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Indirect tax becomes levy of choice for governments
April, 28th 2014

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Governments are increasingly turning to indirect taxes to raise revenue, according to a survey that has found that one in 10 countries has increased consumption tax rates over the past 15 months.

Thirteen countries have increased indirect tax rates since January 2013 while none has cut them, according to a survey of about 130 countries by KPMG, the professional services group. It said: “Around the world, countries have shifted and continue to shift to indirect tax, rather than direct tax, to boost revenues”.

Corporate tax rates rose in nine countries but fell in 24. KPMG said in most countries, rates appeared to have stabilised after a decade of decline, although most tax authorities were attempting to increase revenues by pursuing more audits and investigations.

Countries increasing indirect tax included Cyprus, Finland, France, Italy and Japan, which raised its consumption tax rate from 5 per cent to 8 per cent this month and may introduce a further rise to 10 per cent next year depending on the state of the economy.

The report added: “The increases in indirect tax rates are arguably evidence of it becoming the ‘tax of choice’ for governments around the world who are looking to raise much needed income.” Its attractions included its low cost of collection.

Of the countries that impose an indirect tax, Hungary had the highest rate at 27 per cent, while Aruba, part of the Netherlands Antilles, had the lowest rate at 1.5 per cent. The US stands out among countries for not imposing a national value added tax although most states levy sales taxes.

The lowest corporate tax rate was charged by Montenegro at 9 per cent while the United Arab Emirates had the highest rate at 55 per cent, although KPMG noted that “having the highest statutory rate does not mean that the tax is actually levied”.

Countries that raised corporate tax rates included Chile, Greece, India, Israel and Luxembourg, while rates were cut in countries including Denmark, Portugal, South Africa and the UK.

KPMG said companies were facing increased scrutiny and uncertainty over their tax payments as result of a new focus on issues of transparency and morality: “As increased regulation and anti-abuse rules settle into place as a result of public and financial pressure, tax optimisation will gradually become more difficult.”

Indirect tax was also becoming increasingly complex, as a result of constant changes to rules and rates, combined with an “increasingly aggressive and adversarial” approach to its collection and payment.

KPMG said companies were facing growing pressure to disclose to tax authorities what they were paying in tax and where those taxes were being paid.
It said country-by-country reporting of tax payments, already mandatory for companies in the extractive industry and the banking industry in the EU “will grow on a global basis over the next decade”.

It also urged companies to respond to increased public scrutiny of their tax affairs with greater transparency over how much they were contributing to society through tax. It said: “Do not become complacent: this issue is not going away.”

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