Indirect tax systems becoming more efficient, but tax authorities increasing focus on compliance
April, 23rd 2013
The economic crisis has led to more countries than ever before to rely on indirect taxes as a sustainable method to rebalance their budgets and stimulate growth, according to a new Ernst & Young report, Indirect Tax in 2013: With change comes complexity.
The report finds the growing prominence of indirect taxes places more pressure on tax administrations to enforce compliance, particularly given that a third of tax revenue is derived from VAT/ GST and taxes on specific goods and services such as excise taxes, customs duties and certain special taxes. “The sheer number and variety of changes in indirect taxes in recent years — and the challenge of implementing them into accounting and reporting systems — can be overwhelming for businesses,” says Philip Robinson, Global Indirect Tax Leader at Ernst & Young. “This makes it hard to keep sight of the bigger picture.
“The vast number of changes in indirect taxes will cause more severe consequences in the case of non-compliance and mistakes,” Robinson continues. “Non-recoverable indirect taxes will raise the costs of doing business and make production more expensive. That will require efficiency improvements to make up for the increased costs. In addition, it’s important that companies understand and follow rules for indirect tax as they enter new markets, as non-compliance could undermine the opportunities presented by the rapid expansion of international trade.”