Asia-Pacific tax policy outlook

The outlook for global tax policy in 2013

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Over the past few years most countries in the Asia-Pacific region have adopted policies aimed at a switch from fiscal stimulus to fiscal consolidation.

This trend is expected to continue in 2013 with all countries projecting sovereign debts and annual deficit levels of a similar size to those seen in 2011 and 2012.

For the 2013 to 2017 period, most counties are projecting improvements in (or at the very least stabilization of) both sovereign debt and annual deficit levels. While this is encouraging, improvements in sovereign debt levels are not expected to be dramatic (with only China projecting a reduction in debt in excess of 10% over the 2013 to 2017 period).

Although this might seem to indicate that tax burdens will increase generally, this is certainly not borne out by the subjective outlooks from our 13 responding countries. Instead, it seems to indicate how well Asia-Pacific has weathered the global financial crisis and been largely protected from the European sovereign debt crisis — at least in terms of its impact on taxation policy in the region.

In fact, across all tax classes tracked (CIT, PIT and VAT/GST/ sales tax) in all countries, only four increases are reported. Of the four, three (New Zealand, Philippines, Singapore) are in the area of indirect taxes and involve base-broadening as opposed to headline rate increases. More specifically, countries in the region seem to be using the delivery of stimulus via the CIT regime as a key plank of policy.

Of the 13 countries reporting, the overall CIT burden is projected to decrease in 10, a far higher ratio than in other regions. PIT attracts projected burden reductions in 7 of the 13 (with no substantive changes in burden in the remaining 6) while the region confirms the global trend of an overall move to the taxation of consumption: none of the 13 countries are projected to decrease the indirect tax burden in 2013.

Overall, the tax policy landscape in 2013 is expected to be very similar to that of 2012, with continuance of most trends identified in the prior year, notably:

  • Reductions in corporate and personal tax rates aimed at attracting domestic and foreign investment and boosting spending
  • Introduction of incentives to promote “green activities” and taxes on carbon emissions
  • Introduction of taxes on mineral resources and/or property
  • A more targeted approach to the provision of tax incentives
  • De facto broadening of the tax base (across all taxes: CIT, PIT and VAT/GST/sales tax) through targeted compliance programs

Charting a course in Asia: austerity, stimulus, both?

Anticipated changes in tax burden in Asia-Pacific countries

Tax type Increase in burden in 2013 Decrease in burden in 2013 No change in burden in 2013 Total countries  levying tax type
CIT 1 10 2 13
PIT 0 7 6 13
VAT/GST/sales tax 3 0 8 11
Total for all tax types 4 17 16 37

Asia-Pacific's political landscape

Although the ability of a number of countries to implement proposed tax policy changes was hampered in prior years due to political instability and/or natural disasters, the ability to effect tax policy change does appear to be improving. For example:

  • Thailand's overall political stability improved in 2012 following the inauguration of the Pua Thai Party. With solid control of the lower house and a strong popular mandate, the Government has been able to push through a number of tax policy changes, including a reduction in the CIT rate from 30% to 23% in 2012 and to 20% in 2013 and a reduction in the top personal tax rate from 37% to 35% in 2013 (notwithstanding the fact that this creates a growing misalignment between the two types of tax).
  • The expected re-election of the Malaysian Government in the upcoming April 2013 election should pave the way for implementation of long awaited GST legislation in 2014.

Nonetheless, the majority of proposed changes are not overly ambitious, which may be symptomatic of narrow political mandates in a number of countries.