Jakarta, The PRAKARSA - Indonesia, as one of the ASEAN member countries with great economic potential, has an important role to play in strengthening its position in the ASEAN tax framework and ensuring sustainable economic growth.
The ASEAN Forum on Taxation (AFT) was established with the aim of continuing to strengthen international cooperation in improving tax transparency in the region. Through a meeting in Luang Prabang - Laos, April 2024, ASEAN member countries agreed to finalize bilateral tax agreements and strengthen the automatic exchange of information (AEOI). This step aims to suppress tax evasion and improve the investment climate in the region.
Although these steps are important, they are considered not responsive enough to the more complex global dynamics. The OECD Principles that focus on Base Erosion and Profit Shifting are often considered to have reached a dead end, especially because the principles are more beneficial to developed countries. This condition has caused resistance from China and India.
Farhan Medio Yudantyo, Researcher at The PRAKARSA stated that although this initiative has been implemented gradually in ASEAN, its impact on developing countries is not fully optimal.
"ASEAN should be more proactive in adopting measures that not only follow the OECD, but also consider more progressive and fair initiatives such as the UN Tax Convention in cooperation. This UN initiative can open up space for developing countries to play a greater role in determining global tax rules that suit their needs," said Farhan.
The UN Tax Convention initiative offers a more inclusive approach, allowing equal participation between developed and developing countries. This is different from the OECD which has tended to dominate global tax discussions. ASEAN, as a region with many developing countries, must see this opportunity to fight for tax justice at the international level.
In this context, ASEAN's move to adopt BEPS Pillar 1 and Pillar 2 to reduce tax avoidance needs to be reviewed. Pillar 1 aims to transfer taxation rights from countries with low tax rates to countries where economic transactions occur. While Pillar 2 sets a global minimum tax of 15% for multinational companies, it will actually reduce the current tax base of 22%.
Samira Hanim, Researcher PRAKARSA adding that the move still raises doubts about how effective this policy can be in reducing tax avoidance by large companies amidst the limited tax administration capabilities experienced by developing countries in ASEAN and actually reduces the potential tax received.
“Without a comprehensive approach, the risk of tax avoidance remains high, and redistributive justice will be difficult to achieve. The 15% floor rate is actually lower than the rates in several ASEAN countries before this agreement, thus reducing the potential tax revenue. The implementation of BEPS Pillar 2 in ASEAN must be accompanied by a deeper evaluation, especially regarding its impact on mobilizing state revenues,” said Samira.
Several ASEAN countries, such as Indonesia, have concluded bilateral tax treaties with other member countries to avoid double taxation. This step is important to improve the investment climate in the region. However, to be more effective, this policy must be supported by a broader and more progressive approach at the international level.
The ASEAN Forum on Taxation (AFT) must be more responsive in capturing the global momentum to ensure a fair tax system. This effort will strengthen ASEAN's position in facing global tax challenges, including tax evasion and illicit fund flows. The expansion of a new tax base that creates the principles of fairness and inclusiveness also needs to be considered by policy makers in ASEAN.
"AFT as a forum that focuses on transparency and international cooperation, needs to continue to encourage member countries to adopt fairer global standards. Fairer taxation will not only benefit developed countries, but can also encourage inclusive and sustainable economic growth in the ASEAN region," Samira concluded.
