As Asia increases its presence in the global economy, and economic ties within the Asia-Pacific region deepen, there is a growing demand for tax administration bodies in the region to enhance international cooperation. Nevertheless, frameworks and practices for regional cooperation among Asia-Pacific tax authorities have, up to now, been low-profile in comparison to other regions such as Africa, Europe and Latin America.
The risks of tax dodging in Asia-Pacific
A December 2013 report from Global Financial Integrity, a Washington-based non-governmental organisation (NGO), stated that Asia accounted for about 40% of global illicit financial outflows, including tax evasion, from 2002 to 2011, which was the largest share on a regional basis. Six of the top 15 illicit money providers are Asian countries (People’s Republic of China, Malaysia, India, Indonesia, Thailand and the Philippines).
The G20 Leaders’ Declaration after their meeting in St Petersburg in September 2013 referred to 14 jurisdictions which did not meet standards on transparency and exchange of information for tax purposes, in particular concerning their legal and regulatory frameworks.The 14 include a good handful of Asia-Pacific jurisdictions, that is, Brunei, Marshall Islands, Nauru, Niue and Vanuatu. The same declaration also emphasised the importance of both developed countries and developing countries including low income countries’ working together for a more transparent international taxation system and enhanced capacity to mobilise domestic revenues.
The Financial Action Task Force’s 2012 Recommendations designated tax crimes as a predicate offence of money laundering, and anti-money laundering measures are increasingly linked with tackling tax evasion. As of October 2013, the FATF called for the application of counter-measures against North Korea along with Iran, and also identified Indonesia, Myanmar and Pakistan as jurisdictions with strategic AML/CFT (anti-money laundering and combating the financing of terrorism) deficiencies.
For tax authorities to improve their capacity, internationally comparable information on the functions and performance of tax administrations is indispensable. A November 2011 report by international organisations working on tax issues to the G20 Cannes summit, Supporting the Development of More Effective Tax Systems, pointed out that while international comparative analysis on OECD member countries is well developed, and similar initiatives have been undertaken in Africa and Latin America under the auspices of respective regional tax organisations, that is, the African Tax Administration Forum (ATAF) and Inter-American Center of Tax Administrations (CIAT/Centro Interamericano de Administraciones Tributarias), the accumulation of knowledge on tax administration systems in Asia (and the Middle East) is disproportionately limited.
Study Group on Asian Tax Administration and Research
Aren’t there regional cooperative frameworks for tax administrators in Asia-Pacific? Certainly, there are several of them, and arguably the most notable is the Study Group on Asian Tax Administration and Research (SGATAR). The SGATAR has a relatively long history; it was initiated as a study group on tax systems in Southeast Asia at the Fifth Southeast Asian Ministerial Conference for Economic Development held in Indonesia in 1970, and the first meeting was held in the Philippines in 1971. Its official members are the tax administration bodies of 16 jurisdictions in East and Southeast Asia and Oceania.
Though the SGATAR has been playing a certain role for networking among key tax administration bodies in the regions, its functions as a regional cooperative organisation, for example capacity development, extra-regional relations, policy coordination and research, have been limited up to now. The November 2011 report to the G20 Cannes summit pointed out low-profile research activities in Asia. This limited capacity may partly be attributed to the absence of a permanent secretariate. While the AFAF and CIAT respectively have their secretariats in Pretoria and Panama City, the SGATAR’s secretariat function is rotating on the basis of a one year term; for instance the National Tax Service of Korea has been assuming the role of the SGATAR secretariat for 2013/2014. These arrangements make it difficult for the SGATAR to work for deeper regional cooperation in the medium term
On the other hand, there is a silver lining that may see the upgrading of the role of the SGATAR. The 43rd annual meeting of the SGATAR was held in Jeju Island, Korea in October 2013 and, for the first time, a joint communiqué was released afterwards. While it emphasised common issues that tax administrators in Asia-Pacific need to tackle, such as cross-border tax evasion, the tax collection gap caused by underground economy and tax debt management, the communiqué also acknowledged that the SGATAR should take a more active role, and to this end they will look into its future framework, which is understood to include the establishment of a permanent secretariat.
