On 14 September 2021 the IMF held a digital seminar on Tax and Digitalisation in Asia, coinciding with the launch of an IMF paper on the same subject (Departmental Paper No 2021/017).

Currently the most highly digitalised companies often escape paying tax in jurisdictions where they have a large base of customers generating value for the business but do not have a physical presence. Also, digital businesses often have relatively more intangible assets, which are easier to relocate and more difficult to value, giving greater opportunities for profit shifting.

There are also issues in relation to value-added tax (VAT) and digital services; rights relating to private information; and use of digital technology in tax revenue administration.

The OECD/G20 international tax reform proposals transferring taxing rights to market countries at the expense of residence countries would redistribute the tax revenue paid by multinationals in Asia. Low tax jurisdictions and investment hubs would lose revenue as there is less profit shifting to them. Countries where multinationals do not have a physical presence, but where they have a large user base of customers, would be likely to collect more tax revenue. Although revenue effects would be relatively small, the rapid pace of digitalization could increase the effect of the revenue reallocation over time.

Other international tax systems that could be used to collect more revenue include formulary apportionment and residual profit allocation. These systems would give rise to a larger reallocation of tax revenue between jurisdictions, with investment hubs suffering the largest losses of revenue. These systems could bring simplification and closer alignment of profit attribution to the jurisdictions where production and sales are carried out.

Unilateral tax measures, including digital services taxes (DSTs), have been adopted by some Asian countries but collect relatively small revenue. Revenue from DSTs may have higher buoyancy in the future, given the strong growth of digital economic activity, accelerated by the COVID-19 pandemic.

Widening the scope of VAT systems to ensure that e-commerce and digital services are included could bring significant short-term revenue and gains in efficiency. If VAT can be charged on digitally provided services and e-commerce services supplied from abroad, countries can increase their VAT collection. Consistent application of VAT to all digital imports would ensure a level playing field between domestic and foreign suppliers and between goods and services.

Many Asian countries need to collect more tax to ensure a sufficient level of revenue mobilization. The international tax reform moving towards greater destination-based corporate income tax in combination with a global minimum tax would ease the pressure from international tax competition, meaning that countries could raise their corporate income tax rates if necessary.

Further increases in tax revenue could come from broadening the tax base by eliminating tax holidays, exemptions, and other preferential tax relief. These incentives are often ineffective and could be rendered pointless if the global minimum tax is introduced. Also, digitalization of tax administrations could help to combat tax evasion and widen the tax base for corporate tax and VAT.