ASIAN DEVELOPMENT BANK A XECUTIVE D E INSTITUTE Kasumigaseki Bldg. 8F 3-2-5 Kasumigaseki B SUMMARY Chiyoda-ku, Tokyo 100-6008 Japan I Tel: 81 3 3593 5500, Fax: 81 3 3593 5571 SERIES No. S52/01 Email: [email protected] http://www.adbi.org 2001 Tax Conference 5-11 September 2001, Tokyo Executive Summary of Proceedings CONTENTS 2 The governance of tax systems requires governments to Page continue their effort to stamp out corruption and insure Key Messages 1 that the tax systems help the majority and not hurt them in Introduction 3 such endeavors. This is another example of the need for Opening Remarks 3 international cooperation. Taxation in an Interdependent World 4 Japan and International Tax Cooperation 5 3 Tax havens are a genuine concern to all as they erode the Tax Competition Not Necessarily Harmful 5 revenue base. It is however important to understand how E-Commerce and Tax 6 harmful it is and to whom? Who really benefits from tax The Source of Income, Tax Arbitrage and havens? Perhaps this is an area, which deserves detailed Double Tax Agreements 7 research. Transfer Pricing–Advance Pricing Agreements 8 Rationale and Scope for Fiscal Restructuring in At the specific country level, fiscal restructuring and Asia 9 4 Environmental Tax 10 financial sector restructuring are areas where attention Tax Administration and Compliance 11 of national governments as well as donors should go for Electronic Filing of Tax Returns 13 a long-term solution to the ensuing problem from truly Country Experiences with Value Added Tax tax havens. (VAT) 14 Country Experiences with Tax Incentives 14 5 Transfer pricing issues are very important but complex. Key Issues in VAT Implementation 15 They deserve special attention. Advance Pricing Tax Administration in Japan 16 Arrangements in addressing transfer pricing could be Issues and Options in Improving Tax beneficial (as experienced in Korea). Administration 17 Closing Session 19 6 While e-commerce is still relatively insignificant, it is likely to grow in the near future, resulting in the need for increased attention by tax authorities. It also appears that Key Messages e-commerce issues should be looked at from both direct as well as indirect taxation, and from domestic as well as 1 Globalization is no longer a new phenomenon but the international (cross-border) perspectives. challenges to tax policymakers and administrators it presents have yet to be resolved. It is incessantly 7 E-commerce should not be seen as a major threat to presenting us with new challenges in the application of revenue either. A key issue for many countries will be existing tax norms. Appropriate responses to this require training audit staff in order to build confidence in dealing multilateral co-operation and shared expertise by way with what, at first, may appear to be unreliable systems. of exchanges of views, experiences and information. Electronic record-keeping and electronic invoicing will ADBI Executive Summary Series No. S52/01 1 be difficult concepts for many but over time they will 14 Tax incentives are losing their popularity due to their emerge as the norm. This is probably a far greater ineffectiveness in bringing foreign direct investment (FDI), challenge to revenue administrations than its possible administrative difficulties and high cost to the treasury (in effects on taxation policy of e-commerce. terms of foregone revenue). Tax incentives could be simplified. Where tax incentives are a must, one could 8 As Asia becomes more integrated into the world consider a lower rate rather than providing numerous economy, the tradeoffs between the benefits of integration exemptions. and the costs of surrendering fiscal autonomy become important considerations for tax administration and tax 15 Value-added tax (VAT) is a scientific taxation system but it policy. This may call for fiscal restructuring, which refers is demanding in terms of documentation. It is considered to the need to re-examine both revenue raising capacity better from the revenue as well as the economic incentive and governments’ spending needs. point of view. Public education is crucial for its success. Adaptation of international accounting and auditing 9 Fiscal restructuring in developing countries in the region standards will be useful. So will be the service of VAT book- is desirable to respond to the increased pressure on keepers, accountants and lawyers. Small businesses are revenue (less income, increased need for spending). always a problem, whilst large businesses bring the bulk of New sources of revenues need to be found; more revenues. efficient and rational tax policies to be put in place, and cost recovery, cost sharing and partnerships with 16 A particular problem in tax policy and administration in private sector, where feasible, seem necessary to be many developing countries is the shift from trade to broad- relied upon. based taxes without a corresponding build-up of institutional infrastructures needed to administer the new taxes. New 10 Environment tax already exists in various forms. taxes have also tended to create new tax offices, further However, rationalization