OECD highlights VAT policy changes

Countries have stopped raising headline VAT rates, and instead are shifting their focus to phasing out the use of reduced VAT rates, and further anti-fraud measures.

Major policy shifts include:

The period of sharp, standard VAT rate increases has now come to an end following the 2008 financial crisis. With the potential exception of Italy, it is unlikely that any major country will raise its standard VAT rate in the next few years.

Many countries are scaling back the use of reduced VAT rates to boost revenues. These include: Sweden; Austria; Norway; Estonia; and Greece.

Countries such as Australia are withdrawing the small value package import VAT relief. The EU is likely to follow suit.

To attempt to reduce VAT fraud, countries in Europe are extending the use of the domestic reverse charge. These include: Czech Republic; Slovakia; and the UK.

Raising the VAT registration threshold for resident companies to take out a lot of the smallest businesses from the tax net. Whilst notionally reducing the VAT take, this does free-up tax department employees to focus on large scale VAT frauds and thus raise revenues by a larger amount. Countries to raise their registration threshold by more than inflation include: Greece; Finland; and Belgium.

The introduction of electronic cash registers, which automatically report VAT due on cash transactions in the retail and restaurant sectors, are becoming popular to reduce VAT fraud. Hungary, Slovenia and the Czech Republic are the latest countries to introduce these measures.

Countries are switching to a destination-basis of taxation of digital services provided by non-resident businesses. The EU introduced its MOSS regime in 2015, including a simplified 1-return for all 28 member states. South Korea, Japan and South Africa imposed VAT registrations on foreign providers. Australia, Russia and New Zealand will follow suit soon.

Many other compliance reforms, based on the OECD’s International VAT/GST Guidelines, have been implemented to harmonise indirect tax regimes around the world.

OECD global VAT shift