Indirect tax rates continue to soar across the globe as governments devise new levies 

• Value-added tax (VAT) rates surge to a high of 21.6% in EU Member States

• More countries levying VAT, particularly in emerging markets

• Governments introduce new taxes on health products and e-commerce

As VAT rates continue to rise, governments are increasingly turning to new indirect taxation measures to stimulate their economies. That is according to EY’s report, Indirect Tax in 2015, which brings together the views of EY’s Indirect Tax network in more than 100 jurisdictions.

VAT rates have been rising year-on-year since the financial crisis. While there are signs that this trajectory is easing, the average standard rate has now climbed from 19.5% in 2008 to a high of 21.6% in EU Member States, with even low-rate countries like Luxembourg increasing their base. Conversely, corporate and personal income tax rates saw a decline at a similar pace.1

Gijsbert Bulk, EY’s Global Indirect Tax Leader, says:

“Rising indirect tax rates are the legacy of economic turmoil and increased tax competition. This burden is being passed-back to companies that incur VAT in foreign jurisdictions, as they grapple with rising costs and cash-flow issues. It is more important than ever that companies take steps to ensure they have a clear and robust indirect taxation strategy.”

More countries levying VAT

With more than 160 countries now levying VAT2, and only a minority applying retail sales taxes, the shift toward indirect taxation is truly a global trend.

This is particularly marked in emerging markets, with the Bahamas and Malaysia leading the pack for new VAT levies and India likely to follow suit.

Governments devise new taxes amid e-commerce boom

This trend is further compounded by the introduction of creative new levies, notably excise duties such as sugar taxes on “unhealthy” food. These taxes, linked to health and welfare, may become more prevalent as populations age and government spending accelerates in these sectors. Similarly, rates continue to rise on traditional excise taxes including tobacco and alcohol.

The report also addresses the impact of the e-commerce boom, and in particular, recent EU rules3 that require foreign providers to pay VAT on digital transactions in consumers’ home jurisdictions. With the internet economy predicted to account for 5.3% of GDP in the G-20 countries by 20164, governments will need to review how they apply these new laws to mitigate the risk of lost revenues.

Taxpayers must prepare for new transparency requirements

To keep pace with this shifting landscape, authorities are using powerful new tools to access real-time data and share more information, placing taxpayers’ affairs under increasing scrutiny. This aligns with a recent study carried out among EY Indirect Tax professionals, revealing that 59 of 86 countries surveyed use electronic data extraction to perform tax audits.

As tax administrations become increasingly focused on enforcement, companies will need to ensure that they have the necessary processes in place to meet these new requirements.

Source: EY – Indirect tax rates continue to soar across the globe as governments devise new levies

---