Global indirect tax developments the shift in 2013

Around the world, many countries are relying more and more on indirect taxes to finance their budgets. We have identified five key trends in indirect taxation that we believe will be significant for international businesses in 2013 and beyond:

VAT/GST rates are increasing. Coupled with the ongoing economic crisis, VAT/GST rates have increased impressively in recent years as a result; at the same time, the scope of VAT has broadened in many countries. Higher VAT rates increase risk as companies must manage greater amounts effectively in their accounts. The consequence of making errors also increases, as penalties for errors are a percentage of the underpaid tax.

Excise duties are on the rise again. The percentage of government revenues received from excise duties has seen a constant decline over recent years. However, this development has slowed down and we might see a turn in the opposite direction as excise rates are rising and new duties are being introduced — especially in connection with energy, the environment and public health.

Free trade is increasing but is meeting protectionist challenges. Customs duties were once a primary source of revenue for most countries. But continuously growing global trade and the efforts of organizations such as the World Trade Organization (WTO) have led to a constant reduction in customs duties around the world. This trend continues around the world as countries continue to conclude a growing network of various kinds of trade agreements. However, as the downturn continues many countries are turning to protectionist measures where they can.

Indirect tax systems are becoming more efficient. Emerging market countries are reforming their indirect taxes to improve administration and to adopt VAT/GST systems that are more in line with global models. At the same time, developed VAT/GST systems are having to adapt to the demands of a 21st century economy.

Tax administrations are focusing on compliance and enforcement. The growing importance of indirect taxes to governments places more pressure on tax administrations to enforce compliance. This focus is leading to greater scrutiny of taxpayers’ affairs through more frequent and more effective tax audits and greater consequences for errors.

See which regions of the world are most affected by each of these trends.