Indirect Taxes Rise as Corporate Rates Fall
Indirect taxes seem to be playing an increasingly important role in raising revenue for countries around the world. As corporate tax rates are lowered to attract and keep foreign investment, governments raise their Value Added Tax (VAT) or Goods and Services Tax (GST) to offset the loss.
According to KPMG’s 2007 Corporate and Indirect Tax Rate Survey, although lowering corporate taxes and increasing VAT/GST has its benefits, it can be difficult to convey these advantages to the public. It is obvious to anyone who buys goods and services that when the VAT/GST is raised, the price of the goods and services also go up. What is not so obvious is how the lowering of corporate taxes allows for additional inward investment which can bring about increased employment and infrastructure development.
Another advantage of indirect taxes is that they provide a steady flow of funds throughout the year, as opposed to corporate tax profit that delivers lump sums at sporadic intervals. However, according to KPMG, this increasing dependence on indirect taxes has forced companies to create accounting systems capable of providing accurate real time information on transactions and tax liability. Also, this presents a major cost and resource issue for the business sector in keeping systems up to date with tax authorities’ information requirements.
KPMG’s survey found that corporate taxes worldwide continue to fall, but there are signs that the rate of decline is slowing. Globally, average rates decreased from 27.1 percent last year to 26.9 percent today. This is significantly less than the major year on year reductions seen in the late 1990’s and early 2000’s. It may be concluded in some parts of the world that companies have turned to other methods of attracting and keeping foreign investment, but it is clear from this survey that corporate tax rates in Europe are still being driven down.
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