Indirect tax reform and changes in Asia Pacific 

My name is Deborah Jenkins and I'm the Regional Co-Leader for ASPAC for Indirect Tax.

Indirect tax reform—back on track?

It's been really interesting with the downturn because in Europe you've seen the increase in the changes in the indirect tax rates. In the Asia Pacific region we thought we were going to see increases in tax rates and we did in New Zealand, but what we've seen is really a stalling of some of their reform programs. In the last couple of weeks though, China for example, has launched a pilot program. So we're probably just at the point now where we're going to see the reforms starting to kick off again.

VAT in China

So two weeks ago, the Chinese government announced they were going to run a pilot program. So the idea is to implement a VAT. They're running a pilot program in Shanghai and it's going to start really, really soon. We've got two months to prepare for it. The idea initially is just to look at two industries and so they're working through the logistics of how do you do this, just limiting it to Shanghai.

Indirect tax as a source of revenue

What we've got is a situation here where the governments are under pressure. They need to raise revenue and indirect tax is a great source of that revenue. Look it's costly though to raise revenue and so the revenue authorities really are looking at ways to efficiently collect indirect taxes and Singapore is a good example. The Assisted Compliance Program (ACAP) which is being run by the Singapore government in conjunction with advisors and obviously in Australia you've got the risk differentiation framework, so there's a real focus on how can we manage the indirect tax function. Interestingly our benchmarking survey which we conducted last year so in 2010 and we've just finished the 2011 benchmarking survey, still says to us though indirect tax is so important but it is under managed and under resourced.

Managing the indirect tax function

So, what's happening is a lot of companies are centralizing their management of their indirect tax function. So say for example in Asia Pacific Region you might have it led out of Singapore, Hong Kong or maybe even out of London. The difficulty is that in a lot of countries in the Asia Pacific region someone managing that function might not have any idea of how that system works. So that really causes a difficulty for them and how do you manage a function when you're not on the ground.

Strategic planning

What's really interesting from the benchmarking survey is that we can see a lot of strategic planning has gone into looking at the corporate tax function or the income tax function but not as much into the indirect tax function. So it's really important that it is part of the strategic plan how you're going to manage your interactions with the authorities, what plan have you got around managing indirect tax, do you have a specialist who's looking at it? So that's a starting point. The next part of it is how do you use technology to manage that and then maybe looking at ‘Do I need some assistance? Do I want to move to a full outsourcing of my compliance or do I want to move to sort of a co-sourcing model where I get some outside assistance but actually I do a lot of it in house?’

The future

If I had a crystal ball to look at what are going to see in the next sort of few years up to maybe five years, I do think we're going to see increasing reliance on indirect taxes as a stable form of revenue. I think we all thought that we were through the global financial crisis and where are we now with some of the things that are happening in Europe at the moment with Italy and Greece. So, I do think we're going to see increasing rates in the region. They do tend to be quite low in our region compared with the global average of around 15%. So I think we're going to see increased rates. We're going to see the introduction of reforms in China, Malaysia and India and I think we're also going to see increasing technology used by tax authorities in the conduct of their audits. So I think there's a lot of things happening and indirect tax is still going to be leading the way in the next two to five years.