The paper presents the salient aspects of the ASEAN Free Trade Agreement (AFTA) which mandates ASEAN countries to actively participate in intra-regional trading and implement reduced tariff rates to eliminate trade restrictions under the Common Effective Preferential Tariff (CEPT) Scheme by 2010 for Brunei, Indonesia, Malaysia, Singapore, Philippines and Thailand and by 2015 for Vietnam, Lao PDR, Myanmar and Cambodia.
The paper provides the comparative tariff rates of 12 selected priority sectors among the ASEAN member-countries, namely: (1) agri-based products; (2) fisheries; (3) healthcare; (4) rubber-based products; (5) wood-based products; (6) textiles and garments; (7) information and communication technology; (8) electronics; (9) automotives; (10) beverages and spirits; (11) tobacco; and (12) petroleum products.
The paper emphasizes that the AFTA has a two-fold effect — facilitate trading on one hand and government revenue reduction on the other. The shares of tariff duty to total revenue of ASEAN member-countries were also highlighted in the paper. It was found out that some of the ASEAN-member countries rely heavily on tariff duties. Thus, the following recommendations were cited in the study to help cushion the impact of the eventual scrapping of tariff duties in the ASEAN region:
1. Replace customs tariff by other revenue sources such as excise tax and VAT;
2. Simplify tax structure for greater transparency and improved efficiency in tax administration;
3. Minimize the grant of tax exemption in order not to erode the tax bases; and
4. Improve tax administration and implement structural reforms to eliminate smuggling and corruption.
