The entire Asia-Pacific region has only two rate increases in effect for 2021 to date, both involving individual income tax (New Zealand and South Korea). A significant decrease in the corporate income tax rate in the Philippines, from 30% to 25%, is scheduled to take effect retroactively to 1 July 2020 when enacted. Additionally, across all three major tax areas (corporate income tax, indirect taxes and individual income tax), Outlook survey respondents expect only two base expansions and five base constrictions in 2021 – a relatively stable outlook for taxpayers this year.
In seeming contrast to the rest of the world, most governments in the Asia-Pacific region do not appear to be increasing enforcement efforts. As of January 2021, no survey respondents have observed tax audit efforts intensifying to above pre-2020 levels, 70% have seen their jurisdiction return to generally normal audit functioning, and 30% have seen their jurisdiction continuing to operate at a reduced level of audit activity.
Dynamic tax landscape in the Americas
The environment is more varied for taxpayers in the Americas, where respondents forecast higher levels of change in 2021 than in other geographies. Outlook survey respondents expect the overall level of corporate income tax to increase in Brazil, Colombia and Costa Rica, and no respondents anticipate a lower overall level of tax despite corporate tax rate reductions in effect for 2021 in three jurisdictions.
Generally speaking, jurisdictions in the Americas have been following the global trend of lower rates and broader bases. However, the region features the highest average statutory corporate tax rate based on jurisdictions surveyed in the Outlook: 28% in the Americas vs. 24% in Asia-Pacific, 21% in EMEIA and 23% across all 68 jurisdictions.
The average corporate income tax rate in the region may change, as a third of the Outlook survey respondents in the Americas anticipate significant tax reform in their jurisdiction in 2021, compared to only 13% in EMEIA and 20% in Asia-Pacific. While some current reform efforts are carry-over projects, many reflect new initiatives in jurisdictions that are contemplating joining the OECD or that are otherwise taking a new look at modifying their tax systems.
Tax policy changes in the Americas are developing against the backdrop of a strong enforcement environment. These efforts may create uncertainty for taxpayers, with nearly 80% of Outlook survey respondents in the Americas reporting an expectation that their country’s tax authority could adopt new interpretations of existing tax laws as they seek tax revenues in 2021.
“With an increasing focus on government spending related to pandemic heightened economic challenges, governments are considering a wide array of responses – from tax rate changes, to tax base broadeners, to new taxes, to increased enforcement,” said Marna Ricker, EY’s Americas Vice Chair of Tax. “Because we also expect some governments to increase incentives for investments as well, it’s essential for tax leaders to have a holistic view of their specific fact patterns and the potential tax changes to properly evaluate the risks and the opportunities.”