Globalization is “uninterrupted and unlimited”.
Globalization makes people, corporations, governments, and others around the
world connect, integrate and interact with each other, indefinitely. The whole
world becomes a single market. That is, from an economic point of view,
globalization has an impact on the flow of economic resources such as goods and
services, capital and labor can move in the global basis. The flow of goods and
services will certainly move because of cross-country transactions. What about
capital? Speaking of capital (capital), we know the term physical capital such
as machinery, and the company's grand building. We also know financial capital
that is easier to move like money, and assets that are liquid. Globalization
raises capital mobility from and to other countries. Manpower also participated
in the mobilization. The competent workforce will fill the company's strategic
position, for example IT experts in Indonesia are dominated by Indians.
Capital mobility and
Taxes. The
current cross-border capital mobility can be in the form of Foreign Direct
Investment (FDI), stock portfolio, and bank deposit. So, where the tax
position? Tax is a strategic issue for small and medium enterprises (SME) to
mutinational companies (MNE). Keown explains the axiom of tax-related financial
management that is "taxes bias business decisions". That is, tax
becomes an important element to be considered for company decisions. For
multinational companies, the company will consider taxes related to the
company's capital flows. The state has a duty to prosper the people, one of
them through taxes and improving economic conditions through FDI and other
investments. In the end there is a trade off, about how competitive a country
with other countries. Tax competition is taking place. So it is necessary to
formulate an ideal strategy for taxes and investments to grow together.
Lowering
corporate tax rates, need it? One
of the tax competitions to gain incoming inflows of investment is through the
"tax rate war". In 2010 to date, the corporate tax rate in Indonesia
is estimated at 25 percent accompanied by a 50 percent reduction incentive (*
terms and conditions apply). Until 2008, the tax rate in Indonesia was 30
percent, then dropped at 28 percent in 2009. Indonesia has the third lowest tax
rate in the G20 country community. In neighboring countries, Malaysian tax
rates are 24 percent, Thailand 20 percent, Philippines 30 percent, and Vietnam
20 percent. What about Singapore? the small-country states dare to fix rates at
number 17. In empirical studies, a 1 percent tax rate reduction will increase
FDI by 5 percent. However, should Indonesia lower its tariff again? Singapore
succeeded in obtaining FDI inflows of USD 61.5 billion while Indonesia earned
FDI inflows of USD 2.65 billion. It can be said that the tax rate effect on FDI
inflows. "Security" is also a major factor for the conglomerate to
save money and wealth in Singapore. Singapore became the largest source of
repatriation of tax amnesty. Indonesia can not compete tax rates with Singapore
considering Indonesia's economic scale is different from Singapore. The policy
of lowering tax rates in the midst of "dragging" state revenue
conditions will cause short-term potential revenues to be eroded. Tariff
reductions in Indonesia could use benchmarking with Malaysia, Thailand and
Vietnam. It should be noted that the excessive "tariff" tariff tax
competition can undermine tax revenues.
Reference:
Bretschger, L., &
Hettich, F. (2002). Globalisation, capital mobility and tax competition: theory
and evidence for OECD countries. European journal of political economy, 18(4),
695-716.
Desai, M. A. (1998,
January). Are we racing to the bottom? evidence on the dynamics of
international tax competition. In Proceedings. Annual Conference on Taxation
and Minutes of the Annual Meeting of the National Tax Association (Vol. 91,
pp. 176-187). National Tax Association.
Endres, Fuest,
Spengel. 2010. Company Taxation in the Asia-Pacific Region, India, and Russia.
Heidelberg: Springer.
Ferrett, B., &
Wooton, I. (2005). Competing for a duopoly: international trade and tax
competition.
UNCTAD, G. (2017).
World investment report 2017.
Wilson, J. D. (1999).
Theories of tax competition. National tax journal, 269-304.
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