Authors: Andi Mohammad Ilham and Andi Mohammad Johan*

In the midst of global trade confusion, especially following Trump’s machinery tariff back to the global stage, Asian countries have been compelled to reassess their positions, even in the post-tariff war era. Although Trump’s tariff list prominently targeted both well-established and emerging Asian economies, they still chose to not retaliate against Trump’s tariff, in particular ASEAN. Moreover, Asian emerging economies are fundamentally aware and strategically minded amidst the era of economic security and geopolitical shifts. Therefore, many economists believe that rebalancing growth, meaning growth away from exports to strengthening domestic and regional demand with diversification, is a key for Asia’s bargaining power in the global trade regime.

According to the McKinsey Global Institute data, from 2015 to 2021, the Asian region reached its shared number for 57% of global GDP growth. Additionally, this evidence demonstrates that Asian countries host 49 of the world’s 80 largest trade routes. Facing this reality, Asia will be joining “the world’s new majority” through five pillars. It consists of capitalization, resources & energy, demographic composition, technology forces, and world order. In other words, Asia’s power penetration, in these metrics, makes a potential synergy and energy between them to endure in the age of economic security. One spectacular finding in this report, conducted in collaboration with the Asia Business Council, reveals that nearly 80 percent of surveyed Asian business leaders expressed optimism about the new era while still emphasizing a need for profound transformation.

In terms of regional transformation, the Asian region must pay close attention, beyond investment and trade, but equally vital for rebalancing growth, to the collaboration for fiscal and tax policy. As noted in the IMF Asia-Pacific Department’s commentary, recently after the emergence of tariff war 2.0, Asia is one of the regions facing the highest US tariffs. Simultaneously, the IMF’s Asia-Pacific Department also voices the importance of a balancing act for policies, especially for fiscal and tax policy. Given this situation, Asia is essential to not only strengthen tax reform at home for all emerging markets and developing countries but also undertake the consolidation of credible strategies in long-term fiscal and tax sustainability cooperation. 

In recent years, the politics of global tax governance has culminated in the geo-economic consideration due to the implementation of two pillars of the OECD-led multilateral tax regime and the emerging initiative of the UN-led multilateral tax regime. Indeed, both frameworks have already introduced a necessary agenda for regional tax governance, but the latter grants a bold political decision to regions in contemporary global tax governance. Unfortunately, Asia’s position on the contemporary politics of global tax governance is widely different depending on each country’s geo-economic interest. This diversity is not a new analytical observation, as the foundation of Asia’s economic development has long centered on complementary comparative advantages.

In line with this development, the rationale for regional collaboration is not novel, as it has long been a theme in Asia’s international political economy discourse. However, regional collaboration in tax, which is markedly different from other incentives for regional cooperation, is crucial as the dynamics of global tax governance now touch upon intensified regional political coordination.

Based on functional characteristics, there are only two distinctions, which are tax policy and tax collection. One finding highlights three key prospects for why regional tax governance is needed, including concerning tax capacity building or technical assistance, regional political coordination, and regional engagement with international institutions. From the function of tax capacity building, it is about promoting regional cooperation concerning national tax administration and ensuring its technical assistance maintains productive relationships among members in the region. Meanwhile, both political coordination and regional engagement with global institutions relate more to the spheres of tax policy. 

Furthermore, the EU is frequently referenced as a well-established model of regional tax governance, through its EU Tax Policy. But, on the global stage, the EU still remains as a rule-taker because the position for rule-makers is handed over to the OECD. In contrast, the ATAF, African Tax Administration Forum, has progressively positioned itself as a rule-shaper due to its influential role not only in regional but also in global tax order. Subsequently, the emergence of the UN Tax Framework Convention further justified its position as a rule-shaper in contemporary global tax governance. 

Responding to these dynamics, Asia—as home to major economic powerhouses—must conceptualize its strategic position in the area of regional tax governance. Indeed, in 2021, the Asian Development Bank launched ADB’s initiative for regional tax governance, the Asia Pacific Tax Hub. Using a regional development bank model, this platform was expected to stimulate reflection debates to consolidate Asia’s economic strength in global tax governance. Despite the presence of the regional development bank model, the room for regional tax governance in Asia remains largely untapped and must be strategically leveraged by all Asian stakeholders. 

In essence, this finding also indicated that Asia’s corridor in regional tax governance still leaves room for development. Aligned with the broader objectives for Asia’s sustainable growth in the age of economic security and global trade uncertainty, it is imperative to ensure Asia’s regional tax governance framework appropriately fits in with the region’s expanding economic influence.

*Andi Mohammad Johan holds a Master’s in Fiscal Administrative Science at the University of Indonesia. He is a Partner at MMStax Consulting, Indonesia. He is also a member of the Indonesian Tax Consultants Association (ITCA).