Tax policies to play a significant role in Singapore's economic growth

Higher tax collections and modest spending initiatives are paying off as Asia-Pacific economies like Singapore reflect a steady growth rate between 5% and 6% per year.

A release by Ernst and Young reports that most Asia-Pacific nations entered 2012 continuing the prudent tax and fiscal policies that have helped make them preferred destinations for capital investment. In fact, the world’s investors passed a tipping point in 2011, directing more capital into emerging markets, many in Asia-Pacific, than into the markets of mature economies, according to the Ernst & Young Asia-Pacific Tax Policy and Controversy Outlook 2012, released today.

Alf Capito, Ernst & Young Asia-Pacific Tax Policy Leader says: “Roughly a third of the countries in Asia-Pacific are mature economies, a third have recently developed and a third are developing now. Their tax codes reflect this diversity by applying vastly different tax rates to personal income, business income, consumption and every other component of the tax base.”

Asia-Pacific Tax Policy reflects expectations of economic growth
In comparatively sound economic positions, Asia-Pacific countries are continuing the transition away from the policies of fiscal stimulus – but certainly with an intense watch and readiness for any further action. The tax cuts and spending increases deployed through 2009 have slowly given way to policies of fiscal consolidation, emphasizing higher tax collections and modest spending initiatives, as their improved balance sheets attest. However, with the exception of Japan, Asia-Pacific nations are not under the debt constraints of European nations. Therefore, plans for fiscal consolidation are moderate and voluntary, rather than severe and compelled.

Capito says: “From 2011 and extending into 2013, the Asia-Pacific economies have continued along that growth path, and it appears that the region as a whole has established a reliable growth rate between 5% and 6%, outshining regional growth rates for Europe and, more modestly, the Americas.”

Tax Trends in the Asia-Pacific region
Singapore is projected to run budget surpluses in 2012 and has shown a trend toward lower projected deficits between 2011 and 2013. The successful transition from fiscal stimulus to fiscal consolidation in many of the region’s governments has justifiably built confidence in Asia-Pacific economic policy. Growth is projected to be strong in 2012, surpassing that of many emerging markets in the Americas. The tax policies in place for Asia-Pacific countries will play a significant role in the region’s economic growth.

The trend towards increased disclosure and transparency requirements was certainly illustrated in the region in 2011 and will likely continue to grow in 2012. Some Asia–Pacific nations that were expected to increase their principal consumption taxes, had held off during 2011.

Howard Adams, Ernst & Young Asia-Pacific Tax Controversy Leader adds, “During 2012, we expect to see continued pressure for higher consumption taxes in many nations.”

Leading practices for an uncertain world
Asia-Pacific is likely to continue to grow in importance in the global economy, and as a result, multinational companies continue to see this region as a favorable investment destination. While many Asian countries are demonstrating sound fiscal policies, taxes will continue to be an important consideration for inbound investors. Keeping up with the myriad and complex tax legislations can pose a challenge to companies.