Corporate Taxes Falling, Indirect Taxes Rising

October 22, 2010 International Tax Cooperation

show me the money!Having come out of one of the most turbulent economic periods in recent years, governments worldwide have begun to reevaluate their tax policies, raising average indirect tax levels by 0.2 percent in 2010, and dropping corporate tax rates by 0.45 percent in the same time.

In the wake of the financial crisis, and the subsequent budget deficits and economic imbalances, governments worldwide are increasingly turning their attention towards reviewing their taxation policies to maximize growth and tax revenues. Over the course of the 2010 year, the worldwide average corporate income tax rate fell from 25.44 percent to 24.99 percent, and the average indirect tax rate rose from 15.41 percent to 15.61 percent. This information was provided in the new report 2010 Corporate and Indirect Tax Survey, released by the international accounting firm KPMG.

The 2010 year has shown the propensity of governments worldwide to alter corporate tax rates to suit new economic situations and challenges. According to the survey, North America experienced the most significant corporate rate drop, falling by 1 percent, to a new level of 35.50 percent. In the African region rates fell from 29.77 percent to 29.36 percent. Across Asia corporate tax rates changed from 24.81 percent to 24.44 percent. In the Oceania region the average rates also fell, dropping by 0.2 percent, to a level of 29 percent. On average European nations saw tax drops of 0.18 percent, to a level of 21.52 percent. Latin America was the only global region that broke from the trend, experiencing a rate increase of 1.05 percent, rising to 27.87 percent.

Changes in indirect taxes were less concise, with both upward and downward movements. The average rate across Africa and North America stayed the same as in 2009, at a level of 14 percent and 5 percent respectively. Average indirect tax rates in Europe rose by 0.38 percent, to a level of 19.67 percent. Rates in Latin America and Oceania also rose, increasing by 0.27 percent and 0.75 percent respectively.

Numerous governments are currently in the midst of ambitious tax rate reforms aimed at revving up economic activity, while recouping revenue losses suffered throughout the financial crisis. Loughlin Hickey, head of tax for KPMG International, commented on the report, saying that the changes seen throughout 2010 are only an initial indications of governments’ intentions. He also added, that “…next year, the numbers will look much different. We fully expect to see numerous fluctuations as many economies around the world announce tax rate changes that will come into effect in the last few months of 2010 and into 2011.” Commenting further, he said that multinational companies are now faced with the extra challenge of navigating the very liquid international tax system, and adapting their own policies, operations and locations to suit the new volatile environment.

Photo by Andrew.O