The approaching economic slowdown may see the Hong Kong government revisit the possibility of implementing a tax on goods and services, as trends show an increasing dependence by governments worldwide on indirect taxes to make up shortfalls in public revenues in the face of falling corporate tax rates. A recent 106-country survey by KPMG, for example, showed no rises in corporate tax rates last year for the first time in 14 years. But widening tax bases and tougher enforcement underscore the growing importance of indirect taxes. In Hong Kong, government revenues depend largely on monies raised by corporate profits tax, salaries tax and property tax. As the territory's economy slows in the face of the global credit crisis, and profits and the property market fall, now may prove a good time to reconsider the goods and services tax (GST) proposal that was shelved last year. Revenue returns for the fiscal year ending March 31 seem to support the idea of greater indirect taxes. While in absolute dollar terms there was an increase in both direct and indirect tax, the split, usually 65/35 per cent, changed to 60/40 per cent, largely because of a rise in stamp duty. But given the economic turmoil in the United States, the current fiscal year's stamp duty revenues are not likely to be so robust, according to Agnes Chan, partner, Tax and Business Advisory Services, Ernst & Young. 'We have done a lot of studies on this issue, and even the final report from the public consultation on tax reform that the government held said GST was the best, the most broad-based and stable source of revenue,' she said. According to the KPMG survey, the global average corporate tax rate stands at 25.9 per cent, down just under 1 per cent year-on-year. Lowest average corporate tax rates are still found in the European Union (EU), where the average rate has fallen by 1 per cent since 2007 to 23.2 per cent. Highest average rates are in the Asia-Pacific region, where rates fell by 0.8 per cent to 28.4 per cent. Globally, the average indirect tax rate is 15.7 per cent, with little movement over the past five years. But average indirect taxes in the EU (comprising GST and value-added tax, VAT) are the highest in the world at 19.49 per cent. In the Asia-Pacific region they are the lowest, at 11.14 per cent, but the average rate here has risen by 0.5 per cent since 2006. 'Governments are bringing down corporate tax rates, but they also need sufficient tax revenue to finance government expenditure, said Peter Kung, tax partner, KPMG China. 'If the rate has come down, where is the money coming from? Either from tightening enforcement, opening a new source of revenue, increasing indirect tax rates or a mixture of all three.' China is a key example of a country that has responded to increased competition for investment by fine-tuning its corporate income tax regime and lowering tax rates. Its new corporate income tax law and lower rate came into effect in January 2008. Corporate tax fell from 33 per cent to 25 per cent. 'Indirect tax will become a more important source of government revenue going forward, not just for China but for many other countries too. If we have an economic downturn - and we may be in it already - company profits can come down significantly,' Kung said. 'But even if there is zero per cent economic growth, people still need to buy food, clothes and necessities. This means that sales tax revenue is relatively stable, and less volatile than corporate income tax.'