Global indirect tax developments: plan for 2014
More than ever, governments are improving and enhancing their indirect tax systems to make them work in our rapidly changing world. These multi-layered developments make great demands on companies that want to be compliant with their obligations. Only those who know what is coming down the line can prepare effectively for these crucial developments.
Five trends that shape the global indirect tax landscape:
1. Indirect tax shift continues. Promoting growth The International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the European Commission all promote the shift from direct to indirect taxes to help solve the crisis, by reducing costs on business to make them more competitive.
2. Legislation continues to change rapidly. One reason for the accelerating pace of legislative changes is that governments are trying to improve their indirect tax systems to raise more tax revenue or to make them less vulnerable to fraud and avoidance. Another reason is that the indirect tax systems need to keep pace with the fast-changing technological environment. An additional factor that leads to increased legislative changes is the increasing influence of multi-territory indirect tax systems.
3. Excise taxes continue to rise. While the main purpose for excise taxes is to raise revenue, these taxes are also increasingly being used to steer consumption of certain products considered to be harmful, thus influencing consumer behavior in a number of areas. As a consequence, we see ongoing increases in the three important groups of “classic” excise taxes (alcohol, tobacco and mineral oils).
4. Fast-changing landscape in global trade. Global economic growth remains slow and uneven, not only in most developed economies but also in major emerging markets. After a rather small growth of 2.5% in 2013, the World Trade Organization (WTO) expects the volume of world merchandise trade to grow by 4.5% in 2014.1 This scarce growth is further hampered by trade restrictions or measures that have the potential to restrict trade, which most G-20 members have put in place in the last few months. The trend is toward more restriction.
5. Increasing cooperation between tax authorities and focus on enforcement. The increasing importance of indirect taxes and their contribution to countries’ revenue goals probably explain why tax authorities are investing heavily in their enforcement and audit capabilities. Customs and tax authorities around the world are increasing their commercial and legal knowledge and their operational efficiency.
Tax and customs inspectors increasingly use modern technology tools to access real-time comparative figures and data when auditing a business. As a consequence, tax and post-importation audits are becoming much harder to deal with for those companies that are not well prepared.
See which regions of the world are most affected by each of these trends.
1. “WTO OMC Report on G-20 Trade Measures,” WTO website. www.wto.org/english/news_e/news13_e/g20_wto_report_dec13_e.pdf, accessed 18 February 2014.