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KPMG predicts global shift to indirect taxes

26 April 2010
Categories: News , VAT
Document adds weight to talk of VAT rise

Widespread speculation that VAT will be raised by the next government has been given extra weight by a new document from KMPG International.

The big four firm’s white paper, Driving Indirect Tax Performance: Managing the Global Reform Challenge, suggests that national administrations around the globe are set to undertake significant tax reforms that will accelerate the shift away from direct taxes towards indirect levies.

In the run-up to the general election, none of the UK’s three main political parties have ruled out an increase to the 17.5% rate of VAT, which is currently the fourth lowest in the European Union. Only Cyprus (15%), Luxembourg (15%) and Spain (15%) are lower. The average rate across the EU is 20%.

More than 140 countries around the globe rely on a VAT-type levy as a significant source of revenue. It is a key part of the tax system of all major developed economies apart from the USA, and it accounts for approximately 19% of tax revenues of members of the Organisation for Economic Co-operation and Development (OECD), says the KMPG paper.

It goes on to claim that major tax changes are likely in developed countries that have had VAT systems for many years, as they look to raise more revenue and meet other policy objectives.

The document predicts the shift towards indirect taxes is likely to continue internationally in three ways:

  • New VAT-style regimes being introduced.
  • Maintaining high rates of VAT or goods and services tax (GST)..
  • Broadening and protecting the base on which VAT/GST are levied.

‘Driven by a sluggish economy on the one hand and falling direct tax rates on the other, governments all around the world are reassessing their long-term tax policies,’ said Gary Harley, head of indirect tax at KPMG UK.

‘The result is that many governments are tightening their existing indirect tax regimes or preparing to introduce new ones.’

Categories: News , VAT
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