Experts Anticipate a Rise in Indirect Taxation
The world of tax is changing and indirect taxes are at the heart of this change. Over the coming years KPMG says more jurisdictions throughout the world will introduce VAT/GST regimes (the current total is 135 and rising), and there will be an increased focus on protecting and broadening the taxable base on which VAT applies. In fact, KPMG’s April 2009 Global Indirect Tax Brief argues that one way governments and tax authorities will raise additional tax revenues is to focus on measures to broaden and protect the domestic indirect tax base, coupled with increased levels of penalties for non-compliance.
VAT is a billion dollar tax for many organizations. There is no disguising the vast amount of money tied up in VAT/GST. Thus, it may come as no surprise that investment in talent and technology are also key priorities for effective VAT management, according to the KPMG. The trend may be one reason why demand for global tax professionals is strong. Executive search firm, A.E. Feldman, says that international tax jobs remain hot right now. Firms are competing for experienced candidates who can navigate the intricacies of statutory reporting and tax compliance, forge cultural and political alliances, and create key operational strategies while mitigating risk. A.E. Feldman’s President, Mitch Feldman, says professionals who are able to master the global aspects of business are in high demand.
Indirect Taxes as Fiscal Stimulus Tools
KPMG’s Global Indirect Tax Brief also notes that , “Many jurisdictions are using VAT, customs duty and other indirect taxes as fiscal stimulus tools to target specific industries or domestic economic objectives, such as reducing manufacturing costs or increasing retail spending.” This includes reductions in customs and excise rates which should result in significant cost reductions for businesses in these countries.
For example, KPMG states that in India, the Finance Minister has reduced excise duty and service tax rates with the goal of moving towards a uniform goods and services tax in 2010. The report also notes that Mexico has reduced import duty rates in an effort to “encourage investment and the preservation of factories and employment in Mexico by reducing production costs.”
Other fiscal stimulus measures include improved VAT cash flow arrangements, additional VAT deductions, reduced administrative or compliance costs and other simplifications. For example, KPMG reports that in an effort to make Ontario’s economy more competitive, the province has announced plans to harmonize its Provincial Sales Tax (PST) with the Canadian federal Goods and Services Tax (GST) to create a single value-added-tax. KPMG notes that, “A harmonized sales tax could even result in a cash flow benefit for some businesses, particularly Ontario exporters.”
Indirect Tax Management
Here in the U.S., a growing number of corporate executives view VAT and goods and services taxes as the top tax risk for global finance directors, according to KPMG. As companies expand into new markets they invariably encounter cross-jurisdictional issues involving indirect taxes, increasing and complicating their tax risks. Moreover, poor indirect tax management can squeeze cash flow, allow the over or underpayment of tax and attract stiff penalties for non-compliance. Terence Stewart, Managing Partner of the trade law firm Stewart and Stewart and former Chairman of the U.S. Court of International Trade Advisory Committee on Rules, says when it comes to indirect taxes, U.S. companies are at a global disadvantage.
The Washington Times recently printed an Op-Ed by Stewart which argues that the Obama administration must take on the structural causes of the huge trade imbalances that distort the global economy, including indirect or valued-added taxes (VAT) on goods and services.
Stewart writes, “Over the past 50 years or so, nearly every major trading nation except the United States has moved to rely increasingly on indirect or valued-added taxes (VAT) on goods and services. On a bipartisan basis, there has not been the political will for the United States to adopt an indirect tax system…The result has been a systemic global bias against U.S. companies and U.S. workers.”
Stewart adds that foreign indirect taxes, which run up to 25% of the price of goods, provide a real competitive advantage to foreign producers. In fact, he says, “When you add up the indirect tax distortion, it creates a $350-billion-a-year arbitrary global disadvantage weighing down U.S. companies and workers in goods alone.”
Focus on Talent
VAT is a billion dollar tax for many organizations. This may be one reason why demand for global tax professionals remains strong.
KPMG says businesses should work to reduce indirect compliance risks and streamline the indirect tax accounting process.
Are you working in International Tax? If you want to grow your career or address your firm’s talent needs, contact A.E. Feldman’s President, Mitch Feldman. Find out more about accounting jobs today!
