South-east Asian tax variances imply mixed outlook

Outlook

The first part of the Philippines president’s tax reform package was filed in congress on January 19. Other South-east Asian countries, including Cambodia and Myanmar, also eye tax reforms to expand the tax take and harmonise taxes with business needs.

Tax systems influence a country’s prosperity, potentially bringing new technologies, infrastructure and jobs. However, they can also cause competition, require tax rises elsewhere, and lose the state revenue. They can also take years to return socio-economic benefits. Governments need to target tax reforms at projects with wide economic benefit as ASEAN integrates economically at subnational, regional and international levels.

Impacts

• An attractive tax regime cannot substitute for a poor investment environment, including regulation or security.
• To expand their tax bases, ASEAN countries will push e-government but also need public support such as by creating redress mechanisms.
• ‘Sin’ and health-related taxes could be introduced to manage and mould public behaviour.
• Tax incentives will likely be most effective when offered to efficiency-seeking businesses, such as the mobile and export-minded.
• Discretionary tax regimes can see politics trump sound economic decision-making.