Emphasis on Indirect Taxes Set to Increase

May 5, 2010 International Tax CooperationTaxation in EU

The ManA new study has shown that Governments worldwide are increasingly reliant on revenues collected from indirect taxes. The trend is set to continue, with indications that authorities will soon begin to concentrate even more on Indirect Taxes for their simpler administration and stability.

International accounting KPMG recently published a white paper Driving Indirect Tax Performance Managing the Global Reform Challenge, analyzing trends in the international implementation of indirect taxes, like Goods and Service Tax (GST) and Value Added Tax (VAT). According to the study, Governments worldwide have been experiencing fluctuations and decreases in revenues from direct taxes. Subsequently, authorities have been restructuring long-term tax policies to place a greater emphasis on indirect taxation. In excess of 140 nations currently rely on a “VAT/GST-type” system for significant portions of their national tax revenue. There is also a growing number of Governments investigating the implementation or modernization of outdated tax schemes to an advanced VAT system in their economy.

Three global indirect taxation trends were identified in the white paper. Firstly, economies with a mature Indirect Tax system are now often seen to be increasing their VAT/GST rates, commonly accompanied with decreased direct tax burdens. Secondly, efforts are also being exerted to broaden and protect the indirect taxation base in all applicable nations. Lastly, many Governments of developing economies are currently in the process of investigating or implementing a new VAT/GST system, though it was noted that several developed economies are also in a similar stage.

The white paper also cataloged current international indirect taxation burdens. Nations within the European Union were found to levy average indirect taxes of 20 percent. Luxembourg and Cyprus hold the lowest indirect tax rates in the EU, at 15 percent. Denmark, Hungary and Sweden levy the highest, at 25 percent.

Photo by Robert S. Donovan