The AEC will promote the free flow of goods, services, skilled workers and capital among ASEAN’s 10 member countries.
The key characteristics of AEC would include:
- a single market and production base in ASEANa highly competitive economic region
- a region of equitable economic development
- a region fully integrated into the global economy.
ASEAN proposes to link this community with its key external trading partners including Australia, China, India, Japan, New Zealand and South Korea through the Regional Comprehensive Economic Partnership.
The rapid growth of ASEAN is creating opportunities across a broad range of industry sectors. As ASEAN middleclass incomes rise, so will the demand for a wide spectrum of products (ranging from fast-moving consumer goods to luxury goods) and services (including banking, insurance, healthcare, education and tourism).
Like Asia’s other emerging markets, the ASEAN region will require significant investment into physical infrastructure including roads, rail, ports, power and water. Over the next decade, it is predicted that ASEAN nations will require approximately 60 billion US dollars (USD) each year to fully address the region’s infrastructure needs, presenting ample opportunities to foreign investors to participate in this booming market.
One of the major challenges facing the AEC is the diversity between the member countries, culturally, politically and economically. For example, Myanmar’s GDP per capita in 2011 was USD1,325, while Singapore’s was close to USD60,000. Although narrowing the development gap is an important motivation for the AEC, some nations have concerns that more developed economies like those of Singapore and Malaysia will benefit more from the agreement than the developing ones. There are also significant legislative hurdles to overcome in a short timeframe. New laws to harmonize customs rules need to be adopted, for example, and there is no road map in place for harmonizing value added taxes. Further, since there are no plans to harmonize domestic corporate income tax systems, concerns over double taxation and tax competition are rising.
According to KPMG’s Tax Rates Online, most ASEAN nations impose general corporate income tax at rates that are within a few points of the 23 percent average rate among all Asian countries. However, the Philippines’ 30 percent rate is almost double Singapore’s 17 percent rate, which is much more favorable to foreign direct investment. The European Union (EU) faced similar tensions between domestic and regional interests in the development of the so-called EU Internal Market. The EU project provides valuable examples of how it has implemented an open market for companies and individuals by introducing the fundamental freedoms of goods, services, investment, capital and persons in the past decades. The EU’s mechanisms for addressing double taxation, tax competition and harmonization offer a good starting point for ASEAN leaders to begin to address integration obstacles.
As the EU has shown, the ASEAN nations stand to benefit greatly from economic integration and the growth of a common market. Individual countries will need to re-consider their domestic tax and economic policies if they want to reap the rewards.
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