Taxing Investments in the Asia-Pacific Region: The Importance of Cross-Border Taxation and Tax Incentives

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Taxing investments in the Asia AbstractThis paper investigates the taxation of investments in the Asia-Pacific region. Our analysis is based on the methodology of Griffith (1999, 2003) for determining effective average tax rates. This approach allows us to account for important national and international tax regulations. Our results show that the overall dispersion of effective tax burdens in Asia-Pacific ranges from 10.6% in Hong Kong to 40.4% in India for domestic investments (overall average of 23.4%). In 8 out of 19 jurisdictions covered, investments are, however, effectively taxed at a rate between 20% and 25%. If the investment is made by a foreign investor, cross-border taxation has a significant impact on the overall tax burden. In any of the Asia-Pacific jurisdictions, foreign direct investments by a Singaporean or a German parent company are on average taxed at 29.2% and at 32.8% in case of a US investor. Meanwhile, tax incentives for the stimulation of private investment reduce the effective average tax rate by 8.6 percentage points on average. Fiscal incentives targeted at investments in the high technology sector or the development of specific geographic areas result in the lowest effective tax burdens.

Assessing tax relief from targeted investment tax incentives through corporate effective tax rates

“…In particular it goes beyond the typical focus on the most generous incentive and instead accounts for sectorand location-specific targeting, additional eligibility conditions (such as minimum investment size or other 1 Cross-country mapping of incentive design has identified important characteristics of incentives in SSA, such as the narrowing of tax bases (Keen and Mansour, 2010 [38]) and a higher share of incentives granted through discretionary processes relative to other regions (James, 2013[44]). Econometric studies on the relationship between duration of tax holiday and standard CIT rates with inward FDI flows in SSA did not find a robust positive correlation (Van Parys and James, 2010 [39]; Klemm and Van Parys, 2012[12]). 2 The forward-looking ETRs measure taxes due over the lifetime of a standardised investment project, expressed as a share of the investment's expected income.…”

Improving the Effectiveness of Public Finance

“…In fact, it is lower than CIT rates in other ASEAN economies except Singapore (17 percent The computation of the EATR is based on significant features of the respective country's tax system (e.g., depreciation allowances, profit and non-profit tax rates, exemptions). For full details on the estimation method, see Wiedemann and Finke (2015). 26 While having a lower statutory CIT rate, Singapore's EATR is higher than Cambodia's given that the depreciation of buildings and acquired tangibles are not tax-deductible in Singapore.…”

“…Going forward, authorities could consider further streamlining existing incentives to minimize the fiscal cost and to maximize the potential for attracting higher value-added industries.Figure 31. EATR for investments repatriating income is in turn higher than in other ASEAN countries When taking into account tax incentives, the EATR comes down to 12.2 percent a Source:Wiedemann and Finke (2015). Note: a.…”

Problems of Assessing the Effectiveness of Budget Expenditures in the Territories With Special Economic Status of the Far East

“…Вопросы налогообложения инвестиций и определения эффективных налоговых ставок в Азиатско-Тихоокеанском регионе исследованы в работах Wiedemann Verena, Finke Katharina [9]. В странах Азиатско-Тихоокеанского региона прямые иностранные инвестиции облагаются налогом от 10,6 % в Гонконге, до 40,4 % -в Индии.…”