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GLOBALIZING ECONOMIES:
CHALLENGES TO TAX SYSTEMS
South Asian Tax Summit 2008,
Karachi
Syed Masoud Ali Naqvi
Senior Partner
KPMG Taseer Hadi & Co.
Karachi
15-16 April 2008
GLOBALIZING ECONOMIES:
CHALLENGES TO TAX SYSTEMS
Fundamental Goals and Objectives of Tax Policy
Challenges
Response to Challenges
KPMG Tax Survey 2007
Issues for Global and National Tax Authorities
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GLOBALIZING ECONOMIES:
CHALLENGES TO TAX SYSTEMS
FUNDAMENTAL GOALS AND
OBJECTIVES OF TAX POLICY
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FUNDAMENTAL GOALS AND
OBJECTIVES OF TAX POLICY
Meeting revenue needs in a fair manner
Maintaining neutrality and minimizing distortions
Limiting compliance and administrative burdens
Impacting on array of economic and social activities
Promoting investment and accelerating economic growth
Creating employment opportunities
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FUNDAMENTAL GOALS AND
OBJECTIVES OF TAX POLICY
Providing relief to common man and improving social
indicators
Attracting Foreign Direct Investment (FDI)
Strengthening country’s infrastructure
Meeting the challenge of change
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GLOBALIZING ECONOMIES:
CHALLENGES TO TAX SYSTEMS
CHALLENGES
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CHALLENGES
Fall of Trade barriers
Global Market for capital
Instantaneous access to information around the globe
Development of e-commerce and new technologies
Expansion of services economy
New financial instruments, tax havens and financial
innovations
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CHALLENGES
Rapidly changing business structures
Focus on corporate governance
Impact of other jurisdictional choices in tax policy on
national ability to raise revenue in a fair manner
International Tax Competition
Harmful Tax Competition
Arbitrage
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CHALLENGES –
HARMFUL TAX COMPETITION
Competition occurs when one country provides tax
inducement to attract capital
Harmful tax competition
Can severely erode the capital base of losing country
Can distort investment decision and undermine fiscal stability
Can result in high taxes on immobile income like wages, etc.
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CHALLENGES –
TAX ARBITRAGE
Exploitation of differences in tax laws of two or more
jurisdictions that results in lowering of a tax payers worldwide tax liability by ensuring that income is not taxed
anywhere
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CHALLENGES –
ELECTRONIC COMMERCE
Adaptation of existing tax systems to an economy that
increasingly ignores physical borders and operates under
new business models
Shrinkage of tax base by convergence of more and more
assets into intangibles
Adaptation of a location – base for taxing e-commerce
Increasing difficulties for governments to verify that a
transaction has occurred and where
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CHALLENGES –
ELECTRONIC COMMERCE
The overall problem of double taxation in case of
e-commerce due to conflicting provisions of countries
regarding e-commerce and intangible assets
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CHALLENGES –
POLITICAL & SOCIAL
Fiscal responsibility requires addressing both taxes and
spending
Rising inequality strengthens the case for progressivity
Tax system should collect the taxes that are owed
Tax reforms should strengthen taxation at the business
level
Taxes for individuals be simplified
Social policy can and should often be advanced through the
tax code-and it must be well designed
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GLOBALIZING ECONOMIES:
CHALLENGES TO TAX SYSTEMS
RESPONSE TO CHALLENGES
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RESPONSE TO CHALLENGES
Tax Reforms
Efficiency
Fairness
Simplicity
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RESPONSE TO CHALLENGES
Tax environment for Foreign Direct Investments (FDI)
Adaptation of international tax rules to the services
economy
Countering the use of tax havens to evade tax
Balance between tax payers service and enforcement
Avoiding double taxation
Linkage between tax compliance and good corporate
governance
Discourage bribery and corruption
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RESPONSE TO CHALLENGES
OECD Role in inspiring better
International Tax Co-operation
Agreement on the models – guidelines and best practices
OECD Model Tax Convention
OECD Transfer Pricing guidelines
Monitoring implementation of models
Developing framework for resolving disputes
Encouraging dialogue amongst developed, developing and
economies in transition
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RESPONSE TO CHALLENGES
OECD Role in inspiring better
International Tax Co-operation
Interact with business to provide global framework
Provide tax framework for e-commerce
Extending the debate to all cross border services
Issues under Direct Tax
Issues under Indirect Tax - VAT
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GLOBALIZING ECONOMIES:
CHALLENGES TO TAX SYSTEMS
KPMG TAX SURVEY 2007
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KPMG TAX SURVEY 2007
KPMG Survey stresses that corporate tax rate worldwide
continue to fall but the rate of decline is slowing
Global average rate is 26.8 percent as against 27.2 percent
last year
Out of 92 countries which participated in the survey, 18
countries lowered their rate and 2 countries increased.
Major exception was Turkey where 10% reduction of tax
was made (from 30 to 20 percent)
Corporate tax rates have almost reached their natural low
point and countries are now turning to more sophisticated
method of attracting and retaining inward investment
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KPMG TAX SURVEY 2007
There would still be some further reduction of tax rate in UK,
Germany, Spain, Singapore, China and countries like
Pakistan, which demonstrates that international tax
competition will still have some way to go
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KPMG TAX SURVEY 2007
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KPMG TAX SURVEY 2007
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KPMG TAX SURVEY 2007
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KPMG TAX SURVEY 2007
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KPMG TAX SURVEY 2007
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KPMG TAX SURVEY 2007
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KPMG TAX SURVEY 2007
(VAT / GST OECD 2007)
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KPMG TAX SURVEY 2007
(Latin America / Caribbean 2007)
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KPMG TAX SURVEY 2007
(European Union 2007)
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KPMG TAX SURVEY 2007
(Asia / Pacific 2007)
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GLOBALIZING ECONOMIES:
CHALLENGES TO TAX SYSTEMS
ISSUES FOR GLOBAL AND
NATIONAL TAX AUTHORITIES
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ISSUES FOR GLOBAL AND
NATIONAL TAX AUTHORITIES
Global and Regional collaboration
Devising globally acceptable principles for International
Tax Competition
Globally / Regionally acceptable tax regulators for:
Mergers and Acquisitions
Intangibles
Electronic Commerce
Transfer Pricing
Permanent establishment
Services Taxation balanced approach – Source vs Location
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ISSUES FOR GLOBAL AND
NATIONAL TAX AUTHORITIES
Policy makers have a difficult task in communicating the
benefits of a low corporate tax strategy especially if it is
combined with higher indirect tax
Requires a lot of efforts to persuade voters and general
public of the benefits of paying taxes for a better tomorrow
Modernizing the VAT system to better reflect current
business environment
Review of the VAT rules for Finance and Insurance sectors
to create a legislation which is easier to administer and
comply with
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ISSUES FOR GLOBAL AND
NATIONAL TAX AUTHORITIES
VAT for these sectors will be more stable and tax leakages
will be minimized
Develop a system to better reflect taxation where
consumption occurs principally for services which can be
supplied at a distance (e-commerce, etc.).
OECD effort on this by the year 2010 may result in shift of
VAT from one country to another
Need to tackle the Carousel / missing trades fraud issues
Worldwide re-focusing on indirect taxation
Transfer Pricing regulations and documentation
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Thank you
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Presenter’s contact details
SYED MASOUD ALI NAQVI
KPMG Taseer Hadi & Co.
+92 (21) 568 5847
[email protected]
www.kpmg.com.pk
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