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Singapore’s tax regime scores high on its predictability and consistency
2017 Deloitte report reveals predictability and consistency are desired amidst increased uncertainty in Asia Pacific's tax landscape
SINGAPORE, 25 April, 2017 — Predictability and consistency of tax regimes are the most important factors in business decision-making, according to Deloitte, who today released the third edition of their Asia Pacific Tax Complexity Survey report. However, the report shows that in the current uncertain tax landscape, tax regimes remain complex and predictability and consistency is elusive. In 2010, complexity was the most important factor for tax practitioners in the region, and in 2014, consistency was most important.
Singapore continues to score extremely well in both factors - more than 87% of respondents indicated that Singapore has an intermediate to very high level of predictability in its tax regime, which allows taxpayers to anticipate the direction and potential changes in its tax laws, whilst over 91% indicated that Singapore is consistent or very consistent in the enforcement of prevailing tax laws. These results keep Singapore up amongst the highest scorers in Asia Pacific jurisdictions.
Low Hwee Chua, Regional Managing Partner for Tax & Legal, Deloitte Singapore & Southeast Asia, commented that “As in the previous survey conducted in 2014, Singapore’s tax regime has once again scored favorably in predictability, consistency and complexity. This demonstrates that the Singapore Government has not rested its laurels and is continuously working to ensure that its tax ecosystem remains attractive in comparison to other countries in the region”.
Alan Tsoi, Deputy Regional Managing Director and Tax & Legal Leader, Deloitte Asia Pacific commented that “the progression from complexity to consistency to predictability may be explained by tax regimes in the region maturing over the past 10 years. As tax regimes have matured, tax complexity has improved and corporates now seek tax predictability to ensure smooth tax management. There is currently a general climate of uncertainty where Governments are trying to balance the tension between creating an environment that attracts investment whilst at the same time protecting their tax bases and raising needed tax revenues, which could also be contributing to a sense of unpredictability in regional tax regimes.”
For the purpose of the survey, “Complexity” means the perceived level of difficulty in interpreting and understanding the tax law and rules in the jurisdiction. “Consistency” refers to the perceived uniformity and transparency of enforcement of prevailing tax laws. “Predictability” refers to the availability of information and resources that allow taxpayers to foresee the direction and potential changes in tax law.
Detailed findings and other key insights
Across Asia Pacific, 35% of respondents indicated tax regimes have become more complex in the past three years. Larger countries, specifically, China and India were identified as becoming more complex.
For Singapore, slightly over 80% of respondents surveyed said Singapore’s tax regime has either not changed much from three years ago or has become less complicated.
Based on the respondents’ comments, there is a general expectation that the reporting obligations will increase due to the implementation of OECD’s Base Erosion and Profit Shifting (BEPS) recommendations.
More than 80% of respondents across Asia Pacific view tax compliance and reporting obligations in the countries in which they operate as complicated, with China and India at the top of the list. In contrast, Hong Kong, Singapore, Macau and Mauritius have the simplest requirements, which is not surprising given their relatively straightforward tax regimes.
Regionally, almost 70% of respondents agree that the consistency of tax regimes have not changed much from three years ago. The remaining respondents are split as to whether the jurisdictions have become more consistent or less. This is likely driven by the polar demands of implementing new tax laws balanced by more experience with existing tax laws.
Jurisdictions such as Singapore, Hong Kong and Japan, which ranked highly in this aspect in the previous survey, has not seen much change from the previous survey three years ago in terms of consistency in their tax regimes.
A larger portion of respondents view that tax regimes in the region have become less predictable (23%) in the past three years than those who view them as more predictable (10%). The same opinions were also reported three years ago, when this result was driven by respondents’ views on India and China becoming less predictable tax jurisdictions. This is to be expected in light of the BEPS initiatives. In fact, given the fast-tracking many of the Asia Pacific countries are undertaking with their BEPS programmes to “catch-up”, an argument can be made that the region has largely conformed with global expectations.
Many view Singapore’s tax regime as being more predictable. The government recently released a report by the Committee on the Future Economy, identifying how to position Singapore for the future. In line with this report, Singapore’s 2017 budget contained targeted measures to support businesses investing in technology and innovation, and expanding into international markets.
“The Singapore Government has gradually changed direction in recent years, moving away from broad-based fiscal measures in favour of targeted assistance for businesses. That Singapore continues to score well in the latest survey and maintains its position as one of the most consistent, most predictable and least complex jurisdiction in the Asia Pacific is testament to a well-managed transition process by the authorities,” said Hwee Chua.
BEPS implementation is a top priority for governments and companies
It is widely accepted that BEPS will drive significant change in the global tax landscape as governments introduce new policies in line with global standards. Multinationals are finding themselves preparing for this impending change by changing their business models or adapting their resources so they are able to comply with enhanced reporting requirements.
Alan explained, "BEPS implementation is becoming top of mind for tax professionals with regards to tax reform, and how each jurisdiction approaches BEPS is of concern for tax professionals. It is widely accepted that BEPS changes are a positive sign for tax development in the region, but many countries in Asia Pacific need to update and modernize their tax regimes to ensure consistency of approaches, which will ultimately lead to greater tax predictability, a current concern for professionals in the region."
Strengthening relationships with the authorities
Given the complex, unpredictable and inconsistent tax environments that many companies are operating in, relationships with tax authorities are key to managing their tax affairs and mitigating risks. The majority of respondents in this year’s survey plan to strengthen relationships with the authorities in the coming years.
Liew Li Mei, Tax Partner in Deloitte Singapore, commented that “Singapore, in a sense, may be ahead of the curve in this area as the tax authorities has, back in 2008, introduced the Enhanced Taxpayer Relationship programme as a service initiative to build an open and collaborative taxpayer relationship through regular engagement with large companies.”
Use of technology to support tax processes
There is a trend in companies searching for technology to support tax processes, specifically, how tax-specific data can be efficiently extracted from ERP systems. Systems can generate analytics, however there is still uncertainty as to which data should be included and what types of analytic reports are needed.
We expect technology to play a more prominent role in the coming years in supporting tax processes as the kinds of insights that can be gained from tax data become clearer.
Richard Mackender, Indirect Tax Leader for Deloitte Singapore & Southeast Asia, observed that “Companies in Asia Pacific are having to do “more with less” when it comes to managing tax. Whilst this survey highlighted the focus on strengthening relationships with government authorities to manage tax risks, we are also seeing tax functions putting greater emphasis on implementing robust tax risk management processes and tax technology, whilst contending with decreased budgets. These areas are seen as vital to meet the increasing demands of internal and external stakeholders (for example responding to the Singapore tax authorities’ use of analytics on tax compliance data to identify risk areas).”
More time and resources to be devoted on tax management
Despite scoring well in the areas of complexity, consistency and predictability, respondents indicated that Singapore, alongside larger economies such as China, India, Australia and Japan, would be a jurisdiction that the most time and resources would be spent on tax management.
Hwee Chua remarked that “this should not come as a total surprise, given Singapore is home to regional headquarters of many multinationals. More oversight is required to ensure that, amongst others, business models keep pace with tax developments.”
The report surveyed over 300 financial and tax executives on their views of the current and anticipated tax environment of 20 jurisdictions across Asia Pacific. For more analysis and details on Shifting sands: risk and reform in uncertain times, please visit Deloitte.com.
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