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Bilateral digital partnerships

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Southeast Asia’s internet economy is expected to be worth $330 billion by 2025, Reuters reported recently, slightly down from a previous forecast of $363 billion after considering prevailing economic uncertainties as well as pressure on tech companies to make a profit. Reuters cited a yearly report by Alphabet’s Google, Singapore state investor Temasek Holdings, and global business consultants Bain & Company.

“Amidst global macroeconomic headwinds, reduced disposable income, sky-rocketing prices, and lower product availability, there is tapering of demand from Southeast Asia consumers,” the trio said in a joint release reported by Reuters. The report covers Indonesia, Thailand, Vietnam, Singapore, Malaysia, and the Philippines.

But, Reuters said, the report remains “upbeat on this year and sees the internet economy growing 20% to $200 billion, three years earlier than anticipated in an inaugural report in 2016.” It also noted that all six countries covered by the report “are expected to post double-digit growth between now and 2025, with Vietnam having the fastest growing digital economy this year at 28%.”

The Google-Temasek-Bain report also noted that “the digital financial services sector is expected to overtake e-commerce to become the region’s top investment sector, with payments taking up the majority share of the deals. In the first half of 2022, the sector saw a record funding of around $4 billion.” Vietnam, Indonesia, and the Philippines were also “likely to attract more investors in the longer-term.”

In their 2021 report, Google-Temasek-Bain noted that e-commerce, travel, media, transport, and food were driving the region’s digital growth. Their report also noted that online spending rose 49% year on year in 2021 to $174 billion, as Southeast Asia was said to have added 60 million new internet users since the start of the pandemic in early 2020. New users came mostly from Thailand and the Philippines.

“Continued shifts in consumer and merchant behavior, matched with strong investor confidence, have ushered Southeast Asia to its ‘digital decade’ — and the region is on its way towards $1-trillion GMV [Gross Merchandise Volume] by 2030,” Google-Temasek-Bain said in the 2021 report.

Singapore is one country that has never failed to seize opportunities. And in light of how the world economy is transitioning and how the digital economy is growing, I am not surprised that Singapore has also moved ahead of others in signing bilateral digital partnership agreements. It is on its fourth now, with Korea, having signed similar deals previously with Chile, New Zealand, Australia, and the United Kingdom. Maybe the Philippines should follow Singapore’s lead.

Just this week, Singapore signed a Digital Partnership Agreement with the Republic of Korea, paving the way for greater cooperation between the two countries in creating a seamless digital economy environment that benefits businesses and consumers through enhanced trading and payment platforms, among others.

The Straits Times reported the agreement will facilitate “smoother digital activities between both sides in areas such as e-payments and paperless trading,” with both countries working “to align their digital rules and standards to promote interoperability between systems.” The Times quoted Singapore’s Trade and Industry Ministry as saying the agreement “will enable more seamless cross-border data flows and build a trusted and secure digital environment for businesses and consumers.”

The agreement, said the Ministry, will “deepen bilateral cooperation in emerging areas, including personal data protection, e-payments, artificial intelligence and source code protection,” and will be the “basis for strengthening our close relationship and shaping, together, the rules of digital trade in the Asia-Pacific region.”

Both countries are said to be looking into accepting electronic versions of trade administration documents, and using data exchange systems for such paperwork; encouraging small- and medium-sized enterprises’ participation in platforms that connect them with overseas suppliers, buyers, and potential business partners; greater cooperation in artificial intelligence; and, the electronic exchange of data between Customs administrations.

Singapore’s Tan See Long, Minister for Manpower and Second Minister for Trade and Industry, was quoted by the Times as saying that “the growth of our digital economy and trade will be boosted by the closer cross-border integration of our digital ecosystems.” And, given the way the global economy is now, digital integration is necessary for growth.

I recall that during a meeting in Singapore in 2004 with then Senior Minister Goh Chok Tong, he explained to us, his visitors, his plan to tour the Middle East. At the time, Minister Goh had just stepped down as Prime Minister and was preparing for trips to the Arab world to seek opportunities for Singapore businesses as well as to attract more Arab investments.

The initiative was two-pronged: to improve diplomatic relations, and thus perhaps mitigate the threat of Islamic terrorism in Singapore; and to invite Arab investors to Singapore. At the time, as an aftermath of 9-11 in 2001, Arab investors were seeking investment opportunities outside the Western world. And Singapore was among those presenting themselves as a suitable investment location.

And this is precisely what I mean by knowing when to strike. Islamic investments were not exactly welcome in the West soon after 9-11, and Singapore saw an opportunity. The same with the internet economy and going digital, with Singapore’s Temasek partnering with Google and Bain in monitoring developments since 2016. Access to such valuable information allowed it to move ahead of others on the digital front.

I am also curious to find out as well how Singapore intends to move with respect to digital taxation and tax administration. Government policies and regulations adjust to the changing times, to sustain revenue collection. It will be interesting to know how Singapore’s bilateral digital partnerships will actually impact business and the economy, and how this might lead to changes in their tax regime, particularly for global trade.

As experts from the International Monetary Fund (IMF) have noted in a previous report, “new global reforms will change where tech giants pay taxes in Asia, and make the international tax system more robust.”

“More than half of all services trade in Asia is digitally delivered, making it hard to collect value-added taxes when these services cross borders. Cross-border e-commerce sales of goods have also been exempted from value-added taxes when shipped internationally in small parcels. Resolving these challenges pays off,” noted Era Dabla-Norris, division chief in the IMF’s Asia-Pacific Department and mission chief for Vietnam; Ruud De Mooij, advisor in the IMF’s Fiscal Affairs Department; Andrew Hodge, economist in the IMF’s Western Hemisphere Department; and, Dinar Prihardini, an economist in the IMF’s Fiscal Affairs Department.

In a blog, the IMF experts noted that “requiring nonresident suppliers of digital services and e-commerce marketplaces to register with local tax authorities and remit value-added taxes on their sales could raise revenue between 0.04 and 0.11% of GDP in some countries in Asia.”

They added: “As Asian consumers and businesses increase their online activity in the coming years, tech giants will expand further into Asian countries, making taxation in a digitalizing economy even more important. Countries in Asia, in particular, can invest in ways to harness digitalization for tax administration, helping to reduce tax evasion, boost revenue mobilization, and make tax collection more efficient.”

Singapore’s bilateral digital partnership agreements are just the first of many to come. I am certain other countries, including the Philippines, will follow suit. And, as these agreements become the foundation for seamless digital trade among nations, major adjustments in policies and rules for trade facilitation, customs, and tax administration must occur.

Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippine Press Council

matort@yahoo.com

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