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THE average corporate tax rate in the Asia-Pacific region continues to fall, bucking trends in Europe and Latin America, according to a KPMG survey out yesterday.
However, rate reductions could well be put on hold as governments urgently need to raise tax revenues to fund budgets hit by the global economic crisis.
The survey of corporate and indirect taxes in 116 nations found that many countries have used low corporate tax rates to attract investment.
However, KPMG said: 'The urgent need for tax revenues to plug holes in public budgets around the world, as a result of the global recession, seems to have forced a subtle change in this policy.'
If further cuts are made, widespread curbs on tax allowances and tighter enforcement are likely to be adopted as a counterbalance, KPMG added.
'It is likely that headline corporate tax rates will resume their fall in time, but companies are likely to find themselves paying for the reduced rates in other ways,' said Mr Owi Kek Hean, head of tax services at KPMG Singapore.
'Overall, effective tax rates for global companies may well rise, given the broadening of the tax base.'
Countries in Europe and Latin America halted their corporate tax reduction programmes this year as the recession took hold.
The Asia-Pacific was the only region where the average tax rate this year was in line with cuts made in previous years. On average, rates fell from 28.4 per cent last year to 27.5 per cent this year.
In Europe, average rates stayed at 23.2 per cent - the first time in 13 years that they did not fall year-on-year.
The average rate for Latin America was unchanged at 26.9 per cent - the first time since 2004 that no drop was seen.
KPMG's global head of tax, Mr Loughlin Hickey, said: 'The reduction in corporate taxes has slowed. In some parts of the world, it has stopped altogether.'
Singapore's corporate tax rate of 18 per cent was the third-lowest among the 20 Asia-Pacific economies surveyed. Only Hong Kong, with 16.5 per cent, and Macau, with 12 per cent, had lower rates. This was the case last year as well.
The study also noted that many governments are boosting indirect taxes, such as goods and services tax (GST), amid the recession.
There are now more than 150 countries with indirect tax systems, and the number is rising annually. Governments that have instituted such taxes are widening the range of services on which they can be levied.
Mr Owi said: 'All this is clear evidence of a major long-term change in the way that many governments are funded. For companies, it means that the management of indirect taxes will become much more important.'
In addition, there has been a significant increase in international cooperation between tax authorities, especially with regard to actions taken against tax havens and the exchange of information.
Conducted yearly since 1993, the survey covers 20 economies in the Asia-Pacific region, the 30 member countries of the Organisation for Economic Cooperation and Development and the 27 European Union countries.
SQUEEZED IN OTHER WAYS
'It is likely that headline corporate tax rates will resume their fall in time, but companies are likely to find themselves paying for the reduced rates in other ways...Overall, effective tax rates for global companies may well rise, given the broadening of the tax base.'
Mr Owi Kek Hean, head of tax services at KPMG Singapore
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