Tax consistency as key to driving investment growth in Asia

Deloitte survey highlights tax consistency as key to driving investment growth in Asia Pacific

New Zealand well placed against backdrop of greater complexity and less consistency and predictability of tax policies in the region

New Zealand’s tax policies are seen as relatively straight forward, consistent and predictable compared to other countries in the region, according to Deloitte’s 2014 Asia Pacific Tax Complexity Survey Report.

The report, released last night in Hong Kong, highlights key tax trends facing businesses operating in the region. The findings for this year reveal a shift by businesses in placing greater focus on the consistency of tax policies, a reversal from the previous (2010) study where businesses placed greater emphasis on complexity and predictability of tax policies, when deciding to enter or exit a market in Asia Pacific.

The report concludes that overall, tax has become more complex, less consistent and less predictable than it was three years ago. High growth markets such as China and India continue to have material challenges in providing consistent and predictable tax regimes for taxpayers, while the mature markets of Japan, Korea and Australia are seeing more complex regimes being developed.

Deloitte Chief Executive Thomas Pippos says that the results highlight the stark contrast that exists in tax policy and administration across the region.

“The results clearly show that, on balance, New Zealand has a stable tax system where laws are relatively certain and the tax authority is seen as generally fair towards taxpayers,” says Mr Pippos.

“Being seen as a country that is easy to do business in from a tax perspective is certainly a positive to attracting global investment, but it’s important not to overstate this as tax is really only a secondary factor in attracting foreign investment. The real driver of global investment remains the extent of opportunities.

“The survey is particularly relevant for New Zealand businesses looking to expand offshore. It shows how tax regimes in Asia Pacific have become increasingly more complex, often operating on different paradigms to our own. The survey results reinforce the risk and challenges New Zealand businesses face operating in the region as they confront not only different markets but also different approaches to tax and tax administration.

“The costs and complexity of doing business in parts of our region can never be underestimated. Nor can the size of some of the markets and market opportunities. It’s about ensuring that everyone goes into these markets with their eyes wide open as assumptions are a sure fire way to making an expensive mistake,” concludes Mr Pippos.

The report surveyed over 800 financial and tax professionals from a broad range of industries in 20 jurisdictions across Asia Pacific. Survey highlights include:

· While tax is a key factor for investors in making investment decisions in Asia Pacific, respondents believe that consistency in tax policy is more important than predictability or complexity.

· More than 80 percent of respondents believe that India, Mainland China and Indonesia are expected to be the three most complex tax regimes by 2017. Hong Kong and Singapore will be amongst the least complex. Moreover, current global tax policy efforts around tax sharing (i.e. OECD's BEPS project) is likely to cause even further complexity, confusion and change within Asia Pacific.

· Respondents are very focused on taxation matters, their effect on business and their effect on their broader communities. Over 50% of respondents indicated that their board of directors and C-suite are now engaged in taxation matters and a high percentage indicating that they consider reputational risk when considering tax matters.

· The growth in the Asia Pacific economies has placed an unprecedented challenge on tax bureaus and their ability to keep up with relevant legislation and trained tax inspectors. Tax inspector training and increased speed and resolution of tax audits is seen as a priority of governing bodies.
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