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A Global Evolution of Indirect Taxes

Wednesday, 01 August 2007   (0 Comments)
Posted by: TaxFind™
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A Global Evolution of Indirect Taxes
Value-added tax (VAT) and goods and service tax (GST) are two of the fastest-growing taxes globally, according to a report launched by PricewaterhouseCoopers a few months ago.The report Shifting the balance – the evolution of indirect taxes focuses on a number of key themes, including the shift from direct to indirect taxes, barriers to business and the need for reform, litigation and the use of technology in indirect tax compliance.
Issues at stake
Issues such as safety and security and the facilitation of international trade are global challenges.The report suggests that there has been a global shift from the tax-planning arena towards compliance and trade facilitation, with the emphasis on moving goods across borders without delay and in the most efficient way.

Environmental tax and regulation plays an increasingly important part in policy-making.However, the report indicates that few countries have successfully introduced environmental taxes as a fiscal lever to influence behaviour and achieve environmental goals.The report shows that 141 countries worldwide now operate VAT or GST systems and those not doing so at present are moving towards it.

The certainty of revenues
It suggests that this could reflect a global trend by governments to focus on the certainty of revenues from VAT or GST and shifting compliance costs from tax authorities to businesses.VAT systems can be regressive and also inflationary.The report recommends that governments intending to introduce such systems need to introduce measures to ensure a level of welfare for lower-paid taxpayers, including reduced tax rates or even zero-rating on basic goods and services.
No system is without flaws
Reviewing the systems globally, the report found that no system is without flaws.There is a clear tension between eliminating non-compliance and fraud and ensuring that the burden of administration does not encroach on the ability of businesses to compete.

•to date, few countries have successfully introduced environmental taxes to achieve environmental goals.
•facilitating mutually advantageous trade agreements is a customs priority for many countries in the developing world.
•most countries base their VAT/GST systems on that of the European Union.
•there is a global trend towards broadening the base of goods and services to which indirect taxes  apply.
•most larger companies comply voluntarily, whereas smaller companies are struggling to comply.
•there is a general global trend for tax authorities to take a more aggressive approach to compliance. This is reflected in penalties.
•Indirect tax litigation is on the increase. most notable exceptions to this trend are in China (favouring negotiation rather than litigation) and Australia (operating a test case programme).
•all countries with a VAT/GST regime are now using some degree of automation, except Mexico which has the only paper-based system.
Source: By TaxTALK



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