Indirect taxes are becoming the weapon of choice for Governments seeking new revenues, according to a new report from audit, tax, and advisory firm KPMG.
The firm said that higher indirect tax rates are being deployed as a simple option to generate greater revenues while keeping administrative costs to a minimum. Likewise, because indirect taxes apply to consumption rather than profits, revenues from indirect taxes are more stable when economies slow.
Gary Harley, Head of Indirect Tax at KPMG in the UK, explained that this is having a knock-on effect on businesses. He stated: "Indirect tax is becoming increasingly complex with rules and rates changing constantly around the world, combined with an increasingly aggressive and adversarial approach to its collection and payment. This together with the real time nature of the tax and the fact that it is prevalent throughout the business brings very real challenges to its effective management."
"The modern day tax department should be proactive and maximize where they put their tax time, effort, and dollars to ensure they manage their risk as well as create value," he advised.
KPMG also warns in its report that the global tax landscape is changing dramatically, and will continue to do so for the foreseeable future. The majority of developed countries are facing pressure to improve the revenue take from their tax base with fewer resources. This has led to tax authorities pursuing more tax audits and investigations, and resulted in larger adjustments with more potential for penalties and interest. In addition, tax authorities are increasingly looking for coordinated solutions within the European Union (EU), Organisation for Economic Cooperation and Development (OECD), and Group of 20 (G20) nations.
Chris Morgan, Head of Tax Policy at KPMG in the UK, commented: "What is clear is that there is immense pressure for governments around the world to take action to stop situations where double non-taxation occurs. And besides multilateral actions pursued at the level of the EU and OECD, all countries are independently adjusting their legislation to address this critical issue."
"One of the biggest challenges today is that tax law is local but businesses are global. The complexity of applying national laws to companies that operate internationally causes problems. Many countries use their tax systems to compete for investment dollars and jobs, and to benefit from the foreign activity of their own multinationals," Morgan concluded.