Following the global financial crisis in 2008, VAT/GST rates rose rapidly in many jurisdictions, particularly in Europe, reaching an average of 21.5% in the European Union (EU). With a far more stable global economy, the upward rate trend has largely ended. VAT/GST rates have effectively plateaued, and they look likely to remain stable in 2018 with some small rises anticipated in 2019. While a few countries have implemented increases or are still planning to do so, others have actually reduced their rates or have postponed planned changes.
Jurisdictions with rate increases include: Saskatchewan in Canada (Provincial Sales Tax increased to 6% from 5%), Lebanon (to 11% from 10%), South Africa (to 15% from 14%), Sri Lanka (to 15% from 11%); and increases are planned in 2019 in Russia (to 22% from 18%) and Vietnam (to 12% from 10%). The VAT rate increase proposed for Italy for 2018 (to 24.2% from 22%) has been postponed to 1 January 2019; similarly, the increase in Japan’s consumption tax (to 10% from 8%), which was originally planned for 2017, has been postponed to 1 October 2019.
Jurisdictions that have reduced their consumption tax rates include: Croatia (to 24% from 25%); Ecuador (to 12% from 14%); Switzerland (to 7.7% from 8%). Greece has also extended until 30 June 2018 the application of the reduced standard rate in islands affected by the migrant crisis (Lesvos, Chios, Samos, Kos and Leros).Businesses are likely to welcome this more stable standard rate environment, as numerous or rapid changes can create significant administrative burdens for pricing, invoicing and reporting. However, despite some decreases, the average global VAT/GST rate remains far higher than a decade ago.
This means that global businesses are now handling large volumes of throughput tax (i.e., VAT/GST charged on sales plus VAT/GST paid on purchases and imports). Managing these volumes effectively requires a robust tax control framework as mistakes and inefficient processes can increase the risk of incurring tax penalties and have a negative impact on cash flow and working capital.