Directing indirect tax in Asia
There are 150 countries with VAT and GST across the globe at present, but changes in this area are particularly prevalent across Asia as governments see indirect taxation as the easiest route to revenue. The key trends and challenges associated with managing the growth of these taxes were discussed today at the Taxand Global Conference hosted by Taxand China in Shanghai.
"There is a trend in China and other Asian countries of moving from a Business Tax model in particular sectors, to one more akin to VAT. In China, this is underway in the telecommunications sector and is being considered for others including construction and finance.
India is also in the midst of important change with the long-awaited reform of GST expected when the country announces its budget next month. Currently the indirect tax scenario is a complex one, with a number of separate state and central taxes, levies on cross border transactions and an aggressive tax administration. Audits are increasingly complex, with investigations becoming commonplace and valuation and classification disputes the norm.
GST will replace all transaction taxes in India - excise duty, VAT & service tax. However the road towards GST is proving long and slow, and clarity around next steps will no doubt be welcomed. Emerging sectors in the country include e-commerce, cloud computing and a big push in infrastructure to support the country’s burgeoning economy. Growth in these areas has changed the shape of business in the country and has forced a re-think of indirect taxation. Still it is thought that GST implementation across all states will not be complete until at least 2016.
Malaysia is further down the line, with implementation of GST expected in April 2015, bringing a much wider scope than the current sales and service taxes. Conversely GST will impact all businesses and the relatively short lead time to implementation here will undoubtedly prove challenging.
Other jurisdictions in Asia have had indirect taxes in place for some time, with Singapore first introducing GST in 1994 at a rate of 3%, though this has gradually risen to 7% over the years. Japan is also increasing its rates and there are questions over how the recent rise in VAT will affect the country’s economy and businesses operating within it.
In Pakistan however VAT is a recent phenomenon. Nonetheless its growth has been faster than that of any direct tax. Pakistan expects to have in place a fully modernised and automated VAT system that will be geared towards the country’s future needs. Given the pace of progress, Pakistan will in 2 years become the first major country in South Asia to have implemented VAT in its true, modern concept."
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"By 2020 it’s expected that more than 200 countries will have a VAT system in place, with an average rate of 18-20%. With indirect tax moving so quickly in Asia, international coordination of VAT and GST systems is required to avoid the risk of double taxation. Governments across Asia are right to adapt their tax systems to accommodate the shifting economic environment in their countries, particularly in e-commerce, though they must be careful to heed the associated implementation and compliance issues as they try to direct indirect tax."