Tax Incentives in the Asia-Pacific Region

Abstract

It can be shown that Foreign Direct Investment (FDI) has several positive effects on the economy of the host territory. Not only an increase of productivity, but also the training of employees or the transfer of technology are important consequences and can result in economic growth for the particular territory (see Hunya (2006)). As the economic differences between Asian territories are large, there is a lot of tension in the region. In particular, countries like China, India, South Korea, and Japan are among the largest economies in the world. Indonesia, the Philippines, Malaysia, Thailand, and Vietnam are succeeding in establishing long-term growth, but smaller economies can also benefit from capital inflow through foreign direct investment and stabilise their economic growth. So far, cheap labour costs have caused an inflow of manufacturing industries, leading to Asia becoming an important source of automobiles, machinery, and electronics. The statistics show that the Foreign Direct Investment inflow in the territories of this study has almost tripled since 2005 (see UNCTAD (2009)). Tax incentives have proven their worth as an attraction for inward investment (see de Mooij and Ederveen (2003)). The leading economic territories have, in the past, attracted manufacturing investments by offering tax incentives. Now they are starting to change their focus to high technology industries. Just in 2008, China has changed its tax incentives structure from supporting foreign enterprises to supporting high technology enterprises in general. It is expected that other territories will follow this approach.