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There are three main trends we’re seeing in indirect taxes in Asia and I think the best way to describe them is the three Rs. Firstly we’re seeing reforms in countries like China, potentially India and potentially Malaysia as well. The second R is we’re seeing rights increase. So we’re seeing rights of indirect taxes increase in countries like New Zealand and in the near future we’re going to see rights increase in Japan as well. The third R is regionalization and what I mean by that is we’re seeing many companies embrace the idea of setting up therein great tax practices on a regional basis and requiring KPMG to provide services that also match that regional nature as a service offering.
The three Rs are also pretty relevant in a lot of other parts of the world as well. I guess what differs in Asia Pacific is that indirect taxes are a lot less mature than we see in other regions such as in Europe. So for example, the average rate of the VAT across the European union now exceeds 21% whereas in Asia Pacific starting at a lower base of averaging around 12.5%. So there’s a fair gap in place. I guess what we would see is the pace of change and acceleration in Asia Pacific would say has a lot greater potential than we see in other countries, which potentially over each day their upholding in terms of rights.
Ecommerce, as we know, is a global phenomenon and what we’re seeing is countries right across the world their tax authorities are being challenged by the question of how to affectively tax ecommerce transactions where there’s no traditional store front selling goods or providing services. The OECD is working hard to assist both developed and developing economies with providing solutions that properly capture those ecommerce transactions. But I guess if we turn to Asia Pacific more specifically, what we’re seeing is a growing middle class that are increasingly being connected to the internet where I would have purchased goods and services online from anywhere around the world in a way they haven’t been able to do so previously. So we’re seeing a real growth in ecommerce transactions themselves and I think what we will see is the need for governments to provide solutions to the taxing of ecommerce transactions in developing economies becomes potentially much more significant than in the more developed countries.
So what the reform process that we’re seeing in Asia Pacific mean for multinationals is this. Multinationals are obviously entering a lot of new markets. In Asia Pacific we’re seeing companies establish and expand their business operations in the region, particularly as we’ve seen in some of the more developed areas like Europe and North America their economies have been slowing down for some time. So you’ve got new markets and new opportunities for them. What it means in terms of indirect taxes is they’re entering regions where there aren’t the same level of commonality of rules that you see, for example, in Europe so the challenges in managing indirect taxes in Asia Pacific for multinational companies is potentially a lot larger than we see in the more established regions. They also don’t often have the personnel in place and they need to quickly get up to speed in terms of managing the regulatory environment.
I’m pretty excited about the future for indirect taxes in Asia Pacific. I guess what I see is that you’ve got regimes that are adopting more common rules than we’ve seen in the past. So the way I look at it is the management of indirect taxes across Asia Pacific will be defined more by the commonalities that are shared by countries than by their differences and that’s a huge change from the past.
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