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ASEAN ANALYSIS  12  August 2010

Don’t pay the taxman

By David Swartzentruber
AseanAffairs   12 August 2010

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In western countries not paying taxes to local or national governments can be considered a crime and one can land in jail or forfeit money or property or lose both freedom and funds, if one doesn’t pay the taxman.

However, in Asia not paying taxes is something of an art form and not paying governments the taxes due is widespread. In today’s news comes the story out of China that the rich in China have more than a trillion dollars of “hidden income.” The figure cited, Bloomberg reports, equals about 30 percent of China’s gross domestic product.

The report cites a projection from Credit Suisse that the top 10 percent of China’s households take in 139,000 yuan a year, more than triple the official figures. The problem is not unique to China.

The new administration in the Philippines is saddled with a major challenge to improve tax collections.

In Vietnam, the holding of wealth in the form of gold has a negative effect on the country’s currency, the dong. The value of the currency is lowered when its value is held in the form of gold and is held out of the economic system, thus devaluing the local currency. A case of deflating the currency.

With Thailand having the largest number of citizens originally migrating from China of any Asian country, ways to not pay taxes are widespread. Not paying taxes and/or covering up business deals played a role in the corruption conviction against Chinese-Thai fugitive PM Thaksin Shinawatra.

In China it is called “crony capitalism,” while in Thailand the Chinese-Thai “family business” is a good way to spread the money around in the family, thereby avoiding taxes. The Shinawatra family owns a silk firm and no doubt the family custom of concealing assets learned in his youth, continued on when Mr. Thaksin took public office.

Another issue is the large amount of money obtained through the operation of illegal businesses in Asia such as underground lotteries, other types of illegal gambling, the flesh trade and the bribery of police and government officials to look the other way. This kind of income is said to account for a significant portion of Thailand’s gross domestic product.

These operations go on in western countries obviously, but the power and authority of governments has been more deeply established in the west than in Asia where modern forms of government are younger and are still learning the ropes of good governance.

Better tax collection and the legal structure to collect them is something Asean governments need to develop.

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