Over the recent decades, indirect taxation has become increasingly appealing to governments. The “tax of the moment” keeps evolving to keep pace with technological innovation, global tax reform, shifting trade patterns and policies, and new governmental priorities for health and the environment. Businesses need to pay attention — this tax has staying power.
1. Going global — general consumption taxes
Imagine a world without taxes on clothes, food or movie tickets. Less than a century ago, general consumption taxes on goods and services did not exist. France kicked off a new indirect tax era by introducing the first value-added tax (VAT) in the early 1950s. By 2016, VAT, and goods and services tax (GST) could be found in more than 160 jurisdictions worldwide, according to the Organisation for Economic Co-operation and Development (OECD).
2. Taxing digital goods
The explosion of internet shopping created a tax revenue headache for governments. As existing laws didn’t address this new model of consumption, tax administrations found themselves shortchanged when it came to collecting VAT and GST on online goods and services. Many governments around the world, through their own efforts as well as those of the OECD, are introducing reforms to make sure their indirect tax systems are fit for the internet age.
3. Expanding “sin taxes”
Alcohol, cigarettes and fuel have been the traditional targets of levies known as excise taxes. Governments are now adding new sin taxes, as they seek to influence consumer behavior and collect more tax revenue, which includes sugar taxes on soft drinks and other products to fight obesity, and environmental taxes to curb carbon emissions.
4. Upgrading indirect tax systems
The days of paper forms and manual spreadsheets are almost over. During the past decade, tax administrations around the world have introduced new software, processes and requirements to move indirect tax into the digital age. The goal is to become smarter and more efficient, reducing the amount of indirect taxes lost to fraud, inefficiencies and other issues.
5. Evolving trade policies
The global financial crisis a decade ago altered the course of globalization. Open borders have been replaced by a more cautious mindset and protectionism. Free trade agreements are on the decline and temporary trade barriers are on the rise. More governments could choose to alter their import duties and customs tariffs going forward.