FINANCIAL INCLUSION, TAX REVENUE AND CORRUPTION: EVIDENCE FROM SELECTED ASIAN COUNTRIES

Asia is the largest continent in the world, with nearly 60% of the global population, and corruption and tax evasion are major issues, with about 1.5% of annual tax revenue lost to evasion and corruption. This research focuses on the impact of the degree of FI (financial inclusion) on tax revenue and corruption, with special reference to economic stability and good governance in selected Asian countries. The data used in this study is panel data from 19 selected Asian countries, obtained from various sources such as the Financial Access Survey and the World Governance Indicators. In this study, the dependent variables include corporate tax, individual income tax, and corruption levels, while the independent variable is the level of FI. The analysis is conducted for the IDA17 period (2014-2021) because of its focus on FI in developing countries. The results show that there is a positive correlation between FI and tax revenue, with effects on corporate taxes, individual income tax, and taxes on profits, income, and capital gains. On the other hand, a negative correlation is established between FI and corruption, which means that increased FI can decrease corruption in emerging economies. This implies that FI can improve both economic governance and revenue mobilization in Asian countries. In the case of Asian countries, the promotion of FI can be used as a way to enhance tax compliance and fight corruption. FI policies should be aligned with other fiscal and anti-corruption measures, with an emphasis on the financial inclusion of the population. In this way, governments can increase their revenues and minimize the possibilities of losing money that could be invested in critical needs such as education, healthcare, infrastructure, and more. This paper seeks to provide a remedy for this deficiency by undertaking an analysis of the relationship between FI, tax revenue, and corruption, focusing on Asian countries. To the best of the researcher’s knowledge, this study presents new empirical evidence on the direct impact of FI on both tax revenues and corruption simultaneously, which is important for developing and emerging economies. The strengthening of these interactions highlights the significance of having an efficient financial structure for enhancing socio-economic development and advancing governance reform.