Managing indirect taxes in rapid-growth markets

Indirect tax in rapid-growth markets

Managing indirect taxes in rapid-growth markets

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The shifting balance of world trade

The balance of world trade is rapidly shifting from developed economies toward the rapid-growth markets (RGMs). The 25 RGMs featured in this report currently account for 31% of world GDP and more than 60% of the world’s population.

As the first wave of emerging economies such as Brazil, Russia, India and China mature, new markets are emerging, such as Africa, Colombia, Peru, Thailand, Turkey and Vietnam. Linked to the emergence of these new markets is a marked increase in transactions between developed economies and RGMs but also between RGM countries.

And this trend looks likely to continue.

Why indirect taxes are important to governments in RGMs

Governments in RGMs rely on indirect taxes to bolster revenues and to fund infrastructure projects. Customs duties and local excise taxes in some RGM countries represent a much higher percentage of overall tax revenues than in many developed markets.

However, tariff reductions to meet trade agreement obligations and the growing importance of services in many economies is also putting more emphasis on consumption taxes such as VAT/GST.

Increased global trade means more indirect taxes

Changing patterns of world trade are having a profound effect on where and how materials and products are sourced, manufactured, distributed and sold and on how and where services are supplied.

More companies are confronting the practicalities of doing business in multiple jurisdictions.

As they do, they are encountering indirect taxes such as VAT/GST, customs and excise duties that are inextricably linked to trade flows and transactions. They are finding that indirect tax costs, formal rules, restrictive regulations and bureaucracy can be a barrier to international trade.

Equally, opportunities exist to improve business outcomes, speed up deliveries and reduce costs.

Grants and incentives encourage investment

RGMs offer a variety of tax and business incentives to attract investment in specific regions and areas of industry by offsetting the cost of taxes and other investment activities, or by providing financing at favorable rates. Economic incentives are generally used to encourage job creation, capital expenditure, research and development (R&D), and the sustainable sourcing of energy.

Entering into new markets brings new indirect tax challenges

As companies move into new markets, they often wish to adopt the business models, processes and practices that they have used successfully in other parts of the world. But local indirect tax rules may require them to adapt their plans for operating in unfamiliar territory.

Local compliance in a global world

For many multinationals, the task of keeping up with obligations for VAT/GST, customs duties, export controls and grants and incentives in every country where they operate can represent a heavy burden. These difficulties can be exacerbated by the lack of harmonization between countries’ requirements, a lack of qualified resources in some regions and the use of multiple accounting systems.

In general, the objective is to adopt a cost-effective indirect tax structure to reduce costs and risks, identify opportunities and increase operational effectiveness.

To achieve this, some companies are centralizing their compliance processes to improve standardization and management oversight. Others prefer a decentralized approach to deal with RGMs’ detailed local requirements.

Contacts


Leaders  
Global Director — Indirect Tax  
Philip Robinson
+41 58 289 3197
Americas Europe, Middle East, India
and Africa (EMEIA)
Jeffrey N. Saviano
+1 212 773 0780 (New York)
+1 617 375 3702 (Boston)
Gijsbert Bulk
+31 88 407 11 75
Jean-Hugues Chabot
+1 514 874 4345
 
Asia-Pacific  
Robert Smith
+86 21 2228 2328
 
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