It is high time for all ASEAN Member States to collaborate with one another and agree upon the common minimum standards for corporate tax incentives in the region to prevent harmful tax practices that drain essential public revenue and create unnecessary competition among members, and to achieve a common goal of building a sustainable and resilient region.

The most worrying aspect is that the lack of government spending on essential public services in ASEAN is being seen at a time when countries in the region are already seeing their fiscal space stretched. Six of the 10 ASEAN Member States already had significant budget deficits in 2018, and some have high levels of public debt. Due to the COVID-19, It is expected that nine countries face budget deficits in 2020 with the average one of 4.2% of GDP.

How is it possible that a region that for decades has seen sustained levels of growth and which attracts substantial amounts of foreign direct investment (FDI) still collects such low amounts of tax revenue? Countries in ASEAN are still highly dependent on revenues from corporate income tax (CIT); however, they are giving up huge amounts of revenue by offering large tax incentives to foreign investors. International institutions have repeatedly warned countries in the region to stop offering redundant tax incentives .

ASEAN countries need to react at the political level to stop the race to the bottom. In light of this, this report recommends that ASEAN countries take the following actions.

Recommendation 1: Draw up a whitelist and a blacklist of tax incentives

Recommendation 2: Agree on a minimum tax standard across the ASEAN region

Recommendation 3: Establish rules for the good governance of tax incentives