Other frameworks for regional co-operation
Other regional cooperative frameworks on taxation in Asia-Pacific include the ASEAN Forum on Taxation, established by the Association of South-East Asian Nations (ASEAN) as ‘a platform to support regional dialogue on taxation issues for regional integration, particularly related to withholding tax and double taxation’. The 17th ASEAN Finance Ministers’ Meeting held in Brunei Darussalam in April 2013 encouraged the Forum to further enhance regional cooperation including strengthening tax treaty network in the region.
In the Pacific, there is the Pacific Islands Tax Administrators’ Association (PITAA), which was originally set up by the IMF’s Pacific Financial Technical Assistance Centre (PFTAC) in Fiji in 2003, and has 16 tax authorities in the Pacific region as members. While the activities of the PITAA have been supported by the IMF’s PFTAC, similar to the SGATAR, the chair organisation of the PITAA rotates annually and has no proper secretariat. A review of the PITAA’s organisational structure was undertaken in 2011-2012, and since 2012, the Fiji Revenue and Customs Authority is hosting the interim secretariat of the PITAA.
The South Asian Association for Regional Cooperation (SAARC) has also been promoting regional cooperation on tax issues. It is noteworthy that the SAARC Limited Multilateral Agreement on Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters was signed in 2005, and has been ratified by all eight SAARC member countries. The First SAARC Meeting of Competent Authorities on Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters was held at the SAARC secretariat in Nepal in April 2011 and since then various training seminars on tax administration have been provided under the framework of the SAARC.
Exchange of information on tax evasion cases
One of the areas where regional cooperation directly benefits tax administration operations is the exchange of information for tax purposes. A national tax administration can exchange information with a foreign tax administration for tax administration operations, according to international agreements such as bilateral tax treaties. Information on cross-border transactions or assets held overseas will greatly help the tax administration to audit or investigate tax evasion cases. Economic ties within the Asia-Pacific markets have been deepening, and tax evasion risk in the region remains high; tax administration bodies’ workload on the international exchange of information is on the rapid increase.
How much are Asia-Pacific tax administration bodies exchanging information with foreign counterparts? Japan’s National Tax Agency (NTA) sent 315 exchange-of-information requests to foreign tax authorities in Financial Year (FY) 2009, 646 requests in FY2010, and 1,006 requests in FY2011. Among the requests sent in FY2011, 668 requests (66%) were directed for Asia-Pacific jurisdictions. As well as the on-request exchange of information, the NTA voluntarily provided 354 cases of information to foreign counterparts in FY2011 under the spontaneous exchange of information programme, 297 (84%) of the 354 cases were provided to Asia-Pacific jurisdictions.
The trend for the increasing volume of information exchange is the same in other Asia-Pacific countries.
- Korea’s National Tax Service received 36 exchange-of-information requests from foreign tax authorities in 2008, 54 requests in 2009 and 76 requests in 2010. It is said that 55% of these requests were from Japan.
- At the Australian Taxation Office (ATO), the number of outgoing exchange-of-information requests has also been increasing year by year, and in 2012-2013, exchange of information cases contributed to around A$480 million ($419 million) of adjusted tax, penalties and interest, of which A$159 million (%) was derived from 128 exchanges with Singapore.
For furthering regional cooperation
Tax authorities in Asia-Pacific are increasingly required to work together. Firstly, it is desirable to strengthen the framework of existing regional networks and to make these regional networks more actively engaged in common issues which tax authorities in the region are facing. Secondly, to enhance effective collaboration among tax administration bodies in such areas as the exchange of information and mutual negotiations to eliminate double taxation, it is necessary to develop the capacity of tax authorities further, particularly in developing countries. Challenges for effective international cooperation include not merely policy and regulatory issues such as bank secrecy, but also administrative capacity issues such as human resources and internal organisational arrangements. Regional networks as well as other international organisations can also play a great role in the capacity development of tax authorities in the region.
Satoru Araki, a public management specialist at the Asian Development Bank in the Philippines. Views expressed in this article are not those of the organisation to which the author belongs.
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