- Differences between indirect tax systems operated in individual countries create growing difficulties for businesses and tax administrations.
- Consumption taxes now account for 31 percent of all revenue collected by governments across the OECD.
- VAT/GST now raises approximately 20 percent of the world’s tax revenue.
- VAT/GST affects over 4 billion of the world’s population.
- VAT/GST applies in 33 out of 34 OECD countries (the United States is the lone exception).
- VAT/GST has now been implemented in over 150 countries.
- Over the past 25 years, the share of VAT/GST as a percentage of total tax revenue has almost doubled.
- VAT/GST is now globally the third most important source of revenue for governments – social security contributions and personal income taxes are the first and second – VAT/GST revenue now significantly exceeds corporate income taxes, specific consumption taxes and property taxes as a source of revenue.
- The OECD average rate of VAT/GST has now increased to 19 percent (taking into account recent changes in Europe) – the EU average is 21.2 percent.
Tim Gillis, Head of the Global Indirect Tax Services practice with KPMG comments:
“Over the last two decades, we’ve seen a significant increase in the number of countries and jurisdictions using indirect tax to fund governments. While there are still some outliers, such as the US, that do not have national-level VAT regimes, this is the exception rather than the norm. And while it would appear to be a bit of a ‘late bloomer’ in terms of taxation methods, it is clear that indirect tax is going to be the way of the future – not only for the countries in which it has already been adopted, but also in the countries that have yet to embrace it.”
Mr. Gillis continues. “For the large, multinational organizations forced to deal with the day-to-day realities associated with administering and collecting these indirect taxes, the implications can be significant. Even the process of managing a company’s supply chain with respect to these various types of taxes can be incredibly complicated to manage. Consider the example of a company that processes $10 billion in annual sales with an indirect tax throughput of $2 billion. In this case an error of just 1.0 percent would translate into $20 million annually. In addition, the financial penalties for making these types of errors can be extremely costly.”
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