citizens were sceptical with the effects of GST implementation (1 April 2015), the first objective of this study aims to determine the impact of GST on Malaysia’s economic growth. Besides, Asia has been widely viewed as one of the regions which imposes low taxes and although this promotes business-friendly environment and attracts FDI, there is a possibility that resources are insufficient in providing public services. Hence, the second objective is to determine whether tax revenue affects economic growth of Asian countries while the third objective is to determine whether the impact of tax revenue on GDP growth is pertinent in both the developing and developed countries in Asia.
Hence, to investigate the first objective, independent t-tests were conducted to compare SST and GST collection by the Malaysian Government between 2012 to 2017 respectively. Correlation analyses were also performed to determine the impact of consumption taxes (CT) on GDP. As for the second objective, panel data regression was performed on 52 Asian countries for a period of five years (2012 to 2016) in determining the impact of tax revenue on GDP. Panel data regression was used to examine the third objective in determining if tax revenue affects economic growth for both developing and developed Asian countries between 2012-2016.
From the findings, GST improved revenue collections as opposed to SST, thus having met one of the government’s objectives. Based on the correlation analyses, SST was significant in affecting GDP, which was not the case for GST. Furthermore, during the GST regime, only inflation affected economic growth while during the SST regime more factors influenced GDP, i.e. government expenditure and trade (exports and imports). Thus, the GST system in Malaysia was not effective in contributing to economic growth. As for Asia, tax revenue shows that it contributes to economic growth. This significance indicates that Asian countries typically rely on taxation in boosting economic growth. Thus, even with the current low tax levels, taxation contributes to economic growth. In contrast to ‘developing Asia,’ tax revenue in ‘developed Asia’ was insignificant because most of the countries in this category rely heavily on revenue from natural resources.
The findings of this study also outline possible initiatives which could be undertaken by governments of respective Asian countries to improve their existing tax systems in order to contribute further to economic growth via higher government expenditure for development in respective countries.
Keywords: Taxation, Goods and Services Tax (GST), Sales and Services Tax (SST), Malaysia, Asia, developing Asian, developed Asian, labour force, government debt
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