By Taamara de Silva
From bustling metropolises to serene island paradises, the Asian continent has been prided as an oasis for diverse locations with tax-friendly policies that translate into higher standards of living. However, the tides are turning as mature economies adopt global minimum tax standards, eroding traditional tax advantages and pressuring high-income countries to adjust.
This shift affects Asian economies that have long relied on competitive tax rates to attract multinationals. Now, SEZs in countries like Singapore are adapting by promoting high-value industries, digital infrastructure, and skilled labor as key draws. Emerging SEZs in regions like Port City Colombo (PCC), Sri Lanka and SEZs in Vietnam, however, still leverage flexible tax policies to attract investment, creating a dynamic and evolving landscape across Asia.
In the aftermath of the global financial crisis (GFC), Governments across the globe had initiated various tax changes and COVID-19 offered a litmus test for how corporates manage their taxes during the pandemic in light of past tax reforms. The governments too required tax revenues to support banks and corporates and restore financial stability through massive bailouts.
Unlike the GFC, which mostly impacted developed countries, the COVID-19 pandemic significantly compressed many Asian economies while containment measures saw corporates struggle as they experienced revenue declines. Tax savings became a critical source of internal financing as corporates engaged in aggressive tax planning as a means to mitigate adverse impacts of uncertainty.
With global supply chains disrupted, SEZs offered attractive locations with tax incentives and streamlined regulations, making them ideal for businesses looking to diversify their supply bases in resilient, lower-cost environments. Many Asian nations, including India, Vietnam, and Indonesia, expanded SEZ initiatives to attract manufacturing, tech, and service industries, positioning SEZs as strategic hubs for economic recovery and long-term growth.
In general, successful zone programs have a strategic plan to gradually eliminate tax incentives and integrate the SEZ tax regime with the national economy. China took this path of progressive integration and eventually eliminated a significant portion of tax breaks. Similar approaches have been taken in Vietnam and Mauritius.
FT.IK
