Indirect Tax: Five Global Trends

“Profound changes are challenging our traditional tax models and, in particular, how governments levy taxes,” writes Gijsbert Bulk, Global Indirect Tax Leader at EY, in a recent article published in the Bloomberg BNA Indirect Taxes Journal. “Understanding the key trends is critical for multinational companies, to reduce the risk of noncompliance and help facilitate growth.”

According to Bulk, here are Five Key Trends Sweeping the Global Indirect Tax Landscape:

1. VAT and GST Rates are Stabilizing, but Remain High

Following the banking crisis of 2008, VAT and GST rates increased globally.

The average rate of indirect taxes peaked at 21.5% in the EU and 19% in the OECD. Of late, these increases have slowed down and may even be reversing. For example, Romania has reduced its rate by one percentage point in 2017 (from 20% to 19%) and Croatia plans to reduce its rate from 25% to 24% in 2018.

2. Reduced VAT and GST Rates and Exemptions are Making a Comeback

Related to the post-2008 trend of increased rates, many countries have broadened their VAT or GST base by removing exemptions and restricting reduced rates.

However, this trend also seems to be slowing and may be reversing. 

For example, many EU Member States, including Belgium, Croatia, Czech Republic, Hungary, Portugal and Sweden, are applying reduced rates to goods and services, such as buildings, foodstuffs, catering, children's car seats and electricity. 

3. The Global Reach of VAT and GST Expands

Globally, VAT and GST have rapidly replaced previous-generation single-stage retail sales taxes. At present, few countries do not have a VAT or GST, and the Bahamas, China, Egypt, Malaysia and Tanzania have all recently introduced this form of non-cumulative indirect tax. India and the six member states of the Gulf Cooperation Council are planning to follow suit.

“New rules and regimes create greater risk of non-compliance for multinational companies,” writes Bulk, “and it is now more important than ever that they monitor the impact on pricing and margin holistically across the business.”

4. Digital Tax Measures Proliferate

Governments have responded to the growth of digital commerce by adapting tax laws and using technology to collect tax and monitor tax information.

Tax administrations are grappling with the problem of how to tax cross-border e-commerce and electronic services, such as digital downloads, because untaxed online sales distort competition and reduce tax receipts. In many jurisdictions, legislation has been enacted, or is planned, to capture these revenue streams. For example, Belarus has proposed new rules on e-services, to enter into force January 1, 2018, and Taiwan has introduced new registration requirements for foreign e-commerce suppliers, which go into effect as of May 1, 2017.

5. Tax Administrations Embrace Technology

As well as finding new ways to tax the digital economy, tax administrations are applying digital technology to administer indirect taxes more effectively, imposing requirements such as the electronic submission of VAT or GST declarations, mandating the use of e-invoicing, and introducing new reporting standards (such as SAF-T) and real-time data collection. For example, on January 1, 2017, Costa Rica introduced a mandatory electronic voucher system to be used by all taxpayers. On October 1, 2016, Rwanda increased penalties for failure to use electronic billing machines.

Needed: A Robust Indirect Tax Strategy

These trends will challenge companies to keep up with legislative and technological developments, implement new tools and shoulder an increasing tax compliance burden.

Writes Bulk, “There will be no substitute for establishing a proactive and robust indirect tax strategy in this rapidly changing climate.”

Click here to read Five Key Trends Sweeping the Global Indirect Tax Landscape by Gijsbert Bulk (EY Global Indirect Tax Leader), in the Bloomberg BNA Premier International Tax Library.

By Joanna Norland, Technical Tax Editor and Jon Trevelyan, Editor, Bloomberg BNA.

Access even more in-depth analysis and expertise with a free trial to the Premier International Tax Library.