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Average corporate tax rates continue decline, indirect tax rates rise 

21 February 2013
Corporate tax rates continued their decline in 2012, and indirect tax rates continued their ascent. KPMG International’s recently launched annual Corporate and Indirect Tax Rate Survey 2012 reveals that the average global corporate tax slipped from 24.52 percent in 2011 to 24.43 percent in 2012. At the same time, the average global indirect tax rate increased by 0.17 percent to 15.50 percent.

With a corporate tax rate of 17 percent and an indirect tax rate of 7 percent, Singapore’s headline rates are below the global average. Other tax-related measures also play a role in making the republic an attractive investment destination.

“Tax measures play an important role in enhancing Singapore’s competitiveness as a premier Asian business hub,” said Mr Tay Hong Beng, Head of Tax at KPMG in Singapore, “This year, while we are not expecting to see corporate or indirect tax rates lowered at Singapore Budget 2013, we hope to see existing tax measures tweaked.”

Premier Asian business hub

Singapore’s longer term sustainable economic advantage will hinge on its ability to increase productivity, embrace innovation and build trusted local brands competitive in the global marketplace.

Some tax-related measures proposed by KPMG this year for Budget 2013 include:
  • Enhance Singapore's tax treaty network by updating older tax treaties with countries such as Thailand, Indonesia and Australia and expanding the network to new countries.

  • Establish a tax-free zone in the ASEAN Economic Community by exempting all withholding taxes within ASEAN to encourage a freer flow of capital and technology.

  • Strengthen Singapore’s strategically important industry sectors such as the financial and marine industry by reviewing and enhancing existing tax measures.

  • Provide more tax concessions to encourage greater private sector R&D to encourage more local companies to pursue value creation and the development of Singapore brands.

More information is available in KPMG’s Singapore Budget 2013 proposals.

The highest and lowest corporate and indirect tax rates in 2012

Around the world in 2012, the United Arab Emirates had the highest corporate rate (55 percent). This was followed by the United States (40 percent) and Japan (38.01 percent). On the other end of the spectrum, Montenegro had the lowest income tax rate (9 percent), followed by a number of countries at 10 percent including Serbia and Qatar.

On the indirect tax rate side, Hungary had the highest rate at 27 percent, followed by a number of countries such as Iceland at 25.5 percent. Aruba has the smallest value added tax (VAT) at 1.5 percent. This was followed by a number of countries with 5 percent VAT, or Goods and Services Tax (GST) including Japan and Canada. Some countries, such as Malaysia and Hong Kong, do not currently have a VAT or GST.

Global shift towards indirect tax

All regions experienced declines in their corporate tax rates except for Africa, whose corporate tax rate increased by 0.47 percent to 29.02 percent.

The pace of Corporate Tax Rates reduction has slowed in recent years, suggesting that many countries believe they have achieved targeted rates and that steeper reductions would only have nominal effects on their competitiveness.

In Asia, the average corporate income tax rate fell by 0.21 percent to 22.89 percent. Singapore’s corporate tax rate of 17 percent is currently the tenth lowest among the countries surveyed.

Asia and Africa also saw the most significant increases in indirect tax, from 11.84 percent to 12.24 percent, and 14.17 to 14.57 percent respectively. Both regions see an increase of 0.4 percent compared to the average indirect tax rate in 2011.

Over the last two decades, there also been a significant shift towards indirect tax with the increase in the number of countries and jurisdictions using indirect tax to fund government finances.

According to the report on Consumption Tax Trends 2012 by the Organisation for Economic Cooperation and Development (OECD), VAT/GST is imposed in over 150 countries, including 33 out of 34 OECD member countries. Consumption taxes now account for 31 percent of all revenue collected by governments of OECD member countries and 20 percent of taxation revenues worldwide.

A notable indirect development in 2012 saw the introduction of a VAT Pilot Program in Shanghai and its subsequent extension into other 10 other provincial-level regions.

“VAT/GST rates will continue to increase and more jurisdictions will adopt these taxes as governments seek new ways to generate revenues,” observed Mr Tay.

Preparing for challenges ahead

KPMG International research expects tax reforms to continue in 2013. As the global shift towards indirect taxation continues, companies will encounter more challenges in achieving full compliance and managing financial risks.

According to KPMG’s report, many companies are opting to outsource income and/or indirect tax activities. Companies are also centralising the management of their tax departments to maintain better insight and oversight of the function across the organisation.

“We will continue to see a strong global shift to indirect tax, and businesses need to be highly aware of the changes that are occurring. They need to have appropriate strategies in place, including the right mix of income tax and VAT/GST management resources to stay ahead,” said Mr Tay.


Note to editors:

About Corporate and Indirect Tax Rate Survey 2012:

Mirroring the trends seen in past years, corporate and indirect tax rates around the world are in a constant state of change as governments look to increase indirect rates to raise revenue but to decrease corporate tax rates to attract investment.

When 2012 came to a close, the survey shows that the average global indirect tax increased by 0.17 percent to 15.50. Meanwhile, the average global corporate tax rate average remained almost the same with a small decline of 0.09 percent to 24.43 percent. Corporate tax rate cuts have become lower in recent years, indicating that many countries believe they have achieved their targeted rates and that steeper reductions would have only nominal effects on their competitiveness.