The economic realities of budget shortfalls faced bygovernments worldwide will accelerate a shift toward indirect taxes such asvalue-added taxes and present new risks, challenges and opportunities for U.S.businesses operating globally, predicts a new report from KPMG LLP.
"The slow economy and falling direct-tax rates arecausing many governments worldwide to tighten their existing indirect-taxregimes or introduce new ones," said Frank Sangster, a principal in KPMGLLP's U.S. indirect tax practice."Finance and tax directors must be proactive in considering howtheir organizations are responding to the global VAT changes, which are alreadyaffecting their markets, operations and internal systems.
"The financial and reputational costs of gettingthis wrong for the multinational are potentially enormous," Sangstercontinued."Getting it right,however, can provide a real competitive advantage for companies throughdecreased compliance costs and a potential increase in the profitability oftheir businesses by reducing the amount of unrecovered VAT and enhancing VATcash flow."
Indirect taxes such as VATs and goods and services taxesare extending their reach into new areas of the global economy and becoming agreater proportion of government revenues, according to the KPMG report,"Driving Indirect Tax Performance, Managing the Global ReformChallenge."
"Here in the United States, we're seeing VATdiscussed more as a potential means to raise revenue and help reduce thefederal deficit," said Sangster.
"A key issue to focus on would be carefullycoordinating existing state and local sales taxes with a federal VAT," headded."We've seen examplesof how a federal VAT works in other countries in concert with sales taxes in acountry's provinces or states, so this matter can be addressedeffectively."
According to the KPMG report, the global shift towardindirect taxes is likely to continue via new VAT/GST regimes being introduced,the maintenance of high VAT/GST rates, and broadening and protecting the baseon which VAT/GST is levied.
"Future VAT reforms are likely to focus on certainkey areas, such as addressing VAT fraud and evasion problems, supporting thegreen/sustainability agenda by using tax to potentially change certainbehaviors, limiting VAT exemptions, modernizing VAT legislation to account fornew products, technologies and services, and developing new tax auditapproaches," said Sangster.
