Pengiran Moksin, President, Brunei Darussalam Institute of Certified Public Accountants, and Partner, Deloitte, on the tax environment

The announcement during the March 2014 Legislative Council meeting that the corporate tax rate for the year of assessment 2015 would be 18.5% makes Brunei Darussalam one of the lowest tax jurisdictions in Asia.

With most economies in the world opening up and operating in a global capital market, investors are now more willing to invest in foreign markets as their local markets become saturated and margins are reduced. Companies from the region are also investing more and more internally so as not to miss the opportunity of the encouraging growth predictions for the region. Governments are under unprecedented pressure to adapt and govern their tax jurisdictions with laws that attract foreign direct investment, but also reflect the realities of today’s business environment.

It is interesting to share the results of a survey released in March 2014 titled “Asia Pacific Tax Complexity Forecast: Risk, uncertainty and opportunity in a changing tax landscape”. Carried out by Deloitte, the report touches on three founding principles of a tax regime: complexity, consistency, and predictability of the tax laws and their enforcement. Some of the key findings are:

• Tax policy remains of high importance in investment consideration;

• There is a greater focus among investors on consistency than complexity and predictability;

• Tax policy continues to lag the pace of business development; and

• Tax audits are very frequent and respondents were not optimistic in their ability to get a favourable resolution through the administrative resolution process. With the OECD’s Base Erosion and Profit Shifting (BEPS) project recommendations in the horizon, business conduct is going to be affected. Reputational risk is now a key concern of companies when undertaking tax planning strategy even if they were perfectly within the compliance of the laws of the tax jurisdiction. Two priorities that the tax authorities are expected to reform are tax officer training and timeliness of tax audits. It was felt that the tax audit and enforcement units were not well equipped and were under-trained to deal with today’s business complexities.

Specifically for Brunei Darussalam, the respondents to the survey indicated that not much has changed from three years ago in terms of the three principles of tax laws – complexity, consistency and predictability – which gives investors confidence in the tax regime.

Like most of the other 19 jurisdictions included in the Asia Pacific survey, when it comes to tax audit the local tax authority carried them out rigorously. The Brunei Darussalam survey respondents indicated that the tax officials gave them fair treatment when carrying out the tax audits whilst the relationship remained neutral. The respondents also felt that when there is a dispute with the tax authority, they are confident in the administrative procedures to resolve the issue.

Notwithstanding the fact that tax policy continues to lag behind the pace of business development, all the Asia Pacific respondents indicated that they expect Brunei Darussalam to be within the top three least complex tax regimes in the Asia Pacific region in 2017.

Generally speaking, the performance of the tax authority from the perspective of taxpayer is average with room for improvements. The System for Tax Administration and Revenue Services has stabilised and fixes are being promptly carried out by the authority when it is informed of any bugs. Tax officers need further training to narrow the gap with business developments and specific industry practice. The tax officers have to be well versed in the tax laws and should be able to assist taxpayers in better understanding them. The speed and timeliness of tax audits as well as the response to enquiries for tax rulings or refunds have to be improved. Usually taxpayers do not mind paying a high provisional tax when they know that the refunds from successful appeals are certain and prompt. With certainty there is confidence. The tax authority is currently looking into some of these areas to improve itself and to confirm His Majesty Sultan Hassanal Bolkiah’s commitment to facilitating a pro-business environment.