Indonesia catches up China and India as most complex tax regime in Asia

Indonesia is fast rivalling India and China as one of the most complex tax regimes in the Asia Pacific region, according to a new report showing there will be significant changes to the tax and audit landscape in the coming years. Tax regimes are becoming increasingly complex, while the consistency and predictability of systems are key concerns for businesses, says Deloitte in its 2014 Asia Pacific Tax Complexity Survey.

The report found 34 per cent of firms think regional tax regimes have become more complex over the last three years, while just five per cent say that it has become less complex.

Most of the respondents felt that the Indian, Chinese Mainland and Indonesian tax regimes have become more complex. Four-fifths believe China’s and India’s tax systems have become more complicated, while over half (57 per cent) said this was the case for Indonesia.

India showed signs of inconsistency, with over half (54 per cent) of the respondents saying the country’s tax regime had become markedly less consistent over the past three years. Hong Kong, Singapore, Taiwan, Guam and New Zealand were seen as the most consistent.

Two-thirds agree that tax regimes across the Asia Pacific region are consistent or very consistent, compared to one-third who do not.

Consistency and complexity perceptions seem to be tied to audit activity. China and India both score high for the number of audits performed in the last three years, compared to the likes of Hong Kong, New Zealand, Singapore and Taiwan, where audit activity was very low.

Across the region 84 per cent of respondents said that tax officials are rigorous when conducting tax audits. Australia was near the top for rigour, closely followed by Japan and Korea. Nine in ten respondents said that the Australian tax authorities are fairly or very rigorous when conducting tax audits. China and India also score very high for the close attention paid by officials to audits.

Overall findings on the fairness of audits were slightly concerning, with a quarter saying tax officials across the Asia Pacific region are not fair when conducting tax audits. In New Zealand the figure was just one per cent.

The report also found that base erosion and profit shifting (BEPS) recommendations will affect how business is conducted in Asia Pacific, with 82 per cent of respondents claiming it will have a “significant impact” on the region. A separate report recently showed growing concerns over BEPS are not restricted to Asia Pacific.