and/or consolidation may be fragmenting tax administration. There appears to be a necessary. Issues related to cross-border environmental compelling case for integration of tax administrative pollution and associated taxation are also important to functions and running a business-oriented independent tax be considered in this context. Tax policy reform may authority in many countries in the region. result in reduction in revenue, particularly when moving from trade taxes to VAT during the short-run. The 17 The revenue authority model is often recommended for adjustment period can be longer than usually expected. improving tax administration as it means an integrated, Such policy reform will require a careful sequencing and autonomous and service oriented revenue administration planning of alternative sources of financing public system. Effectively “revenue authority” under such a spending. model is simply an “agent” for revenue collection under the overall supervision of ministry of finance, which is 11 Possible reform options for improving tax policy and the “principal”. It can be costly in terms of setting-up time administration are: (i) reduce opportunities for evasion and cost, although such costs may soon be offset by and abuse; (ii) reform tax structure; (iii) improve the ensuing benefits. However, there can be variants of such organization and management of tax administration; and models depending on country specific requirements and (iv) strengthen internal and external checks. political acceptability. 12 The reform of tax policy and administration will work 18 Use of computers and Internet in tax administration will better when accompanied or preceded by similar reforms certainly help to enhance efficiency and cut administration in other economic policy areas and institutions. Spending costs. It could also provide better transparency in tax on tax policy and administration reform programs are governance (e-government), and be useful in public good investments, but they will require careful planning, education (e-education for tax payers). political willingness and commitment, and public education. 19 The experience of e-filing of tax returns and their processing in the region is encouraging. Internet-based e- 13 Special focus on large taxpayers should be encouraged, filing is superior to telephone-based e-filing. Public as it will pay well in terms of revenue collection. More education is very important in its promotion. Cyber laws information sharing within tax authority would help in seem to be a pre-condition. Security needs to be fully terms of cutting down administration costs. guaranteed. 2 ADBI Executive Summary Series No. S52/01 Introduction tries to take part in the revised format with a far wider reach than would have been possible previously. This year’s confer- 1. Tax officials from across Asia and the Pacific met at ence included several representatives from Central Asian and the Asian Development Bank Institute in Tokyo for the 2001 Pacific island countries who were able to send delegates for Tax Conference to participate in the capacity-building pro- the first time. The culmination of this year’s program was an gram on tax policy and administration. Jointly sponsored Attachment Program under which a study visit to Singapore and organized by the ADB Institute, the ADB, the Tax Bu- was organized. During the program a series of seminars was reau of the Ministry of Finance, Japan, and the Organiza- organized for them by the Inland Revenue Authority, the Land tion for Economic Cooperation and Development (OECD), Transport Authority and the Ministry of Finance, Singapore. the conference was held from 5-11 September 2001. The Officer-in-Charge of the conference was Dr. R. B. Adhikari, 4. Mr. Yukitoshi Kimura, Director General of the Tax Senior Capacity Building Specialist at the ADB Institute, Bureau, Ministry of Finance, Japan, noted in his welcome supported by Mr. Teruo Ujiie, Trade Specialist/Economist address that globalization is no longer a new phenomenon of the ADB. but the tax challenges it presents have yet to be resolved. In Kimura’s words, “it is incessantly presenting us with the new 2. While a number of sub-themes were addressed in the challenges in the application of existing tax norms.” Appro- course of proceedings, the one theme that dominated the priate responses required multilateral co-operation and shared 2001 tax conference is on “globalization”. Underlying al- expertise by way of exchanges of views and experiences, most every topic covered at the conference was a common which is one of the key objectives of the conference. idea that modern commercial transactions cross borders. The time when tax systems could be inward looking, focusing 5. Mr. Myoung-Ho Shin, Vice President (West), ADB, in on intra-nation transactions, have truly ended. The growth his opening remarks, briefly discussed the new format of the of multi-national enterprises, the easing of restrictions on 2001 Conference, in particular the inclusion of more partici- inward foreign investment by foreigners and outward for- pants from more jurisdictions.