A Guide to New Tax Policies in Asia

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By Samuel Wrest

Over the past month, a number of new tax laws have either been implemented or are in the process of being implemented in several key Asian nations. These policies have been variously aimed at attracting foreign investment, improving economic performance levels and reducing fiscal deficits.

In Asia, tax changes are invariably acutely felt by businesses with a stake in the country in question, and will always partly inform the future investor outlook of that country. In this article, we take a look at some of the key policy changes that have taken place.

Malaysia

In an effort to boost foreign direct investment (FDI) from certain Islamic countries, the Malay government will soon implement a new tax structure that favors Islamic bonds. Islamic bonds are structured in such a way so as to not infringe upon Islamic law, and Malaysia’s Prime Minister earlier this month announced that several types of such bonds, including ijara and wakala, will have tax deductions in place until 2018. The move is widely thought to be driven by a desire to further diversify Malaysia’s investor market.

Also to be introduced next year is a new goods and services tax (GST). Due to come into effect on April 1, 2015, the new tax will stand at 6 percent and is expected to raise the current rate of inflation from 3.3 percent this year to 4 or 5 percent in 2015.

RELATED: A Guide to New Visa Regulation in Asia-Pacific

Thailand

Thailand’s Prime Minister Prayuth Chan-Ocha earlier this month announced plans to introduce a new inheritance and property tax. Although the full details of the plan have yet to be unveiled, the plan is understood to be aimed at shortening the gap that exists between the wealthy and the poor, with Thailand’s high-earners expected to be taxed upwards of 20 percent of their salary.

The announcement has accordingly been met with disapproval from Thailand’s super-rich, but the plans will nevertheless prove important to Thailand’s future budget targets. Indeed, the Thai government recently released its tax revenues for the fiscal year ending September 30, 2014, and figures showed that revenues were 8.8 percent below budget targets. The money that will be acquired from taxing more affluent citizens will therefore help boost tax revenues.

Vietnam

On October 15, Vietnam implemented amendments to the country’s corporate income tax (CIT) and value-added tax (VAT) systems. For CIT, companies will now be able to deduct up to a maximum of one month’s average salary of an employee for certain expenses. These expenses include the following:

  • The fully-documented spending by each employee on funerals and weddings
  • Travel on public holidays
  • Support for additional education

Additionally, profits arising from scientific research and technology developments will now be exempt from CIT for a maximum of three years.  Profits from the sale of products manufactured by new-technology machinery and equipment will also have a tax break for a maximum period of five years.

The main changes with regards to VAT include:

  • If borrowers sell guaranteed assets based on the authorization of lenders to repay guaranteed loans, then this is not subject to VAT.
  • Taxpayers with a total revenue of at least VND50bn (USD2.35m) in the previous year will now be required to submit quarterly declarations.

RELATED: Tax Exemptions on Foreign Income for Singapore-Based Companies

Australia

Australia’s Prime Minister Tony Abbott is seemingly pushing for the country’s GST to be altered. Speaking to Australia’s parliament recently, Abbott stated that he wanted a “mature debate” on GST and promised it would form an important part of Australia’s impending tax reform process.

Australia’s Labor opposition has been quick to accuse Abbott of wanting a GST increase – something that has not occurred since the tax was first introduced in 2010 – and have stated that such an increase will invariably hit Australia’s poor the hardest. Whether the hike will actually be implemented is therefore not conclusive, but signs certainly indicate that the Australian Prime Minister wants tax raises.

Sri Lanka

Earlier this week, Sri Lanka released its 2015 budget. The budget contained numerous policy changes that are variously aimed at boosting the economy, reducing the country’s fiscal deficit, and modernizing its export industries. Chief amongst the new initiatives were:

  • A tax cut to pay-as-you-earn personal income tax to 16 percent and a VAT reduction from 12 percent to 11 percent
  • An income tax exemption for exporters that invest more than US$ 2 million in machinery and equipment in the country
  • A decrease in tax duty to 3.5 percent on foreign imports of gold by jewelry exporters

 

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asia@dezshira.com or visit www.dezshira.com.